| Copyright 2000 IEEE. Personal use of this material is permitted. However, permission to reprint/republish this material for advertising or promotional purposes or for creating new collective works for resale or redistribution to servers or lists, or to reuse any copyrighted component of this work in other works must be obtained from the IEEE. | |
|
Telecom (formerly SPT Telecom) is the monopoly provider of most fixed-line voice telecommunications services in the Czech Republic. The company was split from the Czech Post in 1993 and has a monopoly license in the fixed-line voice market until December 31, 2000. However, in March 2000 the Czech Parliament approved a new Telecommunications Act, which effectively gave Telecom a two-year grace period to enact number portability and carrier selection, thus severely limiting the extent to which competition will begin after this year.
Telecom also competes in the mobile telephony, Internet and other private data services markets. There are a plethora of entities that have jumped into various segments of the Czech communications market in order to establish a local presence and to compete with Telecom in the fixed-line voice telecommunication market when that market is opened up.
The company changed its name to Telecom (Czech Telecom) as of January 1, 2000; the previous SPT is the Czech abbreviation of Postal and Telecommunication Administration, which, since SPT Telecom was split from the Czech Post in 1993, literally no longer made sense.
The government now holds a 51.1 percent stake plus one "golden share" through the National Property Fund (FNM). The strategic investor, TelSource (a consortium owned 51 percent by KPN Royal Dutch Telecom and 49 percent by Swisscom), which won the tender process in 1995, holds 27 percent of the company. In addition, in December 1998 KPN Royal Dutch Telecom increased its holding by 6.5 percent, and together with the TelSource consortium now hold 33.5 percent of the company.
The remainder of Telecom is owned by investment funds and private investors, and trades on the Prague Stock Exchange and, after a Global Depository Receipt (GDR) listing in 1998, on the London Stock Exchange. The Czech government, in early 2000 and after long expectation, issued a short list of financial advisors to sell a further stake in Telecom. Whether the sale will be conducted as a public offering, a direct sale to the present strategic investor, to another bidder or some combination of the above still has to be decided. Analysts have speculated that the government's entire stake of 51.1 percent should fetch between $2bn to $3bn.
The Czech government invested the entire proceeds of the previous sale in Telecom, an unusual move in more recent privatizations (where governments often look to selloffs as a source of cash for strapped general budgets), confirming the government's support for the ownership structure. Although the government maintains shareholder control, TelSource obtained significant operational control of Telecom through its majority on the operating committee (three of five seats) through 2000, when its active management involvement is to end. In addition, TelSource has three of 10 seats on the Supervisory Board. This combination of share ownership and management control brought a very strong management team to Telecom.
The overriding issue faced by Telecom has been to develop a strategy to maintain its leading position in the future liberalized market when it loses its monopoly status. To this end, Telecom has focused on three key areas: first, an extensive capital investment program to modernize its infrastructure; second, developing the operational efficiency and financial strength needed to compete against new entrants often backed by international telecom companies; and third, developing the marketing sophistication necessary to promote itself in a market-driven economy.
Telecom is expected to spend approximately US$4.5 billion on its network expansion and modernization program between 1995 (when the strategic partner entered) and the end of 2000. The vast majority of this capital investment has been in new line installation neglected in previous years. As can be seen in Table 1, as Telecom's modernization program has progressed and the network has been built out, line growth has decreased and the focus has shifted to increased digitalization of main telephone lines (MTLs). Indeed, the net number of new lines installed actually decreased between 1998 and 1999, while digitalization of MTLs reached 77 percent at the end of 1999.
Telecom has also spent significant resources developing its marketing skills, not only to promote its new services, but also to market itself as a modern entity distinct from the former state-run behemoth. Its new name, Telecom, is an example of this.
As a result of these actions, Telecom hopes to have developed the modern network, efficient operating structure, financial strength, and marketing acumen needed to hold onto a significant amount of its market share after it loses its monopoly status in the fixed-line voice telephony market. Two of the most talked about companies hoping to grab a portion of Telecom's market share are 
radiokomunikace and Aliatel.
radiokomunikace is the Czech Republic's main transmission company (of both television and radio signals) and, in a joint venture, constructs and operates national private data networks. In addition to these core activities, the company has ownership interests in one of the Czech Republic's two digital (GSM) mobile telephone operators and a nationwide paging company. Due to its size and its activities in related communications markets, radiokomunikace is often touted as the Czech Republic's future second fixed-line voice services provider.
The entrance of Tele Danmark, which purchased a 20.8 percent stake of radiokomunikace on the open market in August 1997, furthered this notion. Tele Danmark originally proposed becoming a "strategic investor" and purchasing additional shares directly from the government's holding; however, the government did not accept this idea. Instead, radiokomunikace tapped international equity markets with a GDR issue of its own on the London Stock Exchange in 1998. This reduced the government's holding to 51 percent. There have been proposals for the government to further reduce its stake, primarily by selling it on international markets, but it is not yet clear how further privatization of radiokomunikace will take place.
radiokomunikace works with Tele Danmark through a joint venture company, Contactel, which began offering Internet and private data services in 1999 and plans to offer voice telephony services after the year 2000.
