Serbia: Held Hostage by National Telecom

26 November 2006

Back in June 2005, when the eight-year monopoly agreement with Telecom Serbia expired, experts in telecommunications market expressed their hopes that competition in this sector will enter Serbia over the next year or so, increasing the quality of services and reducing the prices. A year and a half later, the situation in Serbian market remains unchanged. Moreover, according to Telecommunications Development Strategy (TDS), recently adopted by the Government of Serbia, the monopoly of the Telecom has been, for all practical purposes, extended till 2010.

The TDS, proposed by the National Telecommunications Agency (RATEL), states that �...a more methodical and gradual approach to liberalization shall avoid a situation in which the Telecom will suffer damages at the very opening of the market, which can cause damages to the whole sector�. A more gradual opening of the market will provide a window to the Telecom Serbia to complete the development of its network and system, and to get better prepared for the competition, adds the Strategy.

The past effects of the monopoly over telecommunications are visible in the fact that Serbia, in all important indicators, lags well behind the other countries in the region. Telekom Srbija holds the complete fixed telephony market, one of the two mobile networks, and almost all internet access. All past attempts to restrict the power of the company failed. In 2003, Serbian Skupstina (the parliament0 adopted a contemporary Law on Telecommunications, but the later changes and amendments annulled the obligation to dissolve the Telecom into separate companies for provision of fixed telephony, mobile telephony and internet services.

In spite of the investments in the development of telecommunications infrastructure made by Telecom Serbia over the past several years, the data available from RATEL shows that out of the 2.7 million users of fixed telephone lines in Serbia, 290 thousands use double-user-lines, with additional 350 thousand households connected to analogue switchboards. The Telecom is not able to act on all requests for fixed lines � RATEL estimates the potential fixed telephones market at 3.2 million users.

The data listed in the Report on Telecommunications Sector in SEE, resulting from the monitoring of approximation of regulations in the countries in the region with EU regulations, it takes over 50 hours on average for repairs of broken lines, while 5.7% of attempted long-distance calls fail. There is a two-week waiting period for installation of a new line, although there are frequent complaints by people who have waited for several months to get a response from the Telecom on their requests to install a new line. Combined with the fact that the existing monopolistic position means that the Telecom doesn�t feel the need to make any effort to attract new clients, creates a major source of corruption. A recent Survey on Corruption in Serbia in 2001, prepared by Centre for Liberal-Democratic Studies, places Telecom Serbia among the highly corrupt services.

"The basic lack of interest among Telecom employees can lead to a situation in which the installation of an already approved line may take months. The vacuum is filled by more entrepreneurial employees. Namely, the new user is expected to finance the installation of the new line inside the household. Since few people have the technical know-how necessary for that, they hire Telecom employees. The acceptance of the job usually means that, in addition to installation in the household, the employee will help with connecting it to the appropriate switchboard. According to the new clients, the prices of this service can vary greatly (between 200 and 500 DEM back in 2001)�, states the Survey.

Citizens of Serbia, however, enjoy the privilege to pay the lowest prices for fixed telephone calls in Europe. Three minutes of local call would cost you 73 Euro-Cents. On the other hand, the situation with international calls is quite the opposite, with prices much higher than European average (EU citizens earn almost seven time more than Serbian citizens, judging from the per capita GDP, set at 4,400 USD in Serbia and 28,100 USD in EU, according to CIA World Factbook).

A ten-minute call to the U.S., for instance, costs double the fare than in EU, i.e. the charge is 6.04 EUR. Even cheaper alternatives designed to avoid expensive operators can�t solve the problem. In June 2002, Telecom Serbia blocked the lines it leases to internet providers that started offering VoIP services, with the explanation that they violate its right to monopoly in fixed telephone services. After a fierce battle between Telecom and providers, which moved to the media, courts and competent ministries, the Commercial Court ordered the Telecom to lift the blocks on the lines, which Telecom refused to do. The then existing Ministry of Transport and Telecommunications concluded that providers didn�t, in fact, violate Telecom�s right to a monopoly and also issued orders to re-establish the lines, but the Telecom again refused to comply. Finally, Internet Development Centre and Association of Internet Providers started an initiative with the Constitutional Court on the constitutionality of the existing monopoly on fixed telephone services, having in mind that the Constitution explicitly forbids any monopoly.

Almost five years later, the TDS, for all practical purposes, extends the Telecom�s monopoly for undisclosed period of time and fails to regulate the issue of VoIP services, with the exception that VoIP is unavoidable and that all interested parties don�t enjoy equal position in the market. In a turn of events, the Telecom itself now joins the VoIP business. At the recent IS DOS 2006 event, the Telecom presented the detailes of its own pre-paid VoIP service. Slobodan Markovic, Presidnt of Internet Development Centre, warned that Telecom�s VoIP prices for calls to Northern America were much more expensive than expected and projected levels.

