Monday, November 29, 2004

The three-week UMTS wonder auction, apply now

The Latvian government, spurred by the Ministry of Transport, has announced it will auction the third combined GSM/UMTS licence on January 7, with a starting price of LVL 1.3 million. Applicants for short-listing must apply by December 21. The terms of the auction will also require the new entrant to build an entirely independent network and invest at least EUR 150 million.
According to this blogger's sources, the auction was railroaded through over the objections of officials inside the Transport Ministry and the profound skepticism of the Public Utilities Regulatory Commission (see my earlier post). It appears – and some international analysts agree – that this auction, like its predecessor in 2002, will fail. Back then, the government set a starting price of LVL 5.8 million. The Communications Department of the MoT, which advocated a starting price of LVL 500 000, is understood to have abstained from endorsing the fast-track auction.
One reason no one may show up is that even if LVL 1.3 million is not a huge sum for major international operators, it still has to be spent based on a careful and considered study of the Latvian market and a detailed, up-to-date set of documents outlining what it is the operator will be getting. It appears that as far as the terms of the auction, the MoT has simply cut, pasted and switched some key figures in the 2002 tender documents. With a three week deadline, it is hard to see how any company can make a reasoned and prudent decision. The operators listed in the 16-page (appendices included) market study seem to have expressed nothing more than a polite interest in Latvia, IF...etc. It is doubtful that the MoT, which ordered this criticized report, has any detailed, up-to-date documentation to offer potential bidders, answering such questions as easements (to put up base stations on public and private buildings), the possibility of roaming (with incumbents on reasonable commercial terms), etc.
While the MoT's cut and past may be OK as a way to avoid writing a largely standardized document from scratch, it doesn't address the issues of whether there is actually a market for a third UMTS/GSM operator in Latvia and whether UMTS is a viable solution for a small, saturated and relatively poor market such as Latvia.
There are now probably around 1.4 million mobile phone users in the country, out of a population of around 2.3 million. Any new users are unlikely to be the kind of high ARPU generating business users that a UMTS operator needs to cover its costs, never mind make any money. If one talks about 3G rather than UMTS, then there already is a "third" operator, Triatel, actually the first to offer 3G services via CDMA-450. Meanwhile, one would expect incumbents LMT and Tele2, who must start their UMTS services by year end, to be making a major Christmas marketing effort. But we see nothing, yet, not a peep about how they will each at least make their first commercial lat on UMTS by December 31. There must be some reason for this hesitation with LVL 5.8 million sitting as a piece of paper in the corporate files of each company.
In addition, there have been strides in technology that seriously threaten UMTS in the mobile urban business environment. While browsing at a Nokia boutique at the Stockmann department store in downtown Riga, I was told that the latest Nokia Communicator (the 9500 0r 9300) would be Wi-Fi enabled. This means that users will be able to log on to data links as fast or faster than UMTS at its best (around 2 Mbps) and to use their devices to make internet phone calls rather than using any of the mobile networks. Internet telephony over WiFi is a "GSM killer" app if there ever was one, especially if your device makes or at least suggests your choices for you. A multistandard mobile phone of the near future could, for example, default to the user's Skype account when in range of a WiFi hotspot and automatically log on to it and make the call. Who will be the first to buy these devices? The high ARPU business user every operator is after.
I believe that once a significant number of hotspots are set up at business venues (restaurants, hotels, the airport and train station), and especially if Lattelekom launches WiMax, the use even of GSM for voice in the "electronically dense" urban environment (Riga, some other city centers) will decline in favor of "free" internet voice (well, flat-rate, at least).
So who is ready to spend at least LVL 1.3 million, topped by EUR 150 million to build a (superflous) autonomous network nationwide? Probably nobody. So look for another flop. Or at best, some really weird, never-heard-of company coming in and taking the licence on its firts and only bid.

Friday, November 26, 2004

IT integrators cozying up to Triatel?

