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. Last Updated: 07/27/2016

Estonian Telephone Faces Corporate Battle

TALLINN, Estonia - When Estonia's fixed-line phone market opens on January 1, preventing corporate clients from moving to new competitors will prove the key battle for current monopoly Eesti Telefon (ET), analysts said Monday.

However, they added that Tele2 and Uninet -- the major rivals aiming to grab a bite of the small but lucrative Estonian market -- will face difficulty pushing rates below the discount tariffs they recently announced they will offer.

ET, though, still has room to lower its rates but it will be faced with new marketing costs that will cut into profits.

ET's revenues from fixed-line operations came to 2.025 billion kroons ($114 million), 69 percent of the overall revenue of its parent company Eesti Telekom, in the first nine months of 2000.

That represented 13 percent annual growth. The engine behind it continued to be the local call revenue fueled by the growth of Internet-dialups.

ET currently provides fixed-line service to 522,000 clients, of whom 106,000 or 20.3 percent are corporate.

"It's clear they will retain a very big share of the private clients, but it is not clear about corporate -- the profit earners, and exactly this part will determine how much ET will lose," said Trigon Capital analyst Toomas Reisenbuk.

Internet provider Uninet announced rates that will be from two to 55 percent lower than ET's, while Tele2 -- an Estonian arm of the Swedish Levicom Broadcast -- said its prices will undercut the current monopoly's by 16-80 percent.

Uninet has also announced an ambitious plan to grab 25 percent of the market in three years by focusing on corporate clients.

Tele2 has also said it was ready to offer discounts to corporate clients.

"There is a view that as ET provides a broad range of services, it does not have a suitable profile to offer services at different prices to private and corporate clients... It could harm ET," Reisenbuk said.

However, analysts say that ET has a major advantage as the sole owner of a comprehensive infrastructure and they expect the company to retain 80 percent of the market share.

"(Uninet and Tele2) rates are sustainable, but don't have much room to be cut further, whereas Eesti Telefon can cut its costs much further", said Jozef Gasparik, an analyst with Williams de Broe.



MARKETING EXPENSE

Eesti Telekom, 49 percent owned by Sweden's Telia and Finnish Sonera, will still have to raise its expenses on marketing as a result of market liberalisation, which will cut into its profits, analysts said.

"Although we expect the total revenues of Eesti Telekom to rise two percent next year, we at the same time see its net profit shrinking by one-fifth compared to this year," said Suprema analyst Veikko Maripuu.

The company reported a 77 percent annual rise in nine-month profit to 871.1 million kroons. Baltic investment bank Trigon Capital has set a full-year 2000 net profit estimate of 1.16 million kroons for the firm.