BUCHAREST, Romania-Bulgaria, a small country in Eastern Europe, has been shaken during the last few months by a scandal in the communications market.
The mobile communications market in Bulgaria, a country with more than an 8 million inhabitants, last year grew 159 percent. The country has just one analog mobile operator, Mobikom, and one GSM operator, MobilTel.
The recent growth follows stagnation of the Bulgarian economy from 1996 to 1997, with delays from international investors and slow increases in the mobile market. After economic reform programs developed and applied by the Bulgarian government, the market began to again attract foreign investors in 1998.
At the beginning of 1998, the Bulgarian mobile market had about 40,000 subscribers and a 0.5 percent mobile penetration. After the governmental economic measures, in just one year, the mobile subscriber base increased to more than 120,000 subscribers, translating to a 1.5 percent mobile penetration. The mobile market continued to grow during 1999.
The government said in 1996 it would award a second GSM 900 MHz license. Bulgarian officials later noted the second GSM license would be given to the group that acquired a 51-percent stake of national state-owned wireline operator Bulgarian Telecommunications Co. Several international communications companies announced their interest in purchasing the BTC stake.
In mid-1999, the Bulgarian government said it accepted an offer of $501 million from a consortium including KPN Telecom of the Netherlands and Greek telecom company OTE, which was the only bidder. In October 1999, KPN said it had concluded negotiations with the Bulgarian government, and it expected the transaction to be complete by the end of November.
In January 2000, officials from the government contacted the consortium to talk about 37 separate legal and financial issues regarding the sale of the BTC shares. After the meetings, KPN and OTE made a new offer with the purpose of increasing the stake sum to $600 million.
After months of further discussions, negotiations and secret offers, in August of this year, the KPN/OTE consortium renounced its plan to buy the BTC stakes. The Bulgarian government had the choice of selling the BTC stake to KPN/OTE, which at that time decided to leave the negotiations, or to launch a new tender to try to resell the 51-percent stake.
The only way to make money before the BTC sale was to separately sell the second GSM license.
In August, government officials said they would hold a tender for the second GSM 900 license as quickly as possible.
Bulgaria’s Communications Minister Antoni Slavinsky said the government would announce tender details by the end of September. Also, he said at least five potential bidders had shown interest in the GSM license.
After that optimistic announcement, Ivan Taushanov, chairman of Bulgaria’s State Telecommunications Commission, said the tender for the second GSM license would be issued by January 2001.
Incumbent benefits
In the meantime, the only beneficiary of the prolonged BTC privatization and GSM licensing process has been MobilTel, the only current second-generation operator. In 1999, MobilTel achieved a 236-percent increase in subscriber numbers and became the second-largest communications operator in the country behind fixed-line operator BTC.
Because the ownership of MobilTel changed in 1999-50 percent is now owned by Eastern Telecom Markets Fund and 50 percent by Bulsim-the company has become more aggressive in the Bulgarian communications market. In 1999, the company invested almost $40 million to cover 82 percent of the Bulgarian population and 67 percent of the country’s geographic boundaries. The measures were reflected by the increased base of more than 190,000 subscribers at the end of 1999. NMT 450 operator Mobikom had 130,000 subscribers at the end of 1999.
MobilTel also expanded its business by buying the majority stakes of the main reseller of Mobikom’s services, Nivan Co. Therefore, Nivan, with its 30 business centers throughout the country, became the second-largest distributor of MobilTel’s services, after M-Tel Trading. In addition, MobilTel began offering other communications services, such as global positioning system, very small aperture terminals and Internet services.
Likely due to the sale of BTC and its increased financial strength, MobilTel began to search for a minority shareholder at the end of 1999. According to Bulgarian press reports, two potential buyers showed interested in buying stakes in MobilTel. Deutsche Telekom and Israeli group Zeevi each visited the GSM operator at the beginning of this year, but they ended negotiations without explanation.
Then the KPN/OTE consortium said MobilTel influenced the process of the BTC stake sale through its representatives in the negotiations commission. After the accusation, Deputy Prime Minister Evgeni Bakardjiev was dismissed, and most members of the negotiations team were replaced.
Mobikom officials then said in the press MobilTel was conducting illegal activities through its Mobika prepaid GSM service. MobilTel denied the charge, but BTC made the same accusations against MobilTel.
Russian businessmen Michael Chorny and Lev Chorny are the main owners of the stakes in MobilTel. The two Russian brothers are accused of illegal privatization deals and money laundering in Russia.
On Sept. 4, Bulgarian Prime Minister Ivan Kostov ordered Taushanov, chairman of the State Telecommunications Commission, to require MobilTel to supply all data regarding its shareholders, including each shareholder’s allocations of shares, financial results and taxes paid, on the base of Article 33 from the Telecommunications Act and Section 19 of the MobilTel license.
The Bulgarian prime minister sent to Taushanov a statement prepared by the Interdepartament Commission regarding the MobilTel accusations and stating damages caused to the state company were not less than US$4 million.
According to the statement, the investigation will be detailed and include all MobilTel activities, including whether the operator harmed national security or public interest, which are reasons for revoking its telecommunications services license.
According to an interview with Taushanov at a Bulgarian radio station, the possible revocation of MobilTel’s license does not mean the carrier’s subscribers would be affected, although he did not provide details on how services could continue without a GSM license.
In the meantime, MobilTel continues to offer services until the end of the investigation, and the second GSM license award is under review.