Triatel, the CDMA-450 operator that started operations on November 15, has several IT integrators and ASPs waiting to talk about some deals, sources told this blogger. The idea is to package the mobile, fixed mobile and wireless internet solutions with the IT companies applications on demand, VPN service and the like. It seems that some of the companies want to offer a kind of "corporate-network-in-a-box" incorporating Triatel fixed and mobile phones, a VPN, servers and networked PCs, applications such as CRM or ERP, whatever.
This is apparently a sign that Triatel is seen as being the right magnet for business users of what are, in fact, 3G services. Triatel subscriptions are not going to be used to watch videocasts (using free video minutes) of lunch at the high school cafeteria, as this blogger's 17-year-old (from my first marriage, lives in Sweden) says some of his classmates do with their 3 phones. The target of some 40 000 users set by Triatel seems realistic in the number of total lines that could be used for business purposes (some companies going entirely wireless, whether with mobile, desktop phones or laptop cards) and by some high-end private users. We may also see Triatel drop the other shoe and announce a pure DSL-type wireless internet subscription, either with high speed or a competitive flat rate price.
It is interesting what Lattelekom will do - it is seeking some CDMA 450 spectrum, supposedly for reaching out into the remote countryside. But will it stand aside and watch Triatel take high revenue business customers (alone or through IT integrators), or will it act? In that case, how? Could Verdi, the brand Lattelekom uses for its IT solution provider, be one of those waiting to talk to Triatel? Certainly, the more natural partner, Latvian Mobile Telephone (LMT) isn't rushing to get its UMTS service up and running by year end as its licence stipulates. And the idea of a mobile office-in-a-box that can be up and running almost in a plug and play mode for its simpler functions (voice, fax, internet, video conferencing) is pretty attractive. If Lattelekom doesn't offer it, someone else will.

Thursday, November 25, 2004

A short note

I've been away from Latvia for several days at a film market in Germany (my wife is a filmmaker). I am now back and hope to provide the latest rumors, gossip and facts from the Latvian telecoms and IT scene. On December 4, I will be heading for Oracle World in San Francisco and hope to do some blogging from there.

Thursday, November 18, 2004

Lattelekom takes bids for TV-capable network

Just as SBC Communications and Microsoft have signed a deal in the US enabling the telecoms operator to send TV signals (presumably TV over IP) to the home, Lattelekom is winding up a bidding procedure to complete its high speed MPLS network in Riga. One of the specs for this network is that it will be able to handle TV over IP, so-called internet television. This, then, will be the basis of Lattelekom's television strategy, announced earlier this year after Nils Melngailis took over as managing director.
According to this blogger's sources, Lattelekom has already completed a high speed MPLS network in the rest of Latvia and Riga was left unfinished because of some technical problems, causing a new tender to be announced. Cisco, the global provider of internet routing equipment (and IP telephony) is among the bidders.
Once the Riga network is completed, Lattelekom will have laid the groundwork for eventually switching to an all-IP network and for reducing voice communications to a limitless, nearly free service for those customers having flat-rate broadband connections.
The old circuit switched network, which cost Lattelekom (and its various private sector shareholders) nearly LVL 500 million, is not about to be shut down, In fact, the former monopoly is installing and expanding interface solutions between what are essentially two networks. However, my guess is that once broadband useage moves into six figures (close to the 200 000 target Lattelekom has set), you will see IP phones being offered together with new broadband links. Also look for connection speeds to jump radically higher from the present 128 kbps (for City Internet) and 256 kbps (HomeDSL) to the megabit and multimegabit level (at least as a premium service).
All in all, Lattelekom is gearing up to use the reach and power of its nationwide network to meet challenges such as the triple-play offered by cable TV, internet and fixed network operator Baltcom, as well as the slightly crackpot plans to launch yet another carrier network by merging several state owned networks into The Alliance (see earlier posts).
I may add to this later. It's Latvian Independence Day and snowing in Riga.

Tuesday, November 16, 2004

Latvia's regulator dodges "mission impossible"

Latvia's Public Utilities Regulatory Commission (SPRK in Latvian) has issued a statement calling a recent survey of the potential market for its "third" GSM/UMTS mobile operator licence vague and unprofessional. Essentially, the SPRK said it cannot undertake organizing a licence auction based on the survey done by Ticon, which found that there was general, conditional interest in the auction by a number of foreign and Latvian companies. The regulator said it could not design an auction based on this data, which the agency said gave no specific recommendations for the pre-conditions for such a sale.
The statement is a signal of an ongoing, underlying conflict between the cautious regulator and the Ministry of Transport, which seems determined to hold an auction by the end of the year. Sources at the Ministry's Communications Department told this blogger that the regulator was foot dragging and dodging its responsibility to conduct the auction with due speed.
The regulator, however, seems determined not to repeat the disastrous attempt at a third-licence auction in 2002, when both incumbents, LMT and Tele2, bought UMTS licences for a fixed price of LVL 5.8 million, but no one showed up for the "real" auction of the third licence. However, the starting price for the current licence has been indicated at around LVL 500 000.
The controversial statement by the SPRK came on the same day as CDMA-450 operator Triatel was scheduled to start operations as Latvia's de-facto third mobile operator, offering 3G services. The incumbents, whose expensive licences required that they start UMTS operations by year end, have yet to announce the start of this service.

