Банкеръ Weekly

Briefs

THE BIG PROBLEM WITH SMALL OPERATORS

After for more than a year the leaders in the telecom sector have been busy acquiring their bigger rivals (the most recent example is the Sofia-based Eurocom Cable which asked for a permission to take control over Centrum Group and Eurocom Plovdiv), they are now focusing on the so-called small cable operators. It is obvious that events in the branch in the near future will be concerning them. As the BANKER weekly announced, in mid-August the Commission for Protection of Competition (CPC) allowed yet another mighty company - Cabletel AD - to acquire 100% of the stocks in the Dimitrovgrad-based Cable Television Dimitrovgrad EAD. The CPC experts established that after the deal the two companies' aggregate market share will remain below the set limit for a dominant position. The merger of Cable Television Dimitrovgrad into Cabletel is expected to be finalized by the year-end, marking the big operator's stepping into one more Bulgarian town.
After that deal it will be still more interesting what is happening in the other small settlements in the country where cable services are being offered and whose providers nobody has wished to buy so far. And more specifically, will they be soon near ruin if it occurs to nobody to direct investments to them? The answers to these questions might seem quite surprising even to experts in the branch.
According to data of the Communications Regulation Commission (CRC), there were 1,837 licensed telecom provides in Bulgaria in the end of 2003. There are no more recent official data, but their number has certainly increased due to the large-scale entrance on the domestic market of the so-called LAN-networks, also known as
the district INTERNET-providers
What characterizes them is that their activity has been and is still to a great extent outside the State's control. The reason is that on the strength of a strange legislative logic (whose only analogue in Europe is in Latvia) these firms have not been subject to any registration or licensing regime whatsoever for quite a long time. In one of its annual reports the CRC admitted that an exact evaluation of the segment's size is impossible as the regime for providing INTERNET access services in Bulgaria is liberal. According to CRC's expert evaluation, based on the answers of 92 operators, proceeds from that market exceeded BGN59MN in 2003. It is not clear if that evaluation is accurate, but in any case we are speaking about a lot of money, remaining outside of any registers, lists, and control, respectively.
Practically, even the categorization of small operators represents a serious problem. In which column should be placed a firm based in a settlement in Southern Bulgaria, but with networks in a dozen of other villages and small towns? Let alone that according to data of the Association of Bulgarian Cable Operators, there are such firms among them, servicing 50,000 and more subscribers. Considering that the average monthly subscription fee is BGN10, the annual gross proceeds would approximate BGN6MN. And if assumptions are true that the clients of such small operators exceed 200,000, it could be calculated that more than BGN20MN enter this segment annually.
The amount is not negligible
especially having in mind that it is almost completely outside of the State's control. Indeed, there are criteria for a small, a medium and a large operator, but the boundaries are quite blurred. The main thing when classifying all companies is the number of subscribers, but it has always been a jealously kept secret by all operators, independent of their size. Hence, the great difficulty in categorization. Therefore, giants like Cabletel, Eurocom Cable, Telecable, M-SAT and SCAT, prefer to overlook the allegedly trifling violations of their innocent competitors regarding the observation of the Town and Country Planning Act, the Telecommunications Act, and especially the Copyright and Related Rights Act. Thus, small operators were offered the possibility to become quite a serious problem, distorting the local market by Balkanizing competition rules in the battle for survival.
Again, the key problem of growth in this case is
the inefficient control
Speaking impartiality, the two legally authorized regulators - the CRT and the Council for Electronic Media (CEM) neither have the personnel potential, nor the technical possibility to constantly control and sanction the unlawful behaviour of small and medium-sized players. And the latter use to the best advantage that powerlessness, justified by the far more important issues in the sector, waiting to be settled. After the Town and Country Planning Act placed the activities for setting the networks under the regime of many of the common rules for any kind of construction, the obtaining of respective building permissions and the legalization became for big operators a condition without which not a single modern network could be established. And by January 1, 2007 all their equipment should go under the ground, i.e. beneath the pavement and roadways. However, that does not concern small settlements of up to 3,000 inhabitants. According to Ordinance No 17/2005, the Ministry of Regional Development and Public Works and the Ministry of Transport and Telecommunications in these settlements were given the possibility to hang up the cables on electricity distribution companies' posts against payment of hire. Thus, additional conditions for unfair competition arose. The more so that under these regulations big operators in towns became hostages to the already private Bulgarian Telecommunications Company (BTC), which collects BGN0.29 before VAT per each meter of laid cable in its own network.
And something more about the control over small operators. The Telecommunications Act stipulates that the CRC shall regulate and control the telecommunications according to the order, projected in this law. And under article 20, item 1 of the Radio and Television Act, the CEM is entrusted to regulate radio- and television activities... also through monitoring the activities of radio- and television operators. On that basis an agreement was reached some time ago for
joint coordinated activities
and exchange of information from the inspections, carried out by the Copyright Directorate at the Ministry of Culture, CEM's Monitoring Department, and CRC's Communications Control Chief Directorate. It's curious, however, to find out if there are any deleted registrations (because of unlawful equipment and TV programmes pirating) as a result of those synchronized operations.
As far as the multiple violations of the Town and Country Planning Act are concerned, it would be good if the National Building Control Directorate and its regional units publicly announce how many of the unlawfully constructed facilities of the small and medium-sized operators have been stopped and the violators, especially in small settlements - sanctioned, and even banned to carry out such activities. It is interesting to see also a report from the CEM for the fulfilment of the imperative requirement of article 19, item 2 of the Radio and Television Act, stipulating that all radio and television operators (including telecommunications operators in their capacity of users of TV programmes) present at the regulatory body their contracts for trade and conceded copyrights for protected subject matter.
The results of these check-ups would certainly show the following picture: big operators, floodlit, pay for copyright and related rights, for permissions, make expenses for maintenance of complex equipment and innovations and present their annual balance sheet reports, while at the same time their small competitors operate in a state of bliss, unencumbered by such concerns.

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