Lietuvos Telekomas stakes future on digital

  • 2003-07-10
  • Michael West

The deteriorating market position of Lieutvos Telekomas, the former monopoly provider of land-based phone services, has forced management to overhaul its strategic approach and make drastic cuts in its work force.
Romualdas Degutis, company vice president, said that offering an improved range of value-added services would be the company's new focus.
"The competitive war is won by the one who offers the most attractive services that meet customer needs best of all. Our aim is to continue presenting attractive offers to our customers in the future. However, at the moment we cannot disclose them," said Degutis.
At the same time, Lietuvos Telekomas is seeking to secure income by setting up a wide range of payment plans to hold onto existing clients, as well as attracting new ones with a range of different services, said company officials.
For instance, the company plans to use its digital network to offer a wide range of value-added services that are impervious to competition from cellular operators.
"With its strong digital network, Telekomas has prepared well for business-communications growth," said Evaldas Cepulis, a business analyst at Vilniaus Bankas.
Lietuvos Telekomas' fortunes will also hinge upon a continuation of the rapid increase in Lithuania's Internet penetration rate, from its current level of around 20 percent toward the West European average of 40 percent.
"Last year, [Internet-derived] revenue increased by around 30 percent," he added.
Over the longer term, Internet-based services may be provided over wireless networks, though this is someway off, according to industry specialists. Thus the bulk of business communications is set to continue over fixed lines in the foreseeable future.
In recent years, Lietuvos Telekomas' revenues have diminished under pressure from the mobile-phone sector, as many clients, disappointed by rapid price rises, swapped networks in search of a better deal.
New entrants to its hitherto untouchable fixed-line market have also forced the company to rethink strategy. Negotiations have begun with potential operators through Lietuvos Telekomas' network, with most of the interest expected to be in longer distance calls where there is greater margin for the new companies to exploit.
While Telekomas has some fledging start-ups in other markets, some of these cross purposes with its majority shareholder, Telia-Sonera, and therefore wouldn't be expected to be profitable.
There is a possibility that Lietuvos Telekomas would merge with other companies controlled by TeliaSonera, such as the former state telecommunication companies in Latvia and Estonia, or even Omnitel, its main cellular competitor in Lithuania.
Cepulis said that while current competition rules prohibit a tie-up between Omnitel and Telekomas, the potential for a Pan-Baltic merger is very real.
"It is something Telekomas doesn't wish to discuss, but then it is not their decision," said Cepulis.
Regardless, the company's decreasing market share has prompted severe job cuts. Last month, for example, it was announced that approximately 700 redundancies are planned before the end of the year.
In a statement released June 11, Lietuvos Telekomas said it planned to reduce its staff from 4,140 to 3,400.
Since its privatization in June 1997, the company has shed around two-thirds of its staff as it prepared for the loss of its monopoly on Jan. 1.
Most of the recent job losses have affected technical staff, whose numbers have been reduced as newer, and more easily maintainable, technology has been introduced.
After these reductions, Lietuvos Telekomas will operate with 273 main telephone lines per employee, close to the international average of 300. This suggests that there is little scope for further cuts, said analysts.
Cepulis, who monitors the company's activities, has studied the company's attempts to stabilize its revenues, which have declined rapidly in the past year.
Comparing the first quarter of 2003 with 2002, income has declined by 17.7 percent, while expenses have been slashed by only 10 percent. This has prompted further efforts to reduce costs: in addition to the job losses, planned annual investment will also be halved from around 300 million to 150 million litas.