Friday, November 12, 2004

The wild card hit

Well, it was a previously unknown Finnish company, AffectoGenimap, that merged with Mebius of Latvia's Lithuanian parent, Informacines Technologijos. So one of the wild guesses in the previous post was sorta correct.
The Finnish company believes it will sell its GIS solutions in the Baltics. Good luck to them, because as someone in the GIS business in Latvia said (a couple of years ago) -- there will be no widespread adoption of GIS as long as digging is cheap. This was said in reference to the use of geographical information systems (GIS) for planning street maintenance and the like.
The Lithuanians apparently see an opportunity to offer their rather extensive and low-cost Oracle implementation experience in Finland.
That's my short comment, sitting here at Riga Airport on a fast WiFi link.

Wednesday, November 10, 2004

Finnish-Baltic IT merger rumors fly

A major merger of a Finnish and "Pan Baltic" IT company is to be announced in Helsinki on Friday. On the Baltic side, there is a short list of "the usual suspects", so here are the hottest rumors:

1) It's Latvian IT Alise (with 10 employees in Estonia, I guess it is Pan-Baltic) and TietoEnator, the Finnish-Swedish IT company. With IT Alise, TietoEnator would broaden its potential customer base in Latvia from it's narrow-focus, bank-card system oriented ("Chipcards in Borneo 'R Us) Latvian subsidiary and pick up a company that has "done" Lattelekom, LMT, and is installing a big m-f of an Oracle eBusiness Suite system at the biggest corporate m-f of them all in Latvia, Latvenergo, the national energy utility. The word is out that the companies have "dated" regularly in the past, but not gone home with each other. One never knows...

2) It's MicroLink and God-knows-who in Finland (some company with more k-s and ä-s than you want to see in your life). MicroLink is truly pan-Baltic, it is a mid-sized m-f in its own right in the market (Exigen now has a bigger one ....turnover, watch'cha think, since it attached Dati over the summer). For MicroLink this would fulfill the prophecy of one of its founders, Alan Martinsson, that Baltic IT companies cannot stand alone for long. Alan has, unless I am hallucinating this, gone off to some kind of venture capital/investment banking outfit, and might be involved in doing the deal. Don't know, haven't called the man. But it would make sense. Also, the Estonians, who started MicroLink, would probably feel better selling it to their Finnish cousins, who, BTW, are pretty much at the top of the world IT list in terms of smarts, useage, etc.

3)It's one of the Lithuanian upstarts. Varos Group with its retail and access control solutions sounds a little to narrow, unless we are talking a peer-to-peer type of deal, meeting their obscure Finnish clone, Kurrattperkelääkeskustakoskenkorvakatu Oy ...oy...oy... or whatever. Sonex, which I don't follow, is still tiptoeing out of the hardware business. Mebiuss, just recently came into Latvia, had its obligatory scandals (who doesn't, IT is the # 2 customer for this state outfit) with the Procurement Supervision Board (IUB in Latvian) but has yet to build up a really solid reputation.

So I don't really know, but I'll put my five santims on the IT Alise deal.

Then there are the loonie rumors (although not entirely). The one I heard today from some top folks in the Latvian IT business is that Lattelekom is buying MicroLink. Sorta fits with the Estos mid-range vision of their baby growing up to marry a mid-sized IT & T company. It also fits with the idea that Lattelekom may split into a) a network operator (getting some pan-Baltic assets in the data networks area from MicroLink), b) a service provider (consumer, broadband, cable TV, all that sh**t) and c) a business service provider (heavy into outsourcing your entire IT&T needs, putting in all from the network to the PCs to the rent-an-applications services, just sign here on the SLA...). The latter is going to take a lot of IT competance and weigh. MicroLink has some of it. Rumor also has it that Verdi, the unborn fetus of an IT subsidiary that Lattelekom has been carrying for years is losing folks to international biggies like Accenture. Buying MicroLink might make Lattelekom a more exciting place to work (well, with other excitements like "who's getting reorganized this month?")
One also mustn't forget that, sooner or later, even people like Indulis Emsis and Ainars Slesers will figure out that you can either sell Lattelekom to TeliaSonera, or wait to sell it to DeutscheT-Sonera in 2008 or whatever, but there ain't gonna be too many choices beyond that, and certainly no mad bidding war even for this prize. And don't call out the riot squad to stop the people stampeding off Air Lebanon to bid for that fourth third mobile licence the second time around, while you are at it...