"It is widely known that VoIP calls to Northern America (and other liberalized telecommunications markets) were always much cheaper compared to the countries in the region (and other monopolized markets). Such an offer is possible only in a situation of a de facto monopoly, which is likely to last for quite some time�, Markovic wrote in his post on Internodium mailing list.

As far as mobile telephone services are concerned Serbia, like the majority of SEE countries, is currently involved in a process of entry of third operator into the market. The effects of the competition remain to be seen. However, the past decade was marked by the oligopoly of two networks which, in addition, were closely connected in terms of their ownership structure, resulting from the deals the regime of Slobodan Milosevic made with tycoon Bogoljub Karic.

After October 5, 2000, the Vienna Court of Arbitration got involved in the settlement of ownership relations between Karic�s Mobtel, the Telecom�s MTS, PTT Serbia and Austrian Mobilecom. The Government of Serbia managed to solve the disputes before the Vienna Court made its decision and sold Mobtel to Norwegian company Telenor. The two new international companies, Telenor and Mobilecom, which just received its licence), announced the establishment of a third generation mobile telephone services, falling roaming prices and competitive policies.

Internet
Because of high prices and inappropriate infrastructure, broadband internet entered Serbia only two years ago, mostly as ADSL (Asymmetric Digital Subscriber Line) services. Since then, according to RATEL, the number of ADSL users has risen to the current 50,000 users. The whole ADSL infrastructure is owned by the Telecom, and all subscribers connect to Telecom�s equipment. The existing infrastructure means that ADSL access is available only in several bigger cities in Serbia. According to the President of the Serbian Association of Information Science, there are about 100,000 ADSL subscribers waiting to happen in Seriba, which currently don�t exist because of Telecom�s lacking technical capacities.
Vojislav Rodic, President of the Association of Internet Providers, described, in a recent article in Svet kompjutera magazine, the cooperation between ADLS providers and the Telecom. In his words, Telecom works on repairs and maintenance problems only during official working hours, and sometimes the process can take weeks. Also, it often happens that ADSL subscriber is transferred, during Telecom�s reorganization campaigns, to smaller main telephone exchange facility, which lacks ADSL capacities. Such subscribers lose their ADSL connection overnight, without any warning or announcement. Providers are forced, claims Rodic, to pay lines in blocks of 1,000 lines. For each block they pay 25,000 EUR to the Telecom, in advance, prior to contracting their first user. The Telecom informed the providers back in July that it won�t be able to activate new ADSL users, because its capacities were exhausted, and that the new equipment will be procured in a couple of months.

"This creates a situation of a total paradox, in which providers, in spite of paying for something that doesn�t exist in reality, have no way to reach the final users and thus return some of the investments in the service itself, in advertising and procurement of equipment�, says Rodic. "The key problem with ADSL and other internet services (and not only internet services) lies in the fact that there is a 100% monopoly that Telecom has in terms of the last mile infrastructure. To put it simply, the local loops used to connect users to local telephone exchange are exclusive property of the Telecom. The providers would gladly invest in additional ADSL connections, but can�t approach the users directly for as long as the Telecom �polices� the last mile�, concludes Rodic.

In addition, the existing ADSL infrastructure provides for speeds of up to 768 Kbit/s, lower than EU standard (valid even in the neighbouring countries) of 1Mbit/s. While average price for broadband access in EU is 37 EUR monthly, for packages including unlimited download and 1Mbit/s speed, the flat rate packages in Serbia range between 15 EUR for 256Kbit/s to 65 EUR for 768 Kbit/s. In other words, numerous multimedia contents remain beyond the reach for the citizens of Serbia. Judging from the latest announcements from the Telecom Serbia, the company intends to use its monopolistic position to eliminate the internet providers from the market. It recently started retail sales of dial-up and ADSL services.

"The end users might find this very attractive at first � they�ll get internet at prices below what the market demands, but will later lament the lost freedom of choice and all it entails: Telecom�s disinterest in development outside the urban zones, slow introduction of new services, lack of customer support, arbitrary pricing and other issues faced by fixed phone lines owners for decades�, warns Markovic.

