Lattelekom to face stiff competition

The end of Lattelekom's monopoly on fixed-line services on Jan. 1, 2003 will significantly impact the company's profits, a leading market analyst said last week.

According to Andris Virtmanis, director of the Latvian Public Utilities Regulatory Commission, Lattelekom's revenues and profits are expected to decrease significantly in 2003 when Latvia begins to liberalize its telecommunications market in order to comply with European Union and World Trade Organization requirements.

The drop in revenues after market liberalization could reach 13 million lats (21.8 million euros) on international services alone.

The 51 percent state-owned company, which has dominated the telecommunications market since 1994, last year reported a net profit of 24.7 million lats and paid 29.4 million lats in various taxes.

However, the company could salvage profits through internal restructuring and utilizing other services, Virtmanis told Baltic News Service. "Profit will probably amount to 15 million to 18 million lats in 2003," he said.

Competition on Latvia's telecom liberalized market is likely to be fierce. The Latvian Public Utilities Regulatory Commission has already licensed three companies to offer fixed-line services.

Telekom Baltija was the first company to receive a license. The company, which has been working on the telecommunications market since early 1999, hopes to become the largest alternative fixed-line telecommunications company by the end of next year.

Telekom Baltija's license was issued for five years, beginning Jan. 1, 2003.

The company believes that after the fixed-line telecommunications monopoly ceases at the start of next year, it will control 10 per- cent of the corporate client market by the end of the year.

According to Virtmanis, mobile telephone operator Tele2, which received its operator's license last week, looks to be an even tougher competitor for current monopolist Lattelekom.

In Estonia, where the market was liberalized last year, Tele2 financial results for its fixed-lines operations exceeded expectations, according to Tele2 AB vice-president Johnny Svedberg.

Tele2 management intends to overcome competitors on the fixed-line market by adopting a strategy of leadership in terms of prices.

Virtmanis also expects Lattelekom to suffer from a loss of clients, a shrinking of its international services, and stiff competition on products such as Internet access.

The telecommunications expert also believes the National Information Network Agency will lease most of its infrastructure in the future. Line rental is likely to fall as a result, as are prices for Internet access.

This in particular will come as a relief to Latvian Internet users, few of whom were actually surprised when the last European Commission report on telecommunication services in accession countries ranked Latvia last for its cost of Internet access.

Virtmanis said that other potential competitors include Latvian Railway, Latvenergo, and Latvijas Aeronavigacijas Serviss (Latvian Air Navigation Service), all of whom have the required infrastructure to provide telecommunication services.

He also said that a "certain market euphoria" will evaporate over the first two years, leaving only serious players on the market and, most probably, prompting mergers between small operators.

The regulatory commission has issued fixed-line telecommunications licenses to a number of companies - Telia Latvija, Telekom Baltija, Studio 7, Ostokom, Optron, Livas, Kopoideja and JL Balts.

Some of these companies belong to international groups, and serious players could very well come from overseas.

Telia Latvija is part of Telia AB, the Swedish state-controlled telecom operator, and has been operating in Latvia since 1992. It is a subsidiary of Telia AB, which owns a 24.5 percent stake in LMT, the largest mobile telecommunications operator in Latvia.

Sonera, the Finnish state-controlled telecom operator, also controls 24.5 percent of LMT and 49 percent of Lattelekom through the consortium Tilts Communications. The expected merger of Telia and Sonera will undoubtedly secure the new company a strong position on the Latvian market.