Friday will tell all. Can't make it myself, gotta go to Stockholm with my youngest son that evening on family matters. Otherwise, if it were just a question of spending the day in Helsinki, I would dog-leg it with Finnair to Tukholma as they call it.

Tuesday, November 09, 2004

The lethal 13 % solution -from SME to BRK?

Sorry for getting around to this after the fact, but there were amusing telecoms stories to tell. The Latvian Information Technology and Telecommunications Association (LITTA) reported on October 26 that Latvian software companies recorded only 13 % of their sales as being to small and medium-sized enterprises (SMEs). The average for Eastern Europe is 42 %. Even accounting for a high rate of "unofficially obtained" software, this means that the use of IT at SMEs is at best well below the average for the region (i.e. assuming about 50 % use IT, but don't have licences, bringing the uptake rate to 26 %).
To my mind, IT plays the role of electricity say, 110 years ago. Companies in the 1890s are said to have had vice-presidents for electricity, some had their own generators and power plants. Now, asking whether a company runs on electricity will qualify you as an idiot in Latvia and anywhere else. Yet information processed by IT systems is the electricity of business since the 1980s at least. It certainly is in the 2000s, and the pace of change is much faster than when businesses electrified more than a century ago.
Some years ago I met some Swedish businessmen from the wood processing sector. One said that he had one and only one initial question for any potential Latvian partner: can you work with numerically driven machine tool files? In other words, FORGET IT if you do not have an IT driven, networked production line where I can stick in a diskette in Stockholm and have tabletops machined Latvia and delivered, say, a week later.
No amount of craftsmanship, no hard working best practice Latvian handicraft will get you past that. Unfortunately, the figures show that Latvian SMEs are at best, good mid-1950s small businesses by global and EU standards. Do we see any 50s-style businesses around anymore? No!
These indicators of SME IT use in Latvia are a signal that in the EU/global market, a very large number of Latvian SMEs are going to be business road kill (BRK) very soon. For readers who don't know American slang, road kill are the flat squashed remains of animals who, if there is any expression left, look like they don't know what hit them.

Thursday, November 04, 2004

Mobile operator in a "Nigerian Letter" reaches Latvia

Everyone gets them, the letters from Nigeria, other African countries and even from Russia (claiming to be from Yukos owner Khordokovsky). They offer fabulous "business opportunities" arising from the fact that the Minister for Crocodile Breeding on The White Nile died and left USD 78.6 million in his safe. His faithful servant Kwame, is now offering to share this with you.
Not interested?
The Latvian Ministry of Transport went out with a press release announcing that it, too, had received what is, to my mind, the equivalent of a Nigerian letter offering a fabulous deal in mobile telecommunications. The MOT, of course, was serious.
A company called International Telecommunications and Technology Inc, or IT&T Company is offering to buy licences for GSM, UMTS, and CDMA-450, as well as to build its own independent nationwide network in 12 months, spending between EUR 150 and 220 million. It says it will pay LVL 1.3 million for the licences, which are not officially up for bids yet, but whose starting pricc has been pegged at LVL 500 000.
IT&T Company is nowhere and everywhere. Google it and you see the power of Google, everything ever put on the net about IT&T, meaning information technology and telecommunications. I did no better on the Federal Communications Commission (FCC) website, since IT&T Company claimed to be an FCC licenced operator offering some kind of carrier services in the US and 95 other countries.
The latest word is that IT&T Company is based in Lebanon, but I think there are only two mobile operators there - Libancell and Cellis, or something like that. Both were involved in some kind of scandals, Syrian influence, the Assad family, etc.
In any case, there are probably more than 1.3 million mobile users in Latvia, and a very optimistic estimate says there might be 300 000 potential additional users. The high ARPU business user has been taken (some might be skimmed away by Triatel with its CDMA-450 based 3G services), the middle ground is covered rather well by Tele2's strong Golden Fish prepaid card brand, by LMT's youth-oriented O-karte and the virtual operator Amigo hitting the teenybopper market. So that basically leaves the geezers, grannies and toddlers. Even some of them have mobiles, paid for by their children or grandchildren. So how is the EUR 200 million investment going to be returned?
All of which led me to conclude, almost at first glance, that the whole IT&T Company offering was a crackpot deal. Nobody among my telecoms contacts at Pyramid Research, the Latvian Telecommunications Association, or the Public Utilities Regulatory Board had heard of this outfit. Nor had Dana Al Khatib, an analyst at Arab Advisers Group, who I phoned in Amman, Jordan, for my newspaper. The company had done a comprehensive survey of telecoms companies in the Middle East, but apparently missed the mysterious IT&T Company.
What gives a touch of black humor to this, as to many other political events in Latvia, is that the MOT decided to publicize this lunacy as a sign that there was "interest" in the so-called third GSM/UMTS licence. I'm not belittling that, an auction may have a fighting chance, but by that standard, I get "expressions of interest" amounting to billions every week. Let's see, did I toss out that e-mail from Kwame, who is mournfully remembering his most honorable minister, deceased most horrible when he slipped and fell into a crocodile breeding tank...
Those sums are more eye-popping than what this mysterious allegedly Lebanese company has to offers.