Aliatel was formed by a group of local Czech utility companies in May 1996 to take advantage of their private communication networks and rights of way. It was an active member of the lobbying association Skupina 98 (Group 98), whose main aim was to speed up liberalization of the Czech telecommunications market. Although this effort failed, it is still an active lobbying association for the liberalization of telecommunications.
Aliatel has promoted itself as striving to become the main alternative national telecommunications provider in the Czech Republic. The entrance of a foreign investor, RWE Telliance, a German telecommunications company, in April 1998 has given Aliatel increased respectability, increased its asset base, and brought in valuable telecommunications experience. All of these, and more, will be necessary for Aliatel to transform the several thousand kilometers of fiber optic cable networks at the disposal of the individual energy companies into a nationwide high-capacity telecommunications network with a significant footprint.
There are now three licensed operators in the Czech mobile telephony market. Eurotel Praha was granted an exclusive license to offer analog service (NMT) in 1990 and one of two licenses in March 1996 to offer GSM 900 digital service. Eurotel Praha is a joint venture owned 51 percent by SPT Telecom and 49 percent by Atlantic West BV, itself a 50/50 joint venture between Bell Atlantic and MediaOne International, Inc.
RadioMobil is the rival mobile telephone operator, granted a license in March 1996, and provides digital (GSM) services under the brand name Paegas. RadioMobil is a joint venture owned 51 percent by radiokomunikace and 49 percent by CMobil BV, an international consortium owned mostly by T-Mobil, a fully owned subsidiary of Deustche Telekom. Deustche Telekom has indicated that it would like to exercise its option to purchase 100 percent of RadioMobil and possibly to purchase the government's remaining 51 percent stake in Radiokomunikace.
SPT Telecom was able to rapidly integrate the new GSM network with its existing analog system, giving EuroTel a significant edge over the startup RadioMobil. As RadioMobil became established, competition grew with prices for handsets, connection fees, and monthly charges coming down dramatically.
In July 1999, the Ministry of Transportation and Communication issued a tender for a third mobile telephone operator to be granted a license to provide GSM 900/1800 service. Mobil, a consortium of Canada's Telesystem International Wireless (TIW), United Pan-Europe Communications (UPC), and the Czech bank Investicní a Postovní Banka (IPB), eventually won the tender in September 1999. The two current mobile telephone license holders will also be granted licenses to provide GSM 1800 service.
Since the end of 1999 the Mobil consortium has apparently changed its ownership structure. UPC's subsidiary Priority Telecom is now said to be a partner rather than a shareholder. TIW, through a controlled affiliate, is the managing shareholder of Mobil and IPB is the other shareholder.
TIW owns and operates wireless networks in developing markets throughout the world. IPB, the Czech bank, is partly controlled by Nomura of Japan. UPC owns and operates one of the largest pan-European groups of broadband communications networks, providing cable television, telephony, high-speed Internet access, and programming services in 12 countries across Europe and in Israel. UPC itself is a subsidiary of Denver, Colorado-based UnitedGlobalCom, Inc. Microsoft holds an approximately 7.8 percent interest in UPC.
The number of subscribers, by mobile operator, is presented in Table 2. Combined, penetration of mobile phones has reached 22 percent of the Czech population in 2000.
Many of these Internet service providers are local concerns, while a growing number are local subsidiaries of international companies. Telecom and Contactel (a joint venture of radiokomunikace and Tele Danmark) also provide Internet services. Web site design and hosting services are also widely available.
While pricing plans vary, as users demand longer connection times, pricing plans are changing from offering 5 or 10 hr/mo (with high per-minute charges above those amounts) to unlimited access for a fixed monthly charge. As in the rest of Europe, a significant restraint on Internet growth has been per-minute telephone charges on all local calls. The introduction of "freephone" telephone services will offer larger ISPs the ability to differentiate themselves by offering connection through toll-free phone numbers.
One key factor that promises to deliver great advances to these markets is broadband technology. For example, UPC, a partner in the new mobile provider Mobil, is also the region's largest cable operator, with close to three million video subscribers throughout Eastern Europe. UPC is the largest cable operator in Hungary and the Czech Republic with approximately 500,000 subscribers in each country, and one of the largest operators in Poland. In the Czech Republic, UPC, through its local holdings Kabel Plus and Kabel Net Holding, has already announced plans to offer a wide range of services through its cable lines, including voice services and Internet access.
Not only does broadband technology allow provision of a wide bundle of services; it does so at decreasing costs and increasing simplicity of deployment. Suddenly, the new competitor is not so dependent on the large state-owned incumbent. However, in order for broadband technology to further spur competition and market development, issues such as number portability, interconnection fees, and the ability to choose one's service provider need to be resolved.
In the next 10 years, broadband services (integrating voice, data, and video) will carve out an ever-increasing market share in the Czech Republic (as they will throughout the world). As they do so, broadband services will lead the way to a truly modern communications market in the Czech Republic.
Biographies
Gregory Hoelscher worked as a telecommunications analyst and lived in Eastern Europe for four years. Currently, he is manager of the Wireline Networks & Transmission Group at Frost & Sullivan. Your comments or questions on this article are welcome.