DUBLIN, Ireland-After decades of tight state control, Eastern European telecommunications markets are waking up to the reality of telecommunications liberalization.
But even though many of these countries accept that liberalization will have to proceed more rapidly, the process is not without frustrations for potential new entrants.
One of the major incentives for Eastern European nations to accelerate telecommunications market deregulation is that many aspire to join the European Union. According to Per Hallgard, EU telecommunications spokesman, the EU is not able to exert direct pressure on nonmembers, but the clear implication is that market deregulation and acceptance of membership applications are not unrelated.
Some difficulties of operating in this part of Europe were illustrated in April when local mobile operators in Hungary objected to a ruling by the national regulatory authority that allowed fixed-line incumbent Matav to take a 60-percent share of the mobile market through a number of acquisitions.
Gyozo Drozdy, deputy chief executive of Hungarian operator Pannon GSM, said there was a real danger that Matav would abuse its dominant market position, and other operators claim Matav’s domination of both mobile and fixed-line services could decimate their businesses.
One U.K. telecom analyst who was recently involved in an Eastern European licensing competition claimed corruption was rife and that details of the scoring process had to be revealed to prevent interested parties from attempting to bribe members of the steering committee. “Even then it was clear that some members had been influenced,” he said.
His advice for operators is to ensure all the details of the bidding process are in the public domain so none of their rivals can obtain an unfair advantage through “inside” information. “There were ways of influencing decisions under the previous, undemocratic regimes, and old habits die hard,” he said.
Local knowledge is also vital. “There is merit in having a presence on the ground. Since other contenders are likely to be `pressing the flesh’ with local ministers, you should look to do likewise. But ultimately the integrity of the process depends on the determination of the local regulator and its advisers to make the process clean,” the U.K. analyst said.
The Slovak Republic is a particularly difficult market, failing to attract a bidder for a GSM license early last year, which is extraordinary given that new GSM licenses are potentially highly valuable.
However, it would be unfair to suggest that only Eastern European licensing processes are flawed or that the processes are always dishonest. A parallel could be drawn with the second GSM license award in Ireland, where the license was awarded to Esat Telecom, despite rival Persona consortium’s appearance of a stronger bid.
Sean Melly, chief executive of eTel, which specializes in obtaining licenses in pre-liberalized markets, said the former Eastern Bloc countries are catching up rapidly, particularly in relation to mobile services. “These countries are on a par or ahead of many Western European countries in relation to mobile costs, for example, and will experience significant market liberalization over the next three years as Tier One accession negotiations with the EU continue,” he said.
Melly, a former CEO of MCI WorldCom Ireland, believes the region’s 65 million inhabitants offer tremendous market potential even though the state phone companies still dominate.
Eddie Murphy, an analyst with U.K. consultancy Analysys, agreed. “Most countries in Central and Eastern Europe have both low cellular penetration and low GDP (gross domestic product), although the latter is expected to increase significantly over the next few years, particularly for those who enter the EU. The EU for its part is blatantly telling these countries that many policies have to be brought into line, including those affecting telecommunications deregulation,” Murphy said.
