Tuesday, October 12, 2004

Plans forge ahead for merging state networks

Sources tell us that plans are forging ahead for making an alternative backbone network to Lattelekom by merging the networks of four state owned companies and agencies. The idea was originally proposed in a paper drafted by the State Information Network Agency (Latvian acronym VITA), which proposed pooling the network resources of the energy utility Latvenergo, the Latvian Railways, and the Latvian State Radio and Television Center as well as VITA to create a competitor to fixed operator Lattelekom (owned 51 % by the state and 49 % by Sweden's TeliaSonera). The plan for creating something called The Alliance (Alianse) said it would have 350 000 users by the fifth year of operations and cost around LVL 15 million to set up. By the fifth year, The Alliance would have revenues of over LVL 20 million (by comparison, Lattelekom now has revenues in the LVL 135 million range).
The new state owned entity would be formed by each of the above mentioned companies and agencies divesting its network assets to a new company and then repurchasing services from The Alliance. In other words, Latvian Railways would divest its internal nationwide (along the rail lines) digital network and purchase back dispatcher, data transmission and other services from the Alliance. Latvenergo would do the same with its fiber optic network.
It is harder to see what would become of the State Radio and Television Center, since it now sells its TV transmission and domestic backbone network services to TV and radio broadcasters and mobile phone operators. If it divested these assets to The Alliance it would become a reseller of these services over the Alliance's network? Finally, VITA itself is more or less a purchasing entity for secure state voice and data services, it's network consists of leased commercial capacity for the most part. It would have few physical assets to bring to the new entity. Also, none of Latvenergo's assets can be separated or privatized. Without changing the Energy Law, it is impossible to divest Latvenergo's telecoms unit, especially not to a new company which could well have private owners and investors. The original report on the Alliance proposes partly funding it through an unspecified public-private partnership.
The practical plans for forging The Alliance are being made by a working group in the government. We hope to obtain the minutes of the meeting where this was discussed.

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