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Bulgaria: Tender Shows Cost Of Delaying Telecom Reforms

Bulgaria was due to announce soon the winner of a tender for rights to a second GSM digital mobile telephone frequency. But unlike the telecom tenders and privatizations of the mid-1990s in other parts of Eastern and Central Europe, Sofia's effort to liberalize its mobile phone market comes at a time when the world's major telecom firms are nervous about investing in expansions.

Prague, 15 December 2000 (RFE/RL) -- Four firms are bidding in Bulgaria's tender for a second GSM -- that is "Global System for Mobile communications" -- telephone frequency. An announcement could come as soon as later today. But if the auction results in a tie, bids will continue into the weekend.

The tender is a long-overdue market liberalization that could lower costs for users of mobile phones in Bulgaria by bringing competition to a previously monopolized sector. Analysts say the fact that Sofia is only now allowing a second private company to compete for a share of the GSM market is indicative of delays on telecom reforms rather than speedy advances.

The demonopolization of the sector has been urged by the European Union, which says a more competitive telecoms market is one of the conditions for EU membership. Bulgaria's mobile phone market is the most undeveloped of all the former East Bloc states that are negotiating for EU entry. In fact, Bulgaria is the only candidate state that has only one GSM operator.

About 7 percent of Bulgarians own a mobile telephone. That compares to nearly 40 percent of all Czechs and about one-fourth of the population in both Hungary and Slovakia. Even in a largely rural country like Poland, market penetration is more than double that in Bulgaria.

One reason why so few Bulgarians own mobile phones is their high cost. That, says RFE/RL Sofia correspondent Gueorgui Stoytchev, is why the new tender is important.

"In this tender, the price is not the most important thing. The most important thing is for Bulgaria to bring some competition into the market and to make the mobile phones cheaper for Bulgarians. [And] I think that the bidders now believe that Bulgaria's market has a big potential, mainly because of this low [mobile phone market] penetration so far."

Another reason that mobile phone use in Bulgaria lags behind other EU candidates is that traditional landline phones have been available to more than a third (35 percent) of Bulgarian households since the communist era. Until last year, Bulgaria had the highest penetration level for fixed-line phones of all former Warsaw Pact countries.

Bulgaria was a major supplier of telecommunications equipment within the former Eastern bloc and substantially expanded its telephone system under central planning.

But private investment throughout the 1990s has brought explosive expansion to both the fixed-line networks and mobile phone systems of such countries as the Czech Republic, Hungary, Croatia, Slovakia, and Slovenia. All have caught up to Bulgaria's fixed network in terms of market penetration and have surpassed Bulgaria in line quality since the beginning of last year.

Meanwhile, repeated delays in privatizing the Bulgarian Telecommunications Company has left that system with little investment for improvements since 1989. The only exception has been the development of some digital switchboards and fiber optic links among the major cities that were financed by the European Bank for Reconstruction and Development in the mid-1990s.

Telecom analysts say the difficulties in obtaining a new fixed-line telephone in most East and Central European countries has fueled the demand for mobile phones. As a result, use of mobile phones has increased at a rate much higher than the growth in other economic sectors.

Notably, countries that have seen usage of mobile phones climb the most rapidly are those where consumer prices have been kept down by competition between two or more operators.

There are two GSM mobile phone networks in Slovakia, Slovenia, Croatia, Latvia, Moldova, and Azerbaijan. Mobile phone users can chose between three GSM networks in the Czech Republic, Hungary, Estonia, Lithuania, Poland, Romania, Bosnia-Herzegovina, and Greece. Four GSM networks are available in Germany, France and Italy, as well as in Georgia, Ukraine, and Yugoslavia.

That compares to only one GSM license granted by the governments of Belarus, Armenia, Albania, Kyrgyzstan, Macedonia, and Turkmenistan.

A firm called MobilTel has had a monopoly on GSM telecommunications in Bulgaria since it launched its service in September 1995. The only other mobile phone operator in the country is Mobikom -- a British-Bulgarian joint venture that relies on older analogue technology. According to RFE/RL's Sofia correspondent Stoytchev:

"Bulgaria delayed the second GSM license for so long because of the attempt to make Bulgaria's telecom more attractive for foreign investors."

The Global System for Mobile communications is the technology behind most of today's mobile phones and is the most advanced system available in Bulgaria. But some analysts say GSM is set to become obsolete in a few years because of the emerging third generation of mobile phone technology -- known as "3G."

The leading 3G technology today is called UMTS, for Universal Mobile Telecommunications System. It can send data 200 times faster than GSM. That means mobile phones with UMTS technology will make it possible to use the internet as well as to talk to people.

Bidding on UMTS licenses is clearly the new focus for telecom investments in the West. In the emerging markets of Central and Eastern Europe, however, there is still debate over the importance of UMTS. That's so even though the dominant telecom force in Central Europe -- Deutsche Telekom -- is quite interested in the technology.

The German telecom giant reportedly has been keeping a close eye on the first Central European country to auction off rights to UMTS licenses -- Poland. Bids were taken earlier this month, but no announcement has yet been made of the winners.

Deutsche Telecom also is watching the Baltic states. Latvia and Lithuania are both preparing for the sale of third-generation mobile phone licenses. In addition, a pan-Baltic working group is studying the idea of offering one license for all three Baltic countries to a single operator.

If Deutsche Telekom's name tends to come up where ever there is a privatization in Eastern or Central Europe, it is still noticeably absent from Bulgaria's GSM tender. The Bulgarian deal does not include any provision for a UMTS frequency, and officials in Sofia have said it is too early for them to grant a third-generation license.

Meanwhile, major Western telecoms are vying with each other to obtain UMTS licenses elsewhere in the global market. There are a total of 87 firms now competing for 422 licenses in the United States. The total of those bids is expected to be a paltry figure compared to the fierce bidding in Europe for third-generation licenses.

Similar UMTS tenders in Britain and Germany have proved costlier than initially expected. The high cost has raised some concerns that telecoms firms may be overpaying for the UMTS licenses and incurring huge amounts of debts in order to build their third generation mobile networks.

The price of shares in Germany's MobilCom fell sharply last week on fears that the firm had overextended itself with a $7.4 billion bid for a German UMTS license.

That kind of stock market reaction to tenders for mobile phone licenses has most of Europe's leading telecoms acting nervously about expansion plans in Eastern and Central Europe which rely on the older GSM technology.

Still, officials in Sofia are counting on the fact that Bulgaria's relatively undeveloped GSM market will mean higher bids. Ironically, that leaves Bulgaria with more room for growth than there is in countries like the Czech Republic, Slovakia, and Hungary.