But the accusations being traded between Lattelekom and the callback companies are just starting to heat up. Discount phone companies say they are paying. Lattelekom says it will stop customer use of outside companies. The callback companies say lower prices will win against monopolies.
The long distance rates issue is generating crosstalk and trouble on the line for customers who try to dial around Lattelekom.
Callers trying to dial a magic number to save on long distance telephone charges reported getting a wrong number on July 28. Lattelekom had blocked calls to "callback" numbers in the United States to stop its revenue from leaking into alternative international exchanges.
Instead of getting a U.S. dial tone on a cheaper long distance carrier, callers received a recorded message suggesting they check the number and dial again. Call back companies, soon provided new callback numbers. Lattelekom blocked those on some phones.
The trick
This is how a callback works. Subscribers call a number provided them by the discount long distance company, let it ring once, and hang up. Then the computer calls them back. When they answer, the callers have a cheaper dial tone waiting to receive the number they wish to call.
Business and residential callers can subscribe. Call back companies claim their customers enjoy a 40 to 70 percent saving over what they would pay Lattelekom and other monopolies. They also attract customers by charging in increments of a fraction of a minute.
Callback companies, known as "redirect" companies, grew up in the early 1990s to offer cheaper service in South America and CIS countries where there are phone monopolies. Through Latvia's telecommunications laws, Lattelekom gained a monopoly for the next 20 years, until 2014.
Lattelekom refused to say how much revenue is flowing to callbacks, but a spokeswoman said that the drain on Lattelekom's revenues has to stop.
"Callback is illegal and will be so until the end of the monopoly," Anita Lieskalne's said in a prepared statement. "The liberal model is more attractive from the consumer's viewpoint, as in the situation of free competition the service quality improves and the prices improve," the statement said.
There's a catch - no telephones, no savings, Lattelekom said. "Telecommunications operators invest huge resources in network development only if it is evident that the investment will generate profit."
Lattelekom investors in Britain and Finland have big bucks at stake. According to figures on an Internet Web page operated by the Latvian embassy in the United States, Lattelekom's controlling British owner in 1995 invested $480 million in the company, enough to give the UK the greatest foreign investment in Latvia, 23.3 percent, followed by the United States with 14 percent.
Lattelekom said that Tilts Communications, which boosted its ownership to 49 percent in January 1996, invested 97 million lats ($164.4 million) over three years. It pointed out Tilts' and other investments came to 182 million lats at the end of 1997. Foreign investment is not enough, so Lattelekom is plowing back its profits and has used cross subsidies to make services cheaper, Leiskalne said.
The company is connecting undersea links to Sweden and its fiber-optic cable to Estonia to networks in Finland and Sweden. A fiber-optic ring, the Baltic Ring, will connect Latvia to Estonia, Estonia to Finland, and Finland back to Latvia
Thus, when customers focus on cheap services, Leiskalne said, they overlook a downside. Call redirect companies drain revenue that the local telecommunications company needs to use for upgrading and building new infrastructure, she said.
Lattelekom inherited an antique system needing much repair. These repairs and upgrades cannot be accomplished at once, Leiskalne said.
"We cannot accomplish what may take 10 to 15 years in just the four years we have been here. We use a lot of money for modernization and restructuring in Latvia," she said.
Reaping what one sows
There is a fairness issue, Lattelekom pleads, in advertisements and prepared statements telling customers not to use callback companies. Such companies take their profits easily from business and residential customers without putting money in the pot for service to areas and customers, a practice called "cherry picking" in the utility business.
"The modernization of the telecommunications network in rural areas is problematic, as the number of people who can afford to pay for the service is small, and large resources must be invested in order to provide communications services," a Lattelekom statement said.
Lattelekom is getting money from callbacks to upgrade to fiber optic and digital lines, said Aneesh Lele, employee at a callback company in the United States
"For every time the long distance carrier we are using dumps calls onto the Latvian system, the Latvian post telegraph and telephone (PTT) is receiving a per-minute payment from the long distance carrier. That charge is passed along to us," Lele said. "We all agree that developing countries need to develop infrastructure, and we support it. We are happy to be able to help out."
A strong infrastructure is important for foreign investment, said a spokeswoman from the American Chamber of Commerce.
"There is a deeper issue than whether a monopoly is good or not," said chamber Executive Director Pam Bancroft. "Obviously there are those who think a monopoly is not convenient because of rates, but if Latvia (Ministry of Economy) goes back in to alter the contract, it will hurt the infrastructure for foreign investment. If lack of infrastructure makes Latvia not look good to foreign investors, who are we helping? We don't want to scare them away."
Lattelekom refused to say how much it cost the company to search and destroy connections to callback numbers, and declined to cite specifically the law that allows the company to block customers' calls to certain numbers.
The company does say that the use of redirect services is illegal under Latvian law because customers cannot use Lattelekom equipment in their homes and offices and outside lines to obtain services not approved in the monopoly contract.
Lattelekom has lowered its long distance prices and has another application before Latvia's tariff council, which may result in another drop in international service rates in the fall. Lower rates in the future will make alternate long distance exchanges less attractive to Lattelekom customers, Leiskalne said.
Still, while Lattelekom has a monopoly for basic telecommunications services, providers and users of callback services will be punished "pursuant to procedures established by Latvian legislation," Lattelekom maintains. Penalties can include fines for customers and the redirect company.
The Federal Communications Commission (FCC), which licenses telecommunications companies in the United States, may stop U.S.-based companies from operating in foreign countries if the government files a request with the FCC.
International Telecoms, based in Seattle and doing business as Kallback Direct since 1992, lost a case in 1997 before the FCC and can no longer operate in the Philippines.
Callback companies have their competition as well - e-mail., which Lattelekom calls one of the cheapest and most convenient means of international communications. At the same time, redirect companies have hook up Internet capability with their international call discount operations.
Kallback, which claims to operate in 225 countries, has established a high-capacity digital switch in London and introduced Faxaway for e-mail-to-fax and broadcast fax services. Already operating in long distance Internet telephony, Kallback has a Web site where a mouse can click "Trigger" to open a dialog box where a subscriber can make a long distance telephone call over the Internet.
Under a list of objectives drawn up by the Latvian government to prepare the country for integration into the EU, the Economics Ministry has the responsibility to look at the licensing of enterprises to ensure that they impact positively on business activity and correspond to EU methods.
A possible loophole, Article 85 (3) of the European Commission treaty, allows particular monopolistic agreements if they favor the improvement of production, or realization of products, technical or economic progress provided consumers get a cut of the resulting benefits and the agreements do not serve to eliminate competition in a substantial market for relevant goods.
"There is a conflict between the users of the telecommunications network and the government, as the former want to enjoy services as cheap as possible, while the latter is interested in having a modern communications network in Latvia." Such is Lattelekom's message.
"There is no way for a monopoly to prevent use of a cheaper service. When a company charges too much, people will look for another service," Lele said.
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