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East: Greek Telecom Invests In Armenia, Ukraine, Romania, and Georgia

By Tito Singh

Athens, 21 January 1999 (RFE/RL) -- Greece's Hellenic Telecommunication Organization (OTE), after a high-flying period of international investment, appears to be coming to Earth with a bump, particularly in Armenia.

OTE, which is partly private and partly owned by the Greek state, started its foreign acquisitions in 1997 when, in partnership with Italy's STET, it acquired a 49 percent share of Telekom Serbia PTT. It thus obtained a license to provide basic telecommunication services and value-added products there for an initial period of 20 years. Some 80 percent of the $922 million purchase price for Telkom Serbia was paid in cash.

Later that same year, OTE gained 80 percent of the Armenian operator ArmenTel, in a $150 million sell-off of that entity. In that deal, OTE was granted an exclusive 15-year concession to run virtually Armenia�s entire telecom domain. The European Bank for Reconstruction and Development (EBRD) gave its stamp of approval by buying a 10 percent share and decided to contribute some $60 million in investment funds. OTE's stake, however, dwindled to 72 percent when Levantis Greek, another Greek company, took over some shares.

A planned big tariff increase by ArmenTel has not been accompanied by any apparent improvement in quality, and the service has not won any praise from a disgruntled Armenian public. The Armenian Parliament and Constitutional Court are due to meet later this month to decide whether or not monopolist activities of ArmenTel under the umbrella of OTE contradict Armenia's basic laws.

The Armenian government has been quoted as saying that OTE should raise tariffs only after upgrading the aging network. But OTE's General Manager of Finance, George Karaplis, told RFE/RL that "the tariff structure and guidelines for changes in tariff are in the license, and we will go to court and claim money back if we are not allowed to go ahead."

However, he said that the planned charging of 8 drams (2 U.S. cents) for every minute of conversation beyond a two hour limit covered by the fixed fee would be introduced in stages. But he said that the 50 percent increase in monthly phone fees would be levied as announced earlier.

Karaplis said, "We expect to upgrade 75 percent of Armenia's network within five years." Armenia still has a Soviet-era network, obsolete compared to modern Western standards.

OTE also has a number of other foreign interests. The head of OTE's International Monetary Division, Stavros Tsapikounis, said recently that OTE has successfully completed a $21 million project in Lithuania for installation of 44,000 digital lines with over 600 kilometers of fibber optic cables. Tsapikounis also said OTE is working on a similar $16 million project in Georgia, which should be completed by August.

And in Ukraine, OTE participates in an international communications consortium called Ukraine Wave, together with the U.S. Hughes Company and other smaller American investors. Tsapikounis said, "OTE has 25.7 percent participation in the project for the installation of a wireless fixed and mobile telephone network in the region of Lviv in West Ukraine."

Further, OTE telecom has moved into Romania with a 35 percent stake worth $675 million in the Romanian concern Romtelecom. It controls the votes of a further 16 percent of the shares, giving it a majority. OTE plans to spend $400 million to modernize the system over next three to five years.

George Chryssoulouris, the former Managing Director of OTE, who resigned late last year following a disagreement with Greek Transport Minister Tassos Mantelis, has been questioned by the press about the company's meteoric international expansion.

He said: "With a home market of only 10 million people and having opportunities [abroad], it was a logical thing that OTE should play the catalyst role in developing these services in cooperation with local operators, and also benefit from a better customer and market base."

About the ability of OTE to invest, Chryssoulouris noted the company had a strong balance sheet over the past few years and thus is able to raise financing very easily. He said, "OTE has the financial capacity and is ready to pay the fair price." Talking of the success of the projects under the expansion strategy, Chryssoulouris called "staffing" the most vital point to be taken care of and said, "Greeks when they are properly managed and guided, can make miracles."

He ruled out any explicit differences with partners as he explained, "OTE has even provided a mechanism in the cooperation agreement to resolve potential conflicts, but I do not expect any."

Despite his optimistic view, all is not well at home. Athens' chief prosecutor, Georgios Koliokostas, has ordered an urgent preliminary investigation into the validity of press reports of negligence on the part of top OTE executives in the purchase of foreign telecom providers.

The chief prosecutor has called for testimony from witnesses and for a report to be compiled. It will then be presented to the prosecutor to decide if further legal action is needed.

According to recently published reports, there are allegations of irregularities. In the case of Romtelecom, OTE has signed an agreement to buy 35 percent of the company, but reports say the deal should be scrutinized, because OTE has allowed the American firm GTE to undertake the management in Romania. In Serbia and Armenia, there are allegations relating to bad management of OTE's investments.

In the case of Armenia, the allegations relate to possible negligence by OTE officials, resulting in the loss of some $9 million.