Friday, October 22, 2004

Lawyers. pick up your phones...

...some strange and not so strange cases will be coming your way. I, for one, would like to sue Apple Computer. I paid around USD 2000 for my 867 Mhz Powerbook G4 in the summer of 2003. Now they are selling the same machines for a lot less, with 1.33 Ghz, never mind that the iBook, a G3 when I bought it in 2001, jumped to G4 last year. Boy do I feel discriminated with respect to anyone else who started blogging last week with a brand new Powerbook!
Tele2 in Latvia feels the same, but it paid LVL 5.8 million for a UMTS licence in 2002, as did LMT. Triatel, the CDMA-450 operator paid LVL 200 (100 for each alliance partner) to start operations and now it looks like the government expects to get at least LVL 500 000 for the combined "third" GSM/UMTS licence it still hopes to sell by auction sometime in the first half of 2005.
More details of the intended auction have emerged, and it now looks like the Ministry of Transport will urged the Public Utilities Regulation Commission to hold a combined beauty contest (selected a few best looking business models) and auction (letting the beauties with the most services for the least price try for the highest bid). The starting bid will be LVL 500 000, something that was omitted from a document submitted to the government, leaving the impression that this was all the money the government expects to get from the sale. In 2002, the bids were to star at LVL 7.6 million and no one came.
Tele2 strongly suggested it will sue to prevent the a sale for any amount less than LVL 5.8 million it paid, asserting any lower price is discriminatory. The Swedish-owned company is probably emboldened by its "victory" in the Competition Council against evil Lattelekom for accusing it of encouraging people to ride cows and eat with shovels (see my earlier post). Could the Latvian courts be equally wacko? You never know...
Alas for Tele2, the possible auction result is only one lower cost of entry for a "third" rival. Equipment prices have probably fallen since 2002. UMTS was just coming out of prototype then, now you have several networks up and burning cash..I mean running, for a number of operators, like 3, who has people chase you around Swedish shopping malls.
In addition, both Latvian mobile incumbents have had a moratorium on new entrants (even Triatel is coming in after the two year deadline) since the last failed auction. As one government official said: "Tele2 has been living twirling its hat and wallowing in fat:" Trust me, it sounds better in Latvian :). Even LMT, which has wallowed in around LVL 42 million of fat last year, has decide to shrug off the auction terms. In retrospect, LVL 5.8 million was a few days revenue or about a month and a half of profit for Juris Binde.
One should also remember that Tele2 had a choice (not withstanding stories that the government, in 2002, strongly suggested that both incumbents buy their fixed price UMTS licences). Like with GPRS until earlier this year, it could have stood on the sidelines until it saw that there was a market and some reason to turn on this feature (Tele2's former CEO in Latvia, Bill Butler, always used to say that the company was just one circuit board insertion short – at all of its base stations – of turning on GPRS. Bill went on to new challenges in Tele2 without snapping the gadgets into the slots even though LMT was already going nationwide with GPRS).
The other upcoming work for lawyers may be if and when Lattelekom decides to challenge a final (not yet decided) decision by the regulator to slash its interconnect rates to 0.8 santims per minute. Lattelekom officials suggest such a decision, if finalized, would violate European Union mandated procedures. Lattelekom maintains that such a step is not based on a throrough examination of costs, and that it would not benefit consumers, but merely drive down the incumbent's revenues (large proportions of interconnect fees come from alternative operators who terminate foreign calls in Latvia via Lattelekom, rather than from domestic interconnects for local and national calls). Also, there have already been cuts of between 20 - 40 % in various interconnect fees, based on Lattelekom's own cost-based calculations by methodology set by the regulator, which the incumbent says have not been passed on to consumers by such heavy interconnect users as the mobile operators. Had these cuts been passed on, they would have amounted, at most, to around 0.5 santim off of rates between LVL 0.12 and LVL 0.20 per minute, domestic.
Lattelekom would probably first try to apply EU law in the Latvian courts, but if the interconnect issue is pushed too far, you could see Lattelekom appealing directly to the European Commission in Brussels, perhaps aided by 49 % owner TeliaSonera and other European operator interested in avoiding what they consider a bad precedent in EU member Latvia.
Again, you saw this first on this blog.

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