Tuesday, November 02, 2004

Triatel: Latvia's first metrosexual operator

To loosely borrow the term "metrosexual", it refers to an attractive, intelligent and aesthetically refined male person who exhibits what many would consider the best attributes of positive stereotype gay and straight men. There is a flair, an intelligence, a touch of arrogance, perhaps, but all in all, an attitude and "je ne sais quois" which leaves you wondering just which side of the fence this guy is on.
So what does this have to do with Latvian telecoms? Triatel, the brand used by two operators, Telekom Baltija and SIA Radiokoms, has launched a kind of metrosexual set of services. They are state of the art, 3G, mobile, fast (5.2 Mbps download is just around the corner) and at the same time fixed, no different from your slightly upscale home phone, except that there is this little antenna, no cord, but a dial tone just as if there was one. They are equally at home in the city (and this is where Lattelekom or at least some of the wireline ISPs should watch out) and in the increasingly prosperous suburbs. They can look "fixed line" and be mobile very quickly. In fact, you can pack that home desktop phone in a bag and take it to the summer house, just like a 1992 vintage Motorola (except you can safely drop the Triatel phone on your foot, the Motorola is not to be tried at home...). The number and phone portability (within Latvia) is very Vonage-y, but there is no flat rate service yet.
So that's how Triatel is going to look -- cool looking odd brand flip phones, desktop phones and faxes with the cord missing on second glance, and the bright little secret that this company is actually, henceforth, doing everything via CDMA 450 and calling some of it "mobile".
This is just a weird way of looking at Triatel after their presentation today. Everyone else thinks it is some big deal that they are planning to get 40 000 cream of the crop subs, or 2 % of the Latvian market. As long as their interconnect and roaming issues are settled (they are in process), who really cares how big a market share they have as long as they generate decent ARPU.
One thing though, as a Lattelekom executive points out (he sees them as competition, and rightly), is that Triatel has to get the customer outcomes right, because it is no longer just abot the technology or the network. The network connection on the fixed wire (no little antenna) is heading for near zero cost in the big markets. So it all boils down to making business processes work seamlessly and flawlessly and, yes, metrosexually, regardless of the identity of the network, fixed or wireless.

Monday, November 01, 2004

Are the Germans coming?

Three or four years from now, don't be surprised if Lattelekom and Latvian Mobile Telephone (LMT) are subsidiaries of TeliaSonera which, in turn is a subsidiary of Deutsche Telekom. Or worse, Lattelekom is a 49 % stranded investment of TeliaSonera, though that is less likely now that the government of "no privatization on my watch" Indulis Emsis has fallen.
According to my source, speaking in my ear at a crowded wine-drinking event ahead of my newspaper, Dienas bizness annual awards event, the word is out to "start learning German".
This information is to be taken as seriously as any cocktail party rumor, but against the background of rumors that France Telecom was interested in TeliaSonera, it does sort of make sense. It also meshes with my own view, which I tell anyone who says "TeliaSonera taking over LMT and Lattelekom will be a supermonopoly", that TeliaSonera is a midsized fish in the European and global telecoms shark tank. It just looks big to us. To the really big, TeliaSonera looks like lunch. Not ready to be served yet, not, maybe, for quite a while, but still, lunch...