State telephone monopoly agrees to compete

Lattelekom's days as a monopoly may be numbered.

A loophole in Latvia's hastily-adopted communication law is providing Internet Protocol telephone service companies with an opportunity to compete with the state-owned, fixed phone line company.

Although Lattelekom's monopoly expires as of Jan. 1 next year, there is little the giant can do to stop the small companies from entering the market.

Adopting a communication law is one of the European Union's accession chapters that has to be completed. Ilze Kalnina, a legal adviser at the communication department in the Ministry of Transport, admitted that the first communication law, adopted in 1993, had a few flaws when it came to the definition of communication over telephones.

Data transmission was not regarded as communication, only voice calls. Technology used by IP phone companies translates the voice into binary numbers, which are interpreted into a voice on the receiving end. So the phone call is a transmission of data and not voice.

"The current law, as of November last year, is in alignment with EU standards, and it is much clearer on the definition of communication," the legal adviser said.

Still, the control of the competition is still in Lattelekom's firm grip. The IP phone companies were made to sign agreements with Lattelekom - agreements none of the players want to talk in detail about.

Valdis Vancovskis, director of the carrier business department at Lattelekom, said they were reasonably happy with the agreements reached with their smaller competitors.

"This puts an end to the illegalities made in the beginning of their operations," he said. "But it also gives good training for us to have competitors."

In December 2000, IP phone companies managed to tap into Lattelekom's phone grid and "steal" incoming international telephone calls through using computers and a connection to phone lines.

"We did our own investigation, and discovered that some incoming international calls were entering Lattelekom's network through private companies," Vancovskis said.

"These are companies without any telecommunication licenses."

At the beginning of 2001, Lattelekom and the Latvian Internet Telephony Association sat down for the first time to try and reach some agreement. The result is that around a dozen companies are now competing with Lattelekom - Telenet, IP Telekom Baltija, and Telecommunication Group, a consortium of six companies led by Telegroup Baltics.

So far IP telephony companies may only compete for clients for international calls. But this is likely to change next year when the state relinquishes its monopoly.

The average call tariff on international calls offered by Lattelekom is 0.3 lats ($0.48) per minute, according to Vancovskis. The competitors say signing up with them could save up to 30 percent on this price.

Aleksandrs Prants, coordinator of international relationships for Latvia's telecommunication association, said using his company Telegroup Baltics' service would bring savings of up to 30 percent depending on the volume and destination of international calls.

"At first people were hesitant to contact IP phone companies, not trusting in the competence of their equipment," Prants said. "But modern equipment and technology provide for high quality phone calls."

So far, Lattelekom's position on the market is relatively secure. IP phone companies handle just 5 percent of all international calls to and from Latvia.