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. Last Updated: 07/27/2016

Estonia's Telephone Answer

I come from a country where 15 years ago criticism of the state telephone monopoly was a national sport. Today, virtually nobody in England questions the value of allowing competition for the now-privatized British Telecom. Competition has raised standards and greatly increased the number of services.

Last week I visited Estonia and was hit by a certain nostalgia when I realized that a virtual telephone monopoly exists there. Just like the old days. You want a new line or an international connection? There is one number to call: The Estonian Telephone Company.

But what also struck me was the incredible improvement this situation has brought compared with the chaos here in Russia. What the Estonians have done, and I believe very sensibly, is to lease a national asset (their trunk telephone network) to foreign investors in return for its immediate and rapid modernization.

No former Soviet republic, least of all one the size of Russia, can afford to make this investment itself. Telecommunications investment often takes the form of private operators being given the right to provide services on the state network in return for their making investments in that network. For investment to take place quickly in this part of the world, there is no escaping this compromise. The art is how much you give away and how well you organize the process.

Estonian Telephone Company, or ETC, is a joint-stock company owned by Estonian Telecom (51 percent) and Baltic Tele AB (49 percent). Telia AB of Sweden and Telecom Finland each own half of Baltic Tele. Estonian Telecom is effectively the holder of the Estonian government's share and is not a telephone operator. The agreement, signed in January 1993, runs for 25 years. A concession agreement also gave ETC exclusive rights to all inter-city and international traffic in Estonia for eight years. In simple terms, Estonia gave these exclusive rights in return for a set of investment commitments which are currently planned at between 350 million and 360 million Estonian Kroons ($29 million to $30 million) per year. These commitments will continue even after the concession agreement expires. ETC will raise the telephone density in Estonia from 23 lines per 100 people to between 33 and 34 within ten years (compared to the current Russian average of 15 lines). But more importantly, it will mean that 55 percent of all connections in the republic will be digital by the year 2003. Because the agreement is for the whole country, ETC can commit to investment in areas which right now are not profitable.

Already in Tallinn today there are 40,000 digital subscribers and there is as much international capacity as the country can use. Jaan Mannik, head of the Tallinn Telephone Network, says even in the aftermath of the Estonia ferry tragedy there were still plenty of international channels to go around.

The Estonian government has been accused of by Estonian media of "selling the family silver," and this is also a common opinion in other former Soviet republics. But while other states, Russia included, continue to inch toward alternative means of addressing this inevitable compromise, Estonia has already won itself two years of major telecommunications investment -- $66 million since January 1993.

"From the very outset of our negotiations back in 1989 we realized that telecommunications were fundamental. The whole economic development of the country depends on good telecommunications and without them Estonia would already be bankrupt," said Heinar Leismann, deputy general manager of ETC and a former vice minister of Posts and Telecommunications. "The cream in any telecommunication network is international traffic and we had plenty of offers to set up international gateways. But we wanted a partner who from the start was prepared to develop the entire telecommunications network."

In Russia, the situation is of course much more complex, and the Estonian model could not be applied here. The territory is too large for any one operator and the investment needed is too vast for any one company, or even one consortium. But why does Moscow need so many international access providers? Why, if you need an inter-city voice and data connection in Russia do you have to go shopping to so many competing private companies? It is maybe a sin to sell the family silver, but it is surely worse to lend it out to a hundred different people in the hope that one day they will return you back the complete set.

Robert Farish is the editor of Computer Business Russia

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