Casualties of deregulation

New technologies, products and changing market regulations are transforming the Latvian telecommunication industry, posing a severe challenge to Lattelekom's long established dominance of the market, analysts say.

Already the company has laid off 1,000 workers, and three months after the fixed-line market was opened to competition, the national telephone operator has had to adapt its strategy in order to curtail falling revenues and profits.

The fear was corroborated last week in an internal report - apparently leaked to the press - that shows the company's projected 2003 revenues falling 10 percent to 132 million lats (213 million euros) and profits plummeting 66 percent to 7.4 million lats.

Meanwhile, the competition has begun. Tele2 Telecom has already been granted a license by the Latvian Public Utilities Regulation Committee. The company plans to provide local voice-telephony services on the public fixed-line telecommunication network as well as on the mobile telecommunication network.

Tele2 will also offer services with international voice telephone, public pay phone, data and electronic message transmission and Internet access.

But Lattelekom is putting a brave face on otherwise dismal financial prospects and the new rules of the game.

Anita Leiskalne, company spokesperson, told the Baltic News Service that the company was ready for the deregulated market.

"We have been preparing [for this], and we are becoming more flexible," she said.

Analysts generally agree. "This telecommunication market is currently unstable with all the recent changes, and this could have a negative impact on the performance of all players, with business slowing down a bit," said Raite Karnite, director of the Latvian Economics Institute.

But, she added, "Knowing the company quite well, I believe [Lattelekom] will have no problem facing the changes caused by the end of its fixed-line monopoly," she said.

"I think they will not be weakened too much by competitors since they will keep some of their advantages. For example, in terms of coverage, they still have an advantage over mobile-phone operators."

Karnite also believes that smaller companies could nudge into Lattelekom's market share thanks to the possibilities offered by new technologies.

"There is also the challenge to meet the new developments of telephony, which allows new products to be developed" and new forces to enter the market, she said.

Maris Edvalds, director of Teledialogs, believes this is an opportunity for his company.

"Our company provides Internet access and voice over IP services. We also have an agreement with Baltkom TV to provide our services over the cable network, and our license now gives us the possibility to offer data and voice services all over Latvia," he said.

Indeed, even Lattelekom's leaked progress report admits that the fixed-line phone market will shrink as more and more consumers use mobile services. This year alone local calls, according to the report, will decrease by 12 percent.

Meanwhile, Lattelekom's workers brace for the worst. Zoja Semjonova, head of the communication workers trade union, said the workers' mood was grim.

"A thousand employees have been laid off recently," she said. "The biggest worry for Lattelekom workers is these redundancies. They feel that something like that could happen again."