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Ceturtdiena 20.09.2018 | Name days: Marianna, Ginters, Guntra

Smidre: Latvian telecommunications development policy is strange

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Baltcom Board member

In near five years time, Latvia is to develop a centralized trunk network operator, ensuring honest and equal competition in the market, forecasts Latvian telecommunications businessman (Peteris Smidre) Pēteris Šmidre.

In an interview with BNN he reveals there still is a «kind of Lattelecom monopoly» in many sectors and regions; however this situation cannot last long in a member state of the European Union. Smidre believes joint Baltcom and Izzi company would be a serious competitor to Lattelecom market positions, yet merging is not taking place as fast as expected, as there are different obstacles put in the way, as well as pressure is exercised upon the involved officials.

To start with, could you give your opinion about telecommunications market situation and the overall economic situation in the state?

Our lives here in Latvia are dictated by the economic situation in Europe and America, but I try separating world’s troubles from our internal ones, because external factors is something completely different from what is happening in Latvia. We can discuss the global economy endlessly, but it is unlikely we can affect it, while regarding the internal issues – we must do something about them. The sooner the better. Currently the economic policy is very much connected with politics dominated by social issues, which is good on one the hand and bad on the other; any way it is not stimulating the economy. Another issue of ours is that we want to be the first ones implementing the European decisions. This policy does not bring any good either. This means that we will be the first ones to do what Europe requires, in order to reach a politically friendly environment, we will help those to whom social matters are very important etc… I will not name the issues, as then I will be the one to be blamed again, but, yes, economy is as much science as mathematics or physics. One cannot make up something himself, figures will not show up themselves. We need either earning less, or spending less. In order to earn more, competitiveness in the European markets is necessary. Considering this situation, if we are the forerunners to implement the European intentions of centralization, it will be very difficult to compete in Europe.

The current government is very neatly, very slowly and gradually approaching the right direction, of course, we would all like this to happen faster, but I believe the main goal should be kept in mind – the economy. Our interests. Of course, everyone would like Europe to be united, everything would be beautiful and we all would be happy, but what we are witnessing – unfortunately it is not so. Speaking about European centralization directives, we see, yes, that is correct, but each state exists also on its own and is struggling for its economy.

Recently there have been worries about the European Union future? How do you see it as a businessman?

I am far from extreme statements that EU is to collapse etc., however the economic Europe is quite connected already and currently, of course, it is better to stick together to overcome economic downfalls.

One can speak endlessly about Europe and its problems, especially, when the topic is the speed of development. Of course, China and India are developing much faster than Europe. To be honest, we have to consider from which level they are developing. Figures per person serving as the basis for comparing the states are very different. It is completely clear that each state to whom we applaud lags behind the European level.

If we consider telecommunications, TV and the Internet market in Latvia?

The situation is that the market is changing rapidly. Our leading operator Lattelecom is switching from one monopoly position to the one they had with fixed telephone lines – its the part, which as if had to be the competitor’s. On they way they are trying to grab anything monopolistic that there is left, for example, terrestrial television in rural areas, as there is no competition. Afterwards the trick with the national channels distribution is a very interesting one as well… If a private company distributes national channels from which they are paid by them, while at the same time competing with all the rest of TV services providers who are paying for them – this turns out be an interesting combination. I do not think this can last long in Europe. Such a model can function only a short period of time. However, in any case, no one else has such a big network as Lattelecom

And won’t have?

They will, they will. From Europe’s perspective, the right development would be in a slightly different direction, instead of parallel networks building. Respectively, no matter whether a private or national operator should provide all trunk data transmission networks. And then the operator provides services also for the other market players. In order for competition to exist, we need a strict regulator stipulating the common approach to regulations and prices.

Does such a model exist also in other states?

Yes, it does. Our regulators say it is not a positive experience in Europe, but this is an old story. For whom is this a negative experience? For a monopolist? Of course! Speaking about the country, we need to ensure as fast as possible technological development, that each house and each person has access to transmission for the possibly lowest price – it is what this model offers. A major operator is, of course, suffering from that, as it does not have such a huge market share any more, it does not own the chain starting from the beginning to the end.

So it turns out each company builds its own network, including, the trunk one? We are digging the streets up several times in a row?

Practically, yes, we are.

What could be the solution for these overlapping networks?

Our telecommunications development policy has been strange from the very beginning, let’s say from regaining independence. There is no concentration, saving or some kind of telecommunications development coordination. Unfortunately. There are many examples – each mountain has a telecommunications tower and each house has five cables and so on. This is the consequence of the lack of state institutions supervision. It might even be said the state has given up the policy and development matters. All that was once managed by ministries was given away, as there was one huge company that was entrusted to implement some kind of modernization. It was believed the company would know how to do it, but they didn’t. Another interesting thing is that Lattelecom could not agree on that their trunking network is used for parity networks in twenty years time, simply they did not let anyone enter. During this time parallel networks developed. Today Lattelecom is not the only one with a trunk network. It is not the only one in cities for sure, in rural areas – Latvenergo has built its networks, Latvijas Dzelzceļš is also doing that, mobile services providers are also about to build their own networks. To cut in short, there are three stations above and beneath the ground – unfortunately, that’s the situation.

