In July 2000, Deutsche Telekom became the majority shareholder of ST through the acquisition of 51% of its capital. In order to replace this transformation in its context, can you tell us what was the aim of the government to sell a majority stake and what was the interest of Deutsche Telekom to become a strategic investor in Slovakia?
Deutsche Telekom invested 1 billion EUR in 2000, which was the biggest direct investment into the country, paid in two parts. The 600million EUR which came directly to the state budget, was the acquisition of 38 % of the Slovenské Telekomunikácie, a.s, ( ST, a.s ) shares, the additional 400million EUR was tight out in the remaining shares, up to 51% of the company. These represented direct investment to the company in cash. The main objective in privatising the largest companies was to get the investments and of those the proportion that came to the state budget was used mainly to decrease the foreign debt. Another objective was to find a strategic investor willing to invest in the future and keep the business at a higher level. Deutsche Telekom committed an additional 1bn EUR to be allocated for investments in the company´s main activities, unless the situation would change dramatically. There was also a soft-side commitment from Deutsche Telekom, which was related to know-how, to transfer of knowledge, and a general transformation of the company from a pure technological one to market oriented, from an old monopoly to a real customer-oriented company.
Deutsche Telekom is increasing permanently its presence in Eastern Europe assuming that these countries may become future members of the EU and common market. Therefore the acquisition of ST, a.s. was a very good strategy. Deutsche Telekom got in fact two businesses, fixed line and wireless, as ST, a.s. owns 51% shares of the mobile operator Eurotel. ST, a.s. Also has all four pillars of Deutsche Telekom business strategy, voice-service, data service, internet on-line service and mobile service. The acquisition was very well prepared and carried out so that it was attractive for both ST, a.s. and Deutsche Telekom.
Last year proved to be a successful one. To which specific actions would you attribute such progress?
Within the new strategy, we focused on the core-business activities of the company. Another step taken was the re-organisation of the complex vertical structure of the company, with many branches and sub-branches, to a more functional structure. The third objective was to take over the cost-management, applying the measures of value-based management in the company. Our investment decisions are strongly related to the expected return on investment and to the economic value added to our shareholders. Also in the course of ten months of year we have saved approx. 1bn Sk. on purchasing prices. This was due to a total change of the purchasing process, due to the impact of Deutsche Telekom world-wide partnership with suppliers gaining the advantage of global discounts. Another significant aspect was the positive business development in Eurotel. Currently, we are consolidating the Eurotel results on the equity base. And the good results of Eurotel are also reflected in our profit increase, so the positive progress could be attributed to some extent, to Eurotel too.
Through your Joint Venture, Eurotel Bratislava, you operate on mobile telephony networks.
How would you describe your investment strategy in Eurotel?
It is a Joint Venture of ST, a.s. AT& T wireless and Verizon Communications. Its future could be seen in using more synergies within ST, a.s. and Eurotel. We both have data business, which we would like to merge in the future. This step would make us the largest player on Slovakia´s data market. Another step is to merge the distribution channels. The Eurotel and ST, a.s. sales points could be merged in one efficiently managed network offering customers combined solutions. The third aim is to have one topkey account team operating throughout the country, which would serve the highest level corporations, which combined offer and solution so that we could use the synergies.
The mobile phone market is overpassing the fixed line market in terms of active clients. How
do you foresee the future penetration and development of the fixed line market?
The penetration of the fixed-line market will stagnate over the years. The Slovak mobile market is a special phenomenon, it is still an emerging market. The penetration of the mobile operators is overreaching the ST fixed-line penetration and will grow constantly for another couple of years. In a few years the mobile will be a substitute for a voice service as the GSM has a content which is human voice. The UMTS will come later, but, for two or three years ahead this will still be the substitution for the voice service. So the mass market sees the wire-line business as the primary access-enabler in connection to the Internet. There we see its position.
Do you expect a significant reduction of your revenues from the fixed line services?
We do not see any particular reduction. We invested heavily into new systems, such as the network digitalisation, time-based billing solution for the customer. So I have no fear that as soon as we offer the customers clear, transparent tariff structure the revenues will remain stable. We also need to know better our customers, to know their needs and wishes. Then there is also a percentage of residential who are only low-users. We need to approach them with appropriate customised product-offer to keep them loyal to the company, to satisfy their needs. Another interest area is the Internet access development in mass market. The problem is with the PC penetration, which is very low per capita, as compared to other countries. It is under 20%. This is related to general welfare of the nation. If the income per family is rather low, the PC cannot become a normal tool-kit, it is rather a luxury. So it is necessary for the country to think over the subsidy towards the PC market in the future. (e.g. lower the VAT ) | ST, a.s. has a monopoly on basic voice telephony services until January 2003. How do you intend to prepare ST, a.s. for the liberalisation of the market?
