Makedonski Telekomunikacii is certainly one of the most profitable companies in Macedonia. In January 2001, The Hungarian Matav bought a major share of your capital. Can you tell us what motivated the Government to sell the company to a foreign investor and on the other hand what was the interest of Matav to be present in Macedonia?
The process of privatization of MT was started in 1998 by the previous Government, but during the parliamentary elections that process was stopped. Then, a new Government came in, we obviously had the Kosovo crisis in 1999 but at the beginning of 2000 the new Government decided that they would restart the privatization process with the objective to optimize the sell in order to support development plans of Macedonia. The second objective was to develop the telecommunication sector by bringing in a strategic investor. And thirdly, of course the privatization of MT is almost a pre-requisite to the liberalization of the telecommunication sector in Macedonia, because it is very difficult to have a competitive telecommunications market when you have the Government as the 100% owner. The goals were to allow competition to come into the mobile telephony market and eventually into the fixed telephony, not to mention that this Government is very pro-privatization.
I have been holding this position since January '99 and re-appointed by the new Board of Directors in January 2001. Certainly the company has always supported the process of privatization but we felt that it was important to have a strategy to attract the high quality investor. That is the reason why in '99 and '00 we invested in development, particularly we focused on the mobile sector, we started '99 with 30.000 subscribers we ended 2000 with 100.000 subscribers in mobile. We commenced a process of cultural change by putting more emphasis on customer orientation, although we still have a long way to go.
Within this strategy, we feel fortunate that MATAV bought 51% of the company in Dec 2000 and of course MATAV is in majority owned (51% owned) by the Deutsche Telecom Group.
But on the other hand, what really decided Matav to invest in Macedonia?
First of all, Macedonia has certainly the best-developed telecommunications infrastructure in the region. We are technologically the best developed company. We are very profitable, in fact the most profitable company in Macedonia with over 100 million DM per year that we achieved in '99 and that trend continued in 2000. Bearing in mind that we are still only at 23 % penetration in fixed telephony and 5% penetration in mobile telephony, so the growth prospect certainly exists. From a pure investment point of view certainly there is potential a strategic investor such as MATAV which has brought to our disposal all the resources from Deutsche Telecom. I think there is certainly potential to get the synergies and the efficiencies that can be gained from operating within such a group.
How significant was the deal as compared to any other privatization that has taken place in Macedonia?
The price this country received for the 51% was 343 million Euros, which doubled the direct foreign investment in Macedonia, in financial terms. So the telecom deal was by far the largest. Feni was a loss-maker so that's a different story, the price the Government received was I guess around 2 million US$, but this was a very significant investment for the country and one that has many other implications vis-à-vis the attraction of future investments in the country.
Do you actually know how those 343 million Euros will be used by the Government?
I think the Minister of Finance has already given a proposal, an outline on where that money will go: 1/3 will be used for development projects within Macedonia and with prior approval from the World Bank; those projects target poverty reduction, job creation and infrastructure.
Do you personally think the Government reached the optimal price for the transaction?
If you analyze the profitability of the company, the market, the GDP, I certainly think we got a very fair price and it was certainly a very open and transparent tender process where in the end both OTE and MATAV put in bids for 51%. We previously had as many as 6 potential investors but four dropped out. The 6 candidates included Vivendi, Telecom Slovenia, Turk-cell, Debit of Germany and Matav and OTE. But finally, Matav came out because on top of the cash buster there is also the commitment to invest 250 million Euros in capital investment over the next few years. I think certainly the market is the best indicator, this was certainly a very transparent and open process where the final bids were open in front of both bidders in the end. I think many would comment it was a transparent and very fair process and by doing so we certainly created the preconditions for maximizing the price. The Government I think is going to use the other third for savings, increasing the foreign currency reserves and the last third for repaying high interest debts the country has had from previous years and to support the pension system reforms that are going to be undertaken.
How would you evaluate your network as compared to those of the neighboring countries?
Regarding the fixed telephony network infrastructure I'd say Macedonia has a very well developed one compared to other countries in the region. Our backbone is an STH fiber-optic based back-bone across the country which means we have a very solid basis for all current and future technologies and the network itself is almost 80% digital, which puts us as amongst the very well developed telecommunications companies in Europe, not only in the region.
So certainly, the first step would be to undertake the additional investments to have a fully digital network by 2002.
The other thing is to invest in modern management technologies to manage this network because at the moment we still have people for operations and maintenance of the old analogue system. We want to have an integrated maintenance and operational systems and I think that would create a better efficiency in the company. Also we intend to invest in modern billing systems and modern information systems which is a weakness in our company. We don't have the mechanism to transparently capture the subscribers, so I think the next thing will be to offer a range of new and additional value added services to the customers apart from just basic telephony through the fixed network. So, I think these are the main focus areas of development of the fixed network over the next year and a half.
We have a period of exclusivity in fixed telephony
services till 2004 and that is required for two
reasons: one, to allow the company to restructure,
to be prepared for competition in 2005 but secondly,
as in most countries of Central and Eastern Europe
we suffer from this tariff imbalance where the cost
of the local calls has traditionally been low, and
subsidized by the extremely high cost of international
calls. Of course in a modern telephony, that is
unsustainable, if competition comes in, then we
are under a severe threat. We therefore have to
take the steps necessary to re-balance our local
and national costs. So, that would be one of the
challenges in the fixed telephony. |
Who imposed this 4-year exclusivity period for your fixed telephony?
