Reconciliation of TELEKOM Magnates

A Network Each

The local providers of mobile phone services have exchanged the daily skirmishing in the media and mutual threats of suing each other for the "war of rates and services". This is obviously beneficial for the clients - on July 1, alone Montenegro got almost one thousand new users of mobile telephone network.

AIM Podgorica July 2, 2000

Many were caught unprepared: on Wednesday, June 28 the Republican Secretariat for Information issued a release informing that the Ministry of Economy, Telekom of Montenegro and a firm "Pro Monte", whose majority owner is a Norwegian-Greek company "European Telecom", have signed a contract on the out-of-court settlement in "connection with the dispute of these two firms over the mobile phone services". This has, at least temporarily, put a stop to months-long dispute which was threatening to turn into the largest economic affair in the history of Montenegro.

For, only a few days earlier the leading men of "Pro Monte", until recently the only provider of mobile phone services in Montenegro, threatened to sue "Telekom" and Montenegrin Government of DM 500 million worth indemnification if the new mobile phone network started working and thus endangered its monopoly.

In addition, it threatened that it would collect the mentioned amount by force, i.e. confiscation of Montenegrin movable an immovable property all over the world. As a possible counter-measure, leaders of "Telekom" announced the disconnecting of links between mobile and fixed telephone networks. In that case, users of Pro Monte's services would be restricted to exclusively mobile network without a possibility of using the widely spread roaming.

But, those well-versed in the details of this scandal claimed even then that the agreements and contracts regulating the work of mobile phone network in Montenegro, as well as long-standing behaviour of their signatories (general disrespect of law and agreed rules), did not leave any illusion to either side that it could come out of a possible conflict as absolute winners. Therefore, according to their interpretation, it was certain from the very beginning of the dispute, that it will end with some kind of, more or less voluntary, agreement.

There are many reasons for such an outcome. When the conflict between "Telekom" and "Pro Monte" came out late last year, the citizens of Montenegro learned that the Contract on Concessions, signed in 1996 between the Montenegrin Government and ET, contained a clause guaranteeing ET, i.e. its firm "Pro Monte", twenty-year monopoly over the Montenegrin market. Since this deal was strikingly at odds with the Montenegrin Constitution, the then Government, headed by the current President of Montenegro, Milo Djukanovic, offered foreign partners verbal guarantees that the Constitutional Court would not be considering and, possibly, disputing the legality of the controversial provisions. Incidentally, this was also in violation of the Federal Law on Foreign Investments which stipulates that foreign persons and companies cannot be majority holders of enterprises in the sphere of telecommunication.

It turned out that the other side also had enough interests to violate its own regulations. The Contract on Concession was backdated, so that it seemed that it was officially concluded some 24 hours before the adoption of the European Union Decree of January 26, which demands the revoking of all "special or exclusive rights in the sphere of mobile communications...". Nevertheless, ET tried with all its might to preserve its monopolistic position which brought it a profit of some DM 3 to 5 million per month. And, on top of it, it was under no obligation of reinvesting or investing a share of the earned profit in some other venture in Montenegro!

After this, the proverb: "Once crooked, always crooked" was confirmed once again. Five-year-long cooperation between "Pro Monte" and its Montenegrin partner "Telekom", based on unconstitutional and illegal contract was marked by mutual disrespect, disregard of contractual obligations and accumulation of debts. Therefore, it is practically impossible to calculate now who owes whom and how much (that is why one of the articles of the Contract on out-of-court settlement stipulates the engagement of international auditors "who will determine mutual liabilities for work carried out to date").

Quite understandably, with such "strong" arguments no one wanted to go to court. Obviously the "out-of-court settlement" suited all the involved disputing sides. That is why the propaganda war in the local media suddenly stopped. This was followed by a series of meetings of "Telekom" and "Pro Monte" frontmen with representatives of the Montenegrin top leadership, including President Djukanovic, as well as meetings of the Management Board (managers of "Pro Monte" held their session in Greece, and of "Telekom" in Podgorica), after which the final details of the agreement were defined. After this everything was ready for the truce - at least until July 31, which is a deadline by which both sides have to fulfil their obligations undertaken under the new Agreement.

