Банкеръ Weekly

Briefs

COMPETITION IN TELECOMMUNICATIONS OUTLINED

Bulgarian telecommunications stand all chances to become the most liberalized sector on the domestic market, although there is a single national fixed telecom network and it is owned by the Bulgarian Telecommunications Company (BTC). And despite of the numerous privileges which the BTC was granted in the process of its privatisation almost a year ago.According to data of the Commission for Regulation of Telecommunications (CRT), about 660 operators of public telecom services and 190 INTERNET providers are currently working on the Bulgarian telecom market. However, almost all of them are operating thanks to the BTC, by hiring its cable, collector, commutation, radio and television networks and equipment. Of course, they pay for BTC's facilities and they distribute these expenses proportionally among all their clients. Thus, the national telecom has practically retained its infrastructure monopoly and not only dictates prices on the market, but also determines to a great extent the game's rules. Moreover, so far the BTC has been making profits from both its own subscribers, and indirectly - from the clients of its competitors. This should had improved the financial performance of the telecom monopoly, but that did not happen in the first six months of 2005. According to BTC's reports, the company's profit melted down by more than BGN30MN, which is 21.36% less year-on-year. Experts commented as unexplainable the steep decline in BTC's financial results, considering the almost equal sales proceeds (BGN509.252MN for the first half of 2005 vs. BGN516.179MN for the same period of last year. The already private telecom did not comment its worsened financial indicators, but hurried to take measures in order to raise its proceeds... at the expense of its competitors. In the end of last week (August 19) the BTC announced it was cutting off access to its network (i.e. to end consumers) of all companies for alternative telephony which had not closed contracts for reciprocal linking with the telecom. It became clear as well that the monopoly had sent letters with a 30-day notification to Nexcom, Spectre Net, Orbitel, Bullink and Noble Communication, warning that they did not have the right to effect traffic via ISDN, because they had been licensed as operators of fixed voice services. The ultimatum expired on August 15. And while distribution of proceeds from voice services via INTERNET to a large extent depends on the CRT and the Commission for Protection of Competition (CPC), the market share of telecom companies depends on themselves. The BTC announced that in 2004 alone about 100,000 subscribers had given up its services, and the number of its clients dropped to 2,900,000. The telecom lost more than 200,000 customers within the last five years. Most of them turned to mobile operators. The latter are in fact the only ones which have to a large extent freed themselves from the dependence on BTC's lines. The other independent player should be Bulgargas, which has built an optic fibre ring for transfer of data. Until now, however, the gas monopoly has not even tried to compete with the BTC (according to pundits, the reasons are that Bulgargas' managers do not have a clear idea about the company's market policy and the not so well-judged replacements among its expert personnel). The end of the actual monopolyof the BTC is drawing near, observers of the domestic telecom market have recently forecast. Their optimism was fed by two facts: the new tenders invited by the CRT and the achievements of the information and communication technologies which are quickly coming into Bulgaria as well. In end-June the telecom regulator invited two tenders for granting five individual licenses for the construction of networks within the 3.4 - 3.6 gigahertz frequency.A year ago the CRT announced it would issue only two national and one regional licence for networks of that kind, explaining the limitation by the lack of a free spectrum. Still at the first canvassing of the commission as to the interest towards these licences, 14 candidates turned up. Meanwhile, the planning of the radio frequency spectrum ensured free frequency bands and the argument with the National Electricity Company (NEC) for part of the air was settled. Thus, the competition in the autumn will be for five licences. The licences will cover the entire country's territory and will be valid for ten years. This technology is in fact a wireless alternative to the fixed telephone network of the BTC. It ensures high-speed broadband access to end consumers, independent of their location, realized through a high-frequency signal. In practice, this is the technology that will enable the mobile operators MobilTel and GloBul to set up their own fixed networks, without depending on the BTC, experts specified. The technology is very attractive to other telecoms as well, which won't be depending on the BTC any more and will be able to reach their end clients by themselves. Back in mid-June when the CRT announced its intention to issue licenses for this technology, the two mobile operators MobilTel and GloBul, and the BTC itself also declared their interest in the forthcoming tenders. And the alternative operators Orbitel and Nexcom said they would decide if they will take part in the competition after they get acquainted with the concrete terms for the tenders.In the beginning of the week (August 22) the CRT announced that interest towards that mobile technology was shown by 33 firms which purchased tender dossiers (the deadline for doing that elapsed on Friday (August 19). Among them are all major telecom operators in Bulgaria: the BTC, MobilTel, and GloBul, as well as Nexcom, Telelink, Cabletel, etc. The candidates may think it over till September 19, which is the deadline for filing offers for class A licences. If they decide to bid for the smaller licences of class B, they may prepare their offers till September 26. In both cases, however, the bidders will have to set aside considerable amounts of money as the demanded deposits are BGN100,000 and BGN50,000 respectively. The tender for the two class A licences will be held on October 11, 2005 at an initial bidding price of BGN1,344,000 per licence and a minimum bidding rate of BGN100,000. The other three licences will be of class B. Bidding for them has been scheduled for October 25, 2005, the initially asked price is BGN672,000 per licence and the minimum bidding rate has been set at BGN50,000.The high deposits demanded would hardly cause the biggest alternative operators to hesitate, experts predict. Simply because their accounts don't balance now. The monthly subscription fee for a BTC's home telephone is currently BGN10.50, while a competitive operator should pay BGN26 to the national telecom in order to sell the same service to a citizen. Household subscribers pay an installation fee of BGN20, while rival operators provide the same service against BGN37. Recently, however, the Association for Electronic Communications (AEC) has calculated that the actual monthly wholesale price should be less than BGN5. In order to launch a broadband access for 1,000 people (this is the minimum number for getting the access) an alternative operator has to pay BGN130,000 to the BTC alone. Moreover, that amount does not include the cost of the equipment, the price of the service, and the expenses for the personnel, AEC representatives explained. In addition, the competitor will be paying to the BTC another BGN26 per month for each copper pair. Thus, the alternative operator is left with monthly proceeds of just BGN4 per subscriber, after it has already paid BGN130,000 to the BTC. The AEC has calculated that BTC's rivals will have to operate for at least 25 months in order to return their investments. Therefore, in end-June the association filed to the CPC one more claim against the terms for access to BTC's subscription networks. Under the provisions of the Telecommunications Act, the access had to be available by March 1, but the national telecom has not given even a single copper pair to any alternative operator, the AEC claims. By the end of 2005 the CRT will issue licences for digital broadcasting of the television signalto eight more towns. Under the strategy for digitalization, approved in June by the Ministry of Transport and Telecommunications, the licences for digital television will be for the towns of Plovdiv, Varna, Bourgas, Rousse, Stara Zagora, Gabrovo, Dobrich, and Sliven. The strategy is in fact bound to the new frequency plan, to be introduced in Europe in 2006, ministry insiders specified. It projects redistribution of the Bulgarian air, and forming of 21 regions with one-frequency networks (broadcasting of up to five programmes will be possible per each frequency). According to projections, by the year 2012 television broadcasting should be digitalized. Each TV station will have to invest some EUR50MN for the purpose.

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