Only the cable operators are independent from the Telecom in the area of internet. RATEL estimates that cable internet is used by over 30,000 households. The cable operators are the only providers offering flat-rate packages of 1Mb/s for 75 EUR monthly. Cable operators have their own infrastructure that they can adapt to their own needs. Four fifths of the network used by 29 cable operators are one-way cables, which only imply distribution of radio and TV programmes, which means that a great majority of operators don�t offer internet services. Although RATEL recently started the efforts to introduce some order and issue licenses to cable operator, the fact remains that cable operators, in their mass entry into the market after the changes in 2000, divided the territory between themselves under very non-transparent conditions. The citizens, excluded from the decision-making process, got stuck with operators they can�t change at their own discretion, many of which don�t offer internet services. It all resulted in a humiliatingly low numbers of internet users in Serbia. According to the latest survey conducted by CePIT, 24% of the population uses internet, 80% of whom access internet through dial-up modems. Since 1999, the number of internet users in Serbia has increased five-fold, which is relatively low rate of development, having in mind the small initial number of users.

The most striking finding of the CePIT�s Survey was the fact that 52% of non-users said that they don�t intend to start using internet. Plurality of theme (47%) believe that they don�t need internet.

"The main cause for this problem is the lack of awareness about the purposes of the computers � both in business and in daily administrative operations. Concretely, all administrative services should be accessible through the internet. Then, the citizens should be informed and trained how to use the technology to access those services, and adequate telecommunications infrastructure should be developed�, says CePIT. "The slow rise of new users, as well as the domination of dial-up connecting, combined with the relatively high costs of faster internet access, a clear call for organized social action towards creation of conditions and climate for universal access to internet. The solution for this problem is, above all, in liberalization of the market, in which the state has to play a role to protect the critical social and demographic groups�, adds CePIT in its report.

RATEL
In order for the state to take its important role in the development of telecommunications, a certain amount of political will is needed. The level of political will is amply illustrated by the fact that, although the Law on Telecommunications was adopted in 2003, its implementation started full two years later. The National Telecommunications Agency (RATEL), which was supposed to start working six months after the Law was adopted, was finally appointed in May 2005, and it started working for real a little less then a year ago, only after a series of threats that, unless the state acts on its obligations, it will stop all work. RATEL has only started the process of adoption of numerous regulations that should enable establishment of order in the area of telecommunications.

The public confidence in its independence was seriously shaken when RATEL submitted the Telecommunications Development Strategy to a public debate. Such a strategy, namely, or the public debate on it, is not among the competences vested in RATEL. The segment of the Strategy covering the extension of Telecom�s monopoly was seen as putting the independent regulatory authority in a situation to serve the Telecom, having in mind that it was, in fact, RATEL that came forward with the proposal to defend the monopoly.

At the round-table discussion on the draft-Strategy, organized by �Republika� periodical, the Chairman of RATEL�s Board Jovan Radunovic openly stated that he was "... not quite sure we are independent institution. Our main goal is, in fact, to create the Strategy�. During the discussion, Radunovic added that RATEL is charged with the obligation to fight monopolies, and it does exactly that. �However, in the case of the Telekom, we deal with national interests, and we have no information on that so that we don�t decide on it. Feel free to say that it is unacceptable; submit your complaints and objections. However, we are not omnipotent when it comes to dissolution of monopolies�, said Radunovic.

Regarding the Commission for Protection of Competition, although the monopoly is unconstitutional and outright illegal, it hasn�t visited the issue of Telecom Serbia so far. Consumers� protection association also failed to deal with it. In March 2003, the Association of Telecommunications Services Users was established, its mission to create free telecommunications market. The Association, like the majority of (the few and apart) civil society initiatives working on liberalization of telecommunications market, was reduced to an internet forum used by participants to discuss the consequences of the monopoly owned by the Telecom.

The number of internet users is Serbia remains too low to turn online communities into an important social actor. The stakeholders in the business sector, although under attack by Telecom policies, don�t want to speak in public for fear of destroying their relationship with their (only possible) partner. In addition, Telecom Serbia appears as a sponsor to many media companies, or TV programmes, resulting in a situation in which the media, with notable exception of individual articles here and there, refrain from entering any campaign for liberalization of significance.

The political elites in Serbia always used positions in public enterprises to house prominent party activists and for political trade-offs. Other links between Telecom and the authorities remain in the area of speculation, for there is no any trustworthy data. One illustration for those relations may be visible in the flood of SMS messages that invited the citizens to vote in the referendum on the new Constitution.

Having in mind cheap local calls, the extreme isolation of the citizens and the fact that modern telecommunications are so far away from them that they are not even missed, we shouldn�t be surprised that the problem of the underdeveloped market was recognized only by people who use internet and families of people that have left the country. At least they have the privilege that they relatives can call them from abroad, at much lower prices.