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Romania: Telecom Sale Should Set Privatization Process Rolling

By Mark Huntley

Prague, 21 July 1998 (RFE/RL) -- With the pro-reform government of Prime Minister Radu Vasile now in place in Bucharest, Romania seems set at last to push forward with major privatization's. The first and biggest name on the list of state firms to be sold is the national telecommunications provider, Rom Telecom.

The privatization process in Romania has not really started, according to Dan Pascariu, chairman of the finance house Creditanstalt Romania. He says that the few companies that have already been privatized represent only a small fraction of what could be sold off. And he says the most promising objects, such as Rom Telecom, are still to come. He notes that the government's plans, which he calls very ambitious, are to privatize Telecom by September at the latest.

As in other former communist countries, Romania's telecommunications infrastructure lags badly behind the times. A lack of progress in reforms over the past eight years has worsened the problem. Romania still has only 15 phone lines per one hundred citizens. Residents still wait up to four years to receive a phone line, and almost one million Romanians are on the waiting list.

Now, the state is selling a 21.5 percent stake in Rom Telecom. It is also requiring potential foreign bidders to double the number of lines in the country by the year 2002. And it will make a final choice of partner by the end of September.

Rom Telecom chairman Vlad Tepelea says the company is looking for what he calls the two M's, namely money and management. He says:

"Both factors are very important to the future development of Rom Telecom. It's important to note that half the sum that will be paid by the strategic investor will be reinvested in the company (Telcom), and half of it will go into state coffers".

That means, that if the deal runs as predicted, the Romanian government would receive more than $500 million, out of the envisaged sale price for the stake of over $1 billion. Rom Telecom's total worth is estimated at $5 billion.

Preliminary, non-binding bids for the 21.5 percent stake have been received from two consortia -- one involving SBC Communications of the U.S. and Greece's Hellenic Telecommunications Organization, and a second led by the Dutch provider KPN, along with Telkom Italia.

International analysts see Rom Telecom as a test case for the country's new spirit of reform. Henry Russell, the resident representative in Bucharest of the European Bank for Reconstruction and Development (EBRD), says the government's accelerated strategy for Rom Telecom serves as an example for privatizing other state firms, and thus has gained the EBRD's full support. "The EBRD signed a $100 million pre-privatization loan for Rom Telecom in January, and we have been very impressed with the government's process, both with defining the stages, and then keeping to the timetable. We are reasonably confident that Rom Telecom can be privatized on schedule this year. In fact we have often suggested that they use the strategy for privatizing Rom Telecom in the banking sector".

As Rom Telecom still enjoys monopoly status in Romania, it will have a big advantage in grabbing market share once the sector is completely freed up, which is scheduled to happen by January, 2003. It can look forward to future competition from the state railroad, CFR, which is already laying fiber optic cables along the national network of train tracks in anticipation of going into the telecommunications business. Radio Communicata, which is controlled by the Ministry of Communications, is another possible rival, once it is privatized. But in another area, mobile communications, Rom Telecom is having to run to catch up. Chairman Vlad Tepelea explains:

"Rom Telecom already faces a very successful case of competition from mobile operators. Romania has two mobile operators, Mobilrom and Mobifon, which are both looking encouraging for any strategic investor. I think our main goal in restructuring Rom Telecom is putting in place the structures that will allow this company to survive or to fight aggressively in open market competition. So we will be mobile operators ourselves starting next year, and thus we will operate already in a free market".

Mobile providers Mobilrom and Mobifon have been on the scene in Romania since early 1997 and have made steady inroads into a market desperate for telephone access, in the process leap-frogging over Rom Telecom.

Mobilrom and it's Dialog network is 51 percent owned by France Telecom and has 150,000 customers. It will use a recent $210 million loan from the International Finance Corporation, the lending arm of the World Bank, to try to boost that number. Mobifon and its Connex system is controlled by an international consortium including TIW of Canada and Air Tech Communications of the U.S. It counts 140,000 customers and gained a $190 million infrastructure loan from the EBRD late last year.

Whether mobile or land-based players, all involved should benefit from the long delayed opening of the Romanian telecommunications sector.