HIGH-HEELED SHOES AND MAKEUP

Latvia is getting ready to reap the bittersweet fruits of having signed away the phone system in 1993 in exchange for modernization of the system as the process to liberalize the fixed-line phone business enters another round.

The Latvian people's relationship with Lattelekom, the product of the Danish subsidiary of Sonera, Tilts Communications, has been sour, stemming from Lattelekom's arrogance in dealing with its customers and the failure of the deal makers in 1993 to sell the putative benefits - that Tilts would upgrade the country's rickety phone system in exchange for Tilts' monopoly hold on fixed-line services.

A certain amount of shortsightedness and, some say, money informally changing hands, allowed Latvia to get into the monopoly despite the wish to enter the World Trade Organization and the European Union, memberships that would preclude a monopoly of phone communications until 2014. Now it is time to pay the piper to satisfy WTO by opening the fixed-line market to competition.

It will cost money, big money, no doubt. Tilts has invested in the phone system based on a 10-year business plan during which time it could set tariffs and enjoy the proceeds of being a sole provider of phone service. Additionally, with Internet telecommunications developing almost overnight and tomorrow, the remaining term of the Tilts/Lattelekom monopoly is probably worth very little. That gives Tilts the impetus to go for the gusto on negotiations and get as much as possible for giving up it's remaining exclusive billing rights at the end of 2003.

Meanwhile the question is what is to happen to government-owned rustic phone lines in the countryside? Certainly, IT-driven modernization will not occur where most people do not own a computer. And what company will want to assume the costs of serving comparatively revenueless phone service in rural areas without a sufficient portion of plum, urban areas to offset costs? Is the pie big enough to draw competitors into the market?

Let's hope that until another company comes in to use the government's phone lines in the countryside, Tilts will continue to invest in upgrades.

Overall the issues are more complex than simply breaking Tilts' monopoly grip on Latvia's fixed-line phones, and the gains may be only political and abstract.

By shaking the monopoly at whatever the cost, Latvia gets to advance in its development of a market economy and to learn the grown-up cost of playing grown-up games. That helps put it in the league with other members of WTO, and perhaps makes real other possible costs ahead in joining EU and playing with the big kids.