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Lithuania: Government Dials Up A Storm With High Phone Charges

Vilnius, 17 February 1998 (RFE/RL) -- The Lithuanian Government's approval of the Telecom company's decision to charge by the minute for local phone calls has caused uproar among consumers in that Baltic country.

From February 4, local calls have cost seven Lithuanian cents per minute. That's about 1.75 U.S. cents, and represents an extravagant increase for Lithuanians, who until now have been accustomed to paying a fixed rate of only about $1.5 a month for their local phone calls.

Phone subscribers complain that they were given too short a notice of the spectacular price rise, and that Telecom has made no serious effort to explain the rationale and justification for the new pricing level. They also say the factors which influence Telecom's pricing decisions should be open to public discussion.

In addition they note there are considerable social and business implications to the phone-call pricing issue. Pensioners on low incomes will be severely affected, and companies' costs will rise considerably. It's feared smaller companies could even be driven out of business, and that there could be a general price rise in the country through the incorporation of the phone costs into the price of goods and services. The Internet will also be much more expensive.

Lithuanian businessmen and industrialists are among those who have complained bitterly about the steep price rise, saying that the switch to minute-based rating should not be necessary in view of Telecom's financial situation. Telecom last year declared an operating profit of over $30 million, against a background of debts and loans totaling over $100 million. Telecom officials however later cast doubts on the profit figure, saying factors such as depreciation of capital equipment had not been taken into account.

The consultants managing the Telecom privatization, a consortium led by the UBS Swiss banking group, have defended the pricing decision, saying its necessary for the company to set appropriate tariffs. Some analysts say that the steep increase is meant to improve Telecom's attractiveness to potential buyers under the privatization process. UBS officials acknowledge they believe that Telecom should receive special treatment at this stage, so as to allow it to strengthen its hand before the market is liberalized and it had to bear the full weight of competition with foreign corporations.

Telecom presently has a virtual monopoly position in the Lithuanian market. And this is not the first time the government has worked in Telecom's favour. For instance the company was granted the country's first license for mobile phones without competition.

Analysts say that this time however, considering the public outcry, the government and Telecom may have overdone things. They say the affair could cause doubts among investors about the openness of the Lithuanian communications market. The government has long promised a positive business atmosphere in the market. But now things don't look too positive to other market participants.

Viktoras Gediminas Gruodis, head of the private telecommunications company Omnitel, said the government has not kept is word, and that his company would have to ponder whether to continue with its investment program. Omnitel's plans call for investments in Lithuanian this year of some 40 million dollars.

Telecom is scheduled to be completely privatized by May. Five foreign corporations are participating in the bidding, and they have to set out their business plans showing their further strategy and investments. The controlling package of Lithuanian Telecom shares is supposed to be sold for $1 billion. According to Lithuanian officials, UBS is to receive a fixed payment for its consulting role, and will receive in addition a "success payment" -- the extent of which has not been made known.