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. Last Updated: 07/27/2016

Delay Undermines Czech Telecom Sale

PRAGUE -- A drive to modernize the Czech Republic's communist-era telecommunications system will run into deep trouble if the search for a foreign investor is delayed much longer, a telecom official said.

Some 400,000 Czechs are waiting for telephone lines to be installed and the government says sale of a stake in the state-owned SPT Telecom a.s. to a "strategic partner" is the only way to finance renewal of the system.

Twelve European, U.S. and Asian groups have pre-qualified to bid for a 27 percent stake in SPT Telecom, estimated to be worth up to $1 billion.

But the government has admitted that the sale, one of the biggest in post-communist Europe, will not be completed by March as planned.

SPT Telecom's development director Michal Cupa told Reuters on Wednesday the money was vital for financing a huge program to rebuild the heavily criticized telephone system.

"If the delay will be, for example one month or two months, we can cover it," he said. "But if the entry of the strategic partner would be seriously delayed, we would be in trouble, deep trouble."

The economics ministry, which is in charge of the sale, said recently the process would be delayed at least a month beyond March.

The problems are at least partly linked to politically sensitive increases in telephone charges. Local media say a dispute over tariffs between the economics and finance ministries seems to have been solved.

But some bidders say privately they fear other problems remain and the sale may not go ahead until June. A recent move to oust Jiri Makovec as SPT Telecom chairman following accusations of misconduct has also unsettled some potential foreign investors. An economics ministry spokesman referred all questions on the sale to deputy minister Svatoslav Novak, who was unavailable for comment.

SPT Telecom is the latest in a series of problems involving foreign investment in high-profile Czech companies.

Germany's Volkswagen AG wrangled for months with the Czech government over taking control of car maker Skoda Auto a.s. before a deal was signed, and last year Air France sold a stake in Czech carrier CSA back to the government amid acrimony.

Cupa said the SPT Telecom sale and the investment program had implications for the entire Czech economy, which last year grew for the first time since the 1989 fall of communism.

"If there will be a delay in this process, in fact we will be delaying the whole economic growth because if you have no lines you have no chance to develop any business," he said.

SPT Telecom is one of the country's most maligned institutions, even though many of its problems result from 40 years of communist neglect. Telephone lines outside the main business centers are bad even by Third World standards -- if you can get one at all. The average waiting time for installation is 2 1/2 years.

Cupa defended SPT Telecom's record since launching its modernization drive in 1992. The waiting time for a line has been halved from five years and should fall to zero by 1998. By 1997 half of SPT Telecom's subscribers, accounting for 80 percent of traffic, would have digital technology, he added.

Short-listed bidders for SPT Telecom include some of the biggest names in the business such as Bell Atlantic and Ameritech of the U.S. and Germany's Deutsche Telecom.