Imminent telecoms liberalization in Croatia; lower tariffs can wait

ZAGREB – Ask most Croats about next year’s liberalization of the telecommunications sector and chances are they will neither know nor care. In socialist Yugoslavia, from which Croatia seceded in 1991, the command economy instilled the notion that there should be one fixed-line telecoms monopoly and no others. War and the economic hardship of the 1990s did little to change that. Now the telecommunication sector’s most used segment – boosted by Deutsche Telekom’s acquisition of 51 percent in national operator Hrvatski Telekom (HT) in 2001 – will open up for competition as of January 1, 2003. But those hoping to save money on cheaper tariffs whenever a new fixed-line operator comes in may be in for a disappointment. «It is difficult to expect that the new operator will start working overnight once the market is liberalized,» said Tatjana Holjevac, deputy minister of transport and telecommunications. Holjevac also said the current legal framework was dated and insufficient. «It has been overtaken by events on the market,» she said in an interview. Under the current telecommunications law, national operator HT will lose its monopoly status in 2003, but many experts believe the subsequent two-year transition period might not favor serious market competition. In 2003 and 2004, HT will have to rent its infrastructure – the national telecommunications backbone – to any interested competitor, but is not required to give access to the local loop, the wires connecting end-users with the nearest switches. The new operator will also be allowed to circumvent HT and connect directly to the international backbone, which Damir Sabol, head of local Internet provider Iskon, said was «only 15 miles away in neighboring Slovenia, so it is not difficult to connect with it.» Call by call first «No one is going to dig the streets to lay new cables. Iskon is already connected via microwave links to the international backbone and now uses it for Internet, but next year we shall not hesitate to use it for other purposes,» Sabol said. The new operator will have a choice of renting HT’s entire infrastructure or building its own national network by using optical cables, satellite or microwave. Zeljko Debanic, chairman of the state telecommunications council – the independent regulatory body, formed only this year – said no access to the local loop was a limiting but by no means debilitating factor for competition. He said liberalization would start with the so-called call-by-call mode, under which HT would remain a default operator but whereby telephone users could punch in a set of numbers and be switched to another operator who would be leasing HT’s infrastructure. «Then there are also international calls and leased lines to consider,» he told Reuters. Leased lines – dedicated wholesale high-speed connections – are a hefty source of profit for HT. But Joseph Vinatzer, head of mobile network operator VIPnet, which is owned by Austrian Mobilkom and shares the mobile market with HT, said the key to getting things started was defining an interconnection agreement and fees with HT. Interconnection a problem «The main obstacle is the interconnection fee. It is now the same as the tariff for retail customers making national calls, so this means we cannot be competitive with HT in the present environment,» he told Reuters. «We are negotiating with HT and it is clear there is a lot of reluctance to change anything, but I am quite confident this will change. It is the same story everywhere,» he said. VIPnet, which won a tender for the second GSM operator in 1998, became operational the following year and now holds just under 50 percent of the local mobile market. It also offers Internet services and is bent on entering the fixed-line market. Vinatzer said VIPnet aimed to target retail customers, while «another focus will be key account users, large companies with many employees, not to forget international calls.» «We are not doing this for image’s sake. We’re going to offer good service to customers and if we do our job well, I am sure we will also make profit,» Vinatzer said. Legal void Sabol said all interested parties, including regulators and the ministry, were working intensely on a new law but added the whole issue was still a bit blurred. «All I know is that for any serious project we need a license, but frankly… I would still not be quite sure who to turn to,» he said. The government does not plan to call a tender but will grant a license to one or more candidates who submit a satisfactory bid, including a business case and technical aspects. The first-year fee will be 40 million kuna ($5.38 million), with an obligation for the operator to invest 50 million euros ($50 million) in the network in the next four years. Another industry source, who asked not to be named, said there were many unresolved issues. «What will the new operator invest in, if they are not to dig and lay cables? And will lease lines, which are very lucrative, also be rented from HT?» he said. One potential operator – the state electricity monopoly HEP, which has a national network of optic cables used for its internal telecommunications – has already opted out, quoting the annual fee and high investment requirements as deterrents. HT, whose net profit in the first nine months of 2002 almost doubled to 1.36 billion kuna, making it the most lucrative Croatian firm, says it is not afraid of competition. «We welcome the liberalization. We have proved our worth in market competition in the mobile segment and we are ready,» said HT spokesman Marijan Jurleka. Another HT source said the company would like to see «as many new operators as possible» and would focus on its own growth and services. «We think the key will be the quality of service, but if there is room to rebalance our tariffs, we shall respond,» the source told Reuters.

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