I suppose the market has still the potential to grow, the classical voice-service rate growth is not significant, it is around 5 or 6% annually but in data business it is more than 17% annually and in the mobile telephony it is even higher. So, the interest of our competitors will be to go for the markets with the biggest growth rate. And, indeed, they will try to take over our top-key corporate customers. I hardly assume that a fixed line operator will come. In the corporate business and data business the platform is open and I think there are still some opportunities on the market for investments.
ST, a.s. is a member of the International Telecommunications network and other international organizations and institutions in the sector. How would you describe your level of participation in International projects and co-operation with foreign telecommunication operators within the region?
It is a rather complex question to be answered, because in all of these institutions we have placed different people. Some of these institutions offer capacity to develop some technical solution, market solution. We are also using the brain capacity of the universities in this country. Therefore we try to sponsor a few high-level specialists in the country and involve them in this information project. It is very important for the exchange of information. But it is not only the telecommunication organisations. I am currently chairing the Slovak Enlargement Business Council SEBC, which is a country-based organisation of the ERT (European Round Table) of entrepreneurs in the European Union. SEBC is composed of top managers, foreign investors of the European Union. The only aim here is to influence the entry of this country into the EU because we need it for our business. We also created an alliance of entrepreneurs of Slovakia, whose main aims are to create business ethics, fight corruption and force the government to set transparent business rules. But there are also many other initiatives that we are involved in.
As a businessman in Slovakia, what is your opinion about this country as a potential investment destination as compared to its neighbouring countries?
At the beginning of the 90´s the situation was very close and similar to the other neighbouring countries. During Mr Meciar´s era it was changed dramatically. The privatisation went totally wrong. The fruit of such privatisation came in 18% unemployment rate, slowing down of the economic growth rate and so on. That is history. The new government, which arrived in 1998, came with a clear, transparent methodology and the investment climate evolved positively. But the problem, and it is not only my view, is the lack of capacity of the state administration to come up with the needs of the businesses, to act properly. If a company needs to register it takes too much time, the same happens if you need information or record change at the registry of real estate. There is a significant non-transparency in the state administration, which creates fruitful soil for corruption. The private property rights execution is still not on the appropriate level. These matters need to be improved. However, the overall willingness for foreign investment in the country is huge, but the state administration needs to follow very rapidly.
Perso: You have been involved for many years in the banking and financial sector. You benefit also from a significant experience in the telecommunications sector if we consider your achievements with AT&T. Although it may be difficult to compare those 2 different experiences, which position has actually brought you the greatest reward?
For me, it is equal because telecommunications and finance work are on the same base. And that is the service industry. Even the finance industry is more and more technology-driven. (e.g. delivery of products to the customer, we have plastic cards, ATM-automatic tele-machines, e-banking.) But this is all service industry and at the end there is a customer. Therefore, there is almost no difference between finance and telecommunications, in both you are dedicated to the customer. Sometimes I felt in the IT and telecom that this aspect was forgotten, and it was more technology-driven. It was more about the best equipment and technology offered to play with. But we have to think about the player and whether he feels like playing. Let me put in these words. I am a generalist. Finance gives you a good feeling about the financials of the company, so you´re not only a technology-driven guy, you also see behind all your actions. So, you start thinking in another dimension.
The only measurement that can be applied in assessing a good manager is the level of satisfaction related to customer - service, employee service and the shareholders. As well as the skill to create a well-balanced relationship with the suppliers.
What would be your final message to our readers?
I think that Slovakia is on the right track to Europe. The last message from Mr. Verheugen was absolutely clear. He stated that he sees the chance that the country could join the European Union until 2004. So there is still open field for investment to Slovakia. One of the country's advantages lies in its good skilled labour force. A new generation of young, well-educated people is available. However, they need to learn the Western ethics of business and work.
What is still missing here is the mid-size sector investment, which is very important for the continuous establishment of infrastructure. But still, in order to increase the share of the private sector, it is very important to ensure a political stability. The country may go through a similar process as Germany did after the Second World War. There was a large portfolio of political parties and they gradually went together. Now you see that there are only two strong parties. So it is very similar. Although it is hard to say how long it will take, perhaps after the next five years we may see more political concentration which will potentially bring more stability to the country.
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