Serbia Telecom: Privatization, mismanagement and cable-war.

A few days ago I was having a conversation that is worth noting. The talk was with Marco, who was visiting The Netherlands as a tourist. Marco works for Telecom, the state owned telecom provider in Belgrade, Serbia. Marco has an Engineering degree in electro-technical science from Belgrade University. Currently he has a high level management position in the IT department.

I asked Marco about the present internet situation in Serbia. He answered that because of the geographical condition in Serbia there is an unequal spread in internet connection possibilities. It is very difficult in the mountain regions to even get access to a proper telephone line. In the urban areas internet is more common. Yet internet speeds that we have in The Netherlands are unusual. Most people use a dial-up connection, with a maximum speed of 56 kb/s. This, however, is still considered very fast (for a dial-up connection). When people want a faster access, they can get an ADSL connection. The cost is about 15 euros per month for a speed of 128 kb/s. The maximum speed available (via cable) is 2 mb/s and is only affordable by big companies, multi-nationals and the very rich.

Downloading films and music is not as ordinary in comparison to Western countries. Streaming videos via GoogleVideo or YouTube is also considered exceptional. Warez are available at almost every street corner in Belgrade. Illegal Dvd’s and Cd’s are big business. Most people in Serbia only use internet for checking their mail and to read through news sites. The average income in Serbia is currently about 500 dollars per month. For most people it is too expensive to get a 128 kb/s connection for 15 euro’s (19 dollars). Because the difference between a dial-up connection is relatively small, it is more common people make use of this type of internet access.

Developing the communication infrastructure in Serbia is very costly. Placing new cables to households takes high investments by the government. In a country that is still tormented by a civil war, Nato bombing, and a fraudious regime, it is difficult to imagine new media technology to be a priority. It is therefore to be expected that private companies supply and empower urban areas in Serbia with cable. However reality disagrees.

Before I get to the juicy information regarding mafia practices and the telecom war, I will give a background sketch concerning the 1997 privatization of telecom.

The only privatization in the area of infrastructure that has been accomplished so far – the privatization of Telecom Serbia – brought about disappointing results. The number of telecommunication lines is in a state of stagnation; the quality of service is not improving; the supply of new services is negligible; prices are far above European prices; and customer relations of the national telecommunications provider are very bad. Although it may seem paradoxical, the development of telecommunications in Serbia was far more dynamic during the period prior to its privatization.

The main reason for the above results is in the application of inappropriate techniques and the bad policy of privatization. The sale was conducted without a tender, through private negotiations (sale) agreement; the results expected from strategic investors were not specified; the privatized national telecommunications provider was awarded a legal monopoly (the exclusive right to carry out this type of activity) for no less than eight years (this period expires in June 2004) – competition was banned; the privatization also covered a license for mobile telephone services; the regulation of the prices of telecommunication services was not covered by the privatization agreement, nor was it defined in any other manner; the privatization revenues were not used for development in the area of telecommunications, but for covering the budget deficit. The provisions of the privatization agreement are so unfavorable for the country as a whole that they severely threatened the development of this area of the infrastructure.

Even though the former Government claimed the amount of the privatization proceeds (approximately DM. 1.5 billion for 49% of the capital of the national telecommunications provider, or approximately 1 million subscribers) as their own great success, this amount is far below the revenues obtained from the privatization of telecommunications in other Eastern European countries.

The only goal of the privatization of telecommunications in Serbia was to cover the budget deficit and to fund budgetary spending, all for the purpose of gaining short-term political popularity. With a goal so defined and without any consistent Government (national) telecommunications policy, in addition to the use of consultants of dubious value, it was impossible to achieve good results. The privatization of Telecom is an example of what should not be done.

The above noted state of affairs is published information. Nonetheless there is a lot of information unpublished that is equally important to consider in the light of new media developments. In order for Telecom to keep their monopoly position intact, they remove their competitors aggressively. One way is by cutting the cables of other players in the market. In the days before June 2004, when the legal monopoly position of Telecom expired, other companies placed their cables all over Serbia. This way they would be able to provide immediate access to clients the day the monopoly position expired. However, Telecom cut the cables to ban the competition and thereby keeping their monopoly position intact. In the following years a cat and mouse game is being played between these parties. Private telecom providers use creative techniques in order to lay their cables unharmed. For instance, they place the cables interwoven with electricity cables. Another practice is by means of trained dogs. Specially trained dogs lay the cables on areas where men can not set ground without risking their life. Also harpoons are used to get the cables high above ground. In return Telecom blackmails competing employees or spoils them with gifts. A truck load of cigarettes can do wonders.

Corruption and fraud are important factors why privatization of Telecom is unsuccessful. It should be noted that Serbia is a country accustomed to (government)manipulation. A funny example is about the weather: when temperatures exceed 35 degrees Celsius, workers are allowed to take the day off (it is considered dangerous to work under such extreme conditions). Because it is harmful for the economy when workers take too many days off, the weather reports rarely say temperatures are higher then 35 degrees. When in fact everyone knows the Serbian summers can easily average 40 degrees.