That was set by the Ministry of Transport and Communications, in coordination with the EU requirements and the Macedonian requirements under the accession Agreement that is about to be signed . So it is consistent with the Accession Agreement.
Regarding the mobile telephony we don't have exclusivity but at the moment we are the only mobile/GSM's provider; I believe at some stage soon the Government will come out with a concession for a second provider - but given the Government's procedures, we can expect competition by the end of this year or early 2002. Given the low penetration we have to undertake steps to prepare for competition. One of the first steps we're undertaking right now is to isolate the mobile activity into a separate business but still as a subsidiary of the whole group. It will be a separate company, with a CEO, with a separate board of directors but ultimately 100% under the management and ownership of Makedonski Telekomunikacii.
You received a loan of 18M euros from the EBRD for expansion of the mobile network and implementation of an Integrated Information System, we believe…
That was received in '99 as part of the strategy. One of the things we had to do was to maximize the value of our business, to grow the value, to grow our mobile business, as I said we started in a situation where by August '99 we still only had 32.000 subscribers because we inherited this situation of very poor planning and investments in extension of the switching capacity ; when I came on board we had 35.000 switch capacity and 30.000 subscribers and we doubled that capacity to 70.000. We decided to be very aggressive and to expand to 170.000 capacity switch. So, from August '99 when we had 30.000 subscribers, we reached 100.000 subscribers by the end of 2000. Part of that was due to the support of the EBRD.
Which percentage of the territory do you currently cover with the mobile network? What is your objective?
We cover near 90% of the population, although 75% geographical coverage.
Certainly our goal is, by the time a new operator comes in, to reshape our mobile section into a modern, flexible, customer oriented company. We need to prove very quickly to our customers that Mobimak (our mobile operation) is in many aspects a different organization than MT. So that's one of the reasons we are creating a separate company - to give a much quicker operational flexibility but also to use this window to maximize the number of subscribers because we will certainly remain the number one mobile operator in the country.
Finally, you have the internet which is fast growing with MTnet. How would you evaluate the internet penetration in Macedonia and the potential in that business?
MTnet is a business division of MT and not a separate company. That's a sector is experiencing a significant competition. We are the dominant provider of Internet services , we hold 50% of the market, but we are certainly seeing a very aggressive competition from several competitors. There are numerous ISP providers in Macedonia, at least 10. We are certainly dominant on the market with 50 % of it, and we intend to stay at that level. The penetration in the sector is relatively low. We can only estimate that there are some 20 to 25.000 Internet subscribers in Macedonia which is low. That's 1,5 %, still when I came on board we had 3.000 subscribers and 2 years later here we are with over 10.000 subscribers. It is therefore growing very fast. We have also become a regional leader in investing in a new CISKO IP Internet Protocol that puts us amongst the leading countries in the region to invest in new IP technology. That will enable us to offer all sorts of new IP services but also to tremendously increase the capacities in Internet provision. The goal is of course to grow the market.
Don't you think this potential growth of the internet may be hindered by people's lack of access to PCs?
I think it's growing, we mustn't underestimate the Macedonian economy, large part of it is grey economy; we mustn't just look at the official GDP statistics and I think the popularity of the Internet amongst the younger generation is tremendous, I see Internet cafes and cyber-cafes popping-up all over the place, so I think we have to be in a position to capitalize on that, I see that as a signal that will grow.
In a longer run, do you intend to broaden the image of your company within the region?
If going into details, we are now part of the Deutsche telecom Group. And obviously, with markets around us either liberalized or going to be liberalized in the near future, there are certain synergies to be gained using MakTel as both labor and skill resourced to expand within the framework of the Deutsche Telecom, Matav. One of their consortium partners is the Greek Kosmotelco from Greece who are a minority shareholder in the MT as part of the Matav consortium. I definitely see some potential in the near future utilizing the skill and knowledge base as well as the infrastructure of the Macedonian Telecom to expand to markets in the region as those markets get liberalized.
On a more personal level, you have managed this company throughout the privatization process and have been reelected as GM by the new board of Directors, which is a proof of trust. After such achievements, what would be your next personal goal?
From the moment I came here in '99 I knew that the path to privatization was inevitable, that this company and this country had to follow the train of the telecom sector, to open up the door for future competition and liberalization. So since the day 1 that I have been here the goal was to successfully privatize the company and attract a high quality investor. So the steps were taken in that regard, leading to the ultimate successful privatization. That was certainly a highlight of my career not just for the telecom but certainly in my overall career because it was very gratifying to reach that moment, bearing in mind the significance of the transaction not just for the company but for the country. That has to be certainly the No. 1 goal. Going forward with the commitment that the Board showed towards me, the trust expressed towards me, I think now it is a challenge and a privilege to lead this company with the strategic goals and objectives set by the new Board. That would be the highlight, to make sure that the company successfully transforms itself into what we can call a truly modern, world class telecommunication service provider. |