The Government of Montenegro felt relieved - it would not have to defend an unconstitutional and illegal Contract on Concessions which its predecessors had signed, but will simply draft a new one or amend the old with annexes. On the quiet. On top of it, it's no secret that the dispute between "Telekom" and "Pro Monte" was a cause for serious frictions within the ruling coalition since the majority of DPS ministers took the side of one confronted party and members of the National Party of the other (the first invoked the state interest, and the latter the respect of obligations undertaken under the Contract on Concessions). In addition, there are indications that the announced lawsuits and arbitration could endanger the interests of some very powerful personalities on the local political-economic scene, who although deeply involved with the problem, have managed to stay out of the limelight for the time being. This is corroborated by the statement of "Telekom" Director, Jusuf Fetahovic, given just before the signing of the new agreement.

"It is common for people who do not understand telecommunications as a field to get involved in such deals using some other non-market, non-European methods characteristic of petty deals. The mob cannot rule telecommunications!", sent Fetahovic his message without "pointing the finger at" who he was referring to. At the same time, Fetahovic refused to comment on first estimates which show that none else, but "Telekom" is the greatest loser in this game. Namely, the new provider of mobile phone services "Monet" will not operate under "Telekom", as it had been announced for months, but as an independent firm. The state will have majority shares, and "Telekom" none!

In other words, "Telekom" will not have an opportunity to realise any significant profit on the resources (it has already invested over DM 10 million, while the contractor "Ericsson-Tesla" from Zagreb has agreed to a deferred payment of the remaining DM 20 million) and efforts it had invested in the last six months in the construction of infrastructure network necessary for "Monet" to start functioning. The announced fragmentation of "Telekom of Montenegro" and detachment of (yet) another highly-profitable part of this enterprise, bring into question the success of the initiated process of this company's privatisation. At the international bid for the sale of "Telekom" it was already announced that this company was in possession of a licence and the constructed infrastructure necessary for mobile phone service operator. Now, its has turned out that this is no so, because its own state (Government) has deprived it of that right.

"We are a state company and have to abide by the Government's decisions, whether we like it or not", was all that Jusuf Fetahovic said on this subject. Milica Pejanovic-Djurisic, Chairwoman of the Management Board, also refused to comment on the newly created situation. Although one of the most influential members of the ruling DPS, she showed her dissatisfaction by not attending the Management Board's session which verified the out-of-court settlement. Nevertheless, at the official start of the operation of "Monet" mobile telephone network, in an unofficial conversation, the leading men of "Telekom" stated their conviction that some of the disputable details of this settlement would be "clarified, rectified and adjusted to the needs of "Telekom" in the coming months. Otherwise, the reached agreement would be no less than a disaster".

On the other hand, citizens of Montenegro, present and future users of mobile phones, do not care much for the troubles that the Montenegrin operator of fixed phone network is faced with. In less than two days, the newly emerged competition has significantly reduced the rates and raised the quality of services of both providers of mobile phone services. For the sake of comparison - for a connection for the "Monet" network and this operator's SIM card a potential customer has to pay only one German Mark. Today, for that same service, "Pro Monte" charges DM 45 - 60. A minute of conversation over Monet's network is also cheaper (20 pfenings a minute on average). But, "Pro Monte" promptly reacted to this by introducing a pre-paid card (use without the payment of subscription) which is even more favourable than the conditions offered by the newly emerged competition. At the same time, this firm is announcing further reduction of rates, including the prices of the existing pre-paid services, and the introduction of new systems.

In any case, the started "war of rates and service" is good for the users - on July 1, alone Montenegro got almost one thousand new subscribers of mobile phone network. And the operators will not come away empty-handed either.

Zoran RADULOVIC (AIM)