Network building costs a lot… Is this to be paid by clients?

Telecommunications costs are low in Latvia. What’s happening? For example, investments in telecommunications are long-term. It has always been that way. Once the cable is dug, it does not require much additional costs, as the main investment has already been placed. What’s going on at the moment? There is competition and price reductions. It is especially felt, as the purchasing capacity has dropped. Mobile operators were the first ones to feel this. I believe this is already behind for them. The last year was challenging for them. Currently Internet providers are struggling with the same problems.

How does this manifest itself? Sharp cuts of costs?

Exactly. Everyone is cutting costs. In a situation of competition – prices cannot be increased. Actually, it depends – Lattelecom rose prices somewhere in the countryside, for example, for bills sent out – one has to pay now, and there are other similar matters that are not free of charge any more, yet this does not change the overall situation. It is still the way it is.

What’s Baltcom experience? How did you manage costs?

Like everyone – we cut them.

How loyal are Baltcom employees? Was employee turnover affected by this?

I don’t know. I really cannot complain about our employees. We are a team, working together for many years. There have been cases when we have to, let’s say, say goodbye to some of them, but nothing can be done about that. In general, our team sticks together like an army.

I might even say the sense of unity has increased.

Speaking about consolidation, in what stage is the merger with Izzi?

It is difficult to say, we are in ongoing negotiations, we are moving forward.

If this works out, what will it mean for the Latvian market? Could such a company be a major competitor to Lattelecom?

The market is the way we made it to be, actually neither Izzi, nor Balcom owns a market territory without competition, compared to Lattelecom.

Despite the merger, prices could not be increased significantly, as the market dictates them, not because we are the bad or the good ones, we want it or not – it’s logical, it is the situation of the market.

What we can do is reducing spending. This is what Lattelecom fears. Time to time I find myself laughing at the fact that I have been competing with Lattelecom for twenty years, yet I have lived up to the moment when Lattelecom makes people be afraid of Baltcom monopoly (laughing).

Merging would reduce costs, the company would be a serious competitor for Lattelecom. As the situation is that if we take mere figures and compare them – we get an interesting insight. Lattelecom has four times more clients, their 2009 turnover was 140 million lats, Baltcom – 16 million lats. If the number of clients we are servicing differs four times from Lattelecom, then money that one or the other receives – differs up to eight times.

Why is that so?

Because Lattelecom gets twice as much as Baltcom for each service, so you can see why they fell threatened. If we are competitors – revenue has to equal. Theoretically, their revenue should drop twice, if we compete. Where we are competing, the situation is exactly like that. We have to consider also the fact that we have reduced costs over the last year, while Lattelecom has only sped up its activities. They have reserves, of course, actually they are huge, as is the turnover. The reserve is formed by the fixed telephone lines. From those 140 million lats, Lattelecom gets 70 million from the fixed telephone lines and another 20 million from international calls.

Is the Competition Council now to decide upon the merger with Izzi?

Yes, it is. They promised to give some kind of answer by mid-November. The term has come already. Four months have passed. They wanted to act faster, but they said Lattelecom was raging and so on.

Are you saying that Lattelecom is affecting the Competition Council?

Not exactly, there is pressure, of course… They are doing all they can. We have enough court cases already…

By the way, how are things going with your oil extraction business? Do you keep investing? (Smidre has been investing money in oil extraction business in Latvia for many years already).

God! Yes, I do, I do…

Do you still believe it will work out?

What else should I do? I have invested so much, I cannot not believe in it.

Is there any progress?

There is. Not yet a material one, but a moral one.

How many people are involved in this business?

There is a working team. We have attracted many consultants from all over the world – Germans, Dutch. Currently Germans are working there.

What are your inner hopes for the time when material results could appear?

Miracles will not happen. We will get experience, quality and we will keep working, which will be good enough.

Speaking about real estate business, will the market recover? Will you try developing something else or you have «burnt your fingers» enough?

I not only made mistakes, I also had many inner problems. That’s why everything turned out that way. We cannot say that a business is good or bad. Each sector has its own drawbacks, it depends on the business type. The main thing is to have a strong team. It is, indeed. One should not do what he is not capable of or bad at. Business requires knowledge. If you do not have it – you should study and then involve.

So you assume you could return to real estate market business? There is no clear – no?

Of course, I am not saying no. Another thing is that many believe the real estate market will take up the same direction as previously. I do not believe that. If it recovers at least by a half – that’s already good.

What’s your opinion, along with new technologies launching, could there emerge new market niches, as borders among different services might disappear? Some believe that way it would be possible to compete with the current market players… for example, mobile operators… Or is the market already full?

I think competition will be even tougher. In future there will be one trunk network keeper managing all: fixed lines, mobile and data transmission networks etc. It will no longer be important how far your net optics reaches or with the fourth generation technologies they will be transmitted in one frequency or other. Because the capacity there is huge. Of course, everything depends on the internal policy as well.

I believe the second direction will be the content and the way of presenting it. The third one will be servicing companies communicating with clients. These are the three guidelines, which have to develop on the basis of competition. This is the model I see for the next five years.

Leave a reply

  1. pop says:

    He makes some good points, I must agree.

  2. Sherry says:

    This arictle keeps it real, no doubt.

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