Czech Company Hooks Mobile Phones to Internet
Wed, 11 Nov 1998 09:00:59 +1100
This is on the New York Times site, for which you need to register.
I have included the whole thing for those who don't want to (or
Czech Company Hooks Mobile Phones to Internet, Causing Trouble
By JOYCE-ANN GATSOULIS
RAGUE, Czech Republic -- Jaroslav Macal will soon be doing his part
to rid this country of one of the most visible reminders of its
communist past -- with the help of his mobile phone.
The 27-year-old set designer spends about $60 a month calling
friends in the United States, France, and Germany. Until now, he has
had no choice but to make his calls through SPT Telecom, the
government-controlled telecommunications monopoly that is a holdover
from the days of communist rule. Thanks to the Internet, he is about
to take his business elsewhere.
Macal is one of many Czechs taking advantage of a service called
Paegas Internet Call. The company offering the service, RadioMobil,
claims to be the first mobile phone company in the world to route
calls from the airwaves to the Internet -- bypassing the Czech
Republic's phone system entirely.
Macal said he doesn't mind the slightly inferior quality of
Internet-routed calls, since they cost about half as much. He will
spend the equivalent of 62 cents per minute calling New York, rather
than the $1.10 he spends now. "It's a great price, and I like the
idea of using this Internet technology a lot more than I like giving
my money to the government monopoly," he said.
Eastern Europe, where old state monopolies still keep millions of
citizens on years-long waiting lists for a simple telephone line,
seems an unlikely breeding ground for Internet telephony. But where
bureaucracies and government monopolies are failing citizens, the
Internet is succeeding.
Services like Paegas, along with call-back services that also offer
cheap international calls, "are indeed liberalizing the market"
before the law does, said Klaus Tebbe, general manager of
"Facing the present market situation in the Czech Republic, with
SPT's monopoly on international connections still existing until the
end of the year 2000, it makes more sense to introduce such a
service here than anywhere else," Tebbe said. "We, along with our
competitors, have to do everything to open the market, and Internet
telephony is one way to do that. It's the start of liberalization.
We need other options before 2001."
But a legal conflict over the Paegas service could set the tone for
future market developments in the region. SPT Telecom says that
RadioMobil is breaking the spirit, if not the letter, of the law,
because it does not have a government license to offer international
calling services in the Czech Republic.
In a deal typical for Eastern European countries, a Dutch-Swiss
consortium agreed in 1995 to pump billions into the state-run
telecommunications company in exchange for a monopoly on all
international calls until 2001. Paegas officials claim that because
their service uses data lines instead of the voice network to
transmit phone calls, it is only providing data transmission, for
which it does hold a license. SPT Telecom does not agree.
"They can prove that the service is different, that it uses
different parameters than voice, but to me that's irrelevant," said
Svatoslav Novak, chief executive officer of SPT Telecom. "This
illegal redirecting of international calls is not part of the
agreement we made with the government. You can't change the rules in
the middle of the game."
SPT Telecom estimates that the Paegas service, which was first
offered in July, is already costing it $1.3 million a month in
revenue. The company reported calling revenue of $781 million last
In the United States, which has long seen fierce competition in the
telecommunications business, major long-distance companies are
somewhat reluctantly moving into the cut-rate Internet telephony
market for fear of losing out to a host of small startups.
RadioMobil has one-upped the U.S. companies by making the service
mobile, allowing it to bypass the public telephone monopoly.
With Paegas, Internet-bound calls jump from customers' phones to
cellular base stations, then to a central RadioMobil office. There
they are converted into packets of digital information. RadioMobil
sends the packets to a central data router operated by Global One,
an alliance of Deutsche Telekom, Sprint and France Telecom.
The packets join a stream of data from various Czech Internet
service providers that travels over Global One's network to Deutsche
Telekom's Internet gateway in Germany, where it reaches the open
Internet. A Deutsche Telekom partner in the destination country
completes the call by converting the data back into a standard call
on the local phone network. The call recipient's responses make the
same journey in reverse.
Major long-distance carriers in the United States are attempting to
collect "interconnect fees" from companies that send their calls via
the Internet, but Paegas evades potential claims from SPT Telecom
because its Internet calls never touch the company's system.
Legislation in Eastern Europe, as in the rest of the world, has not
kept up with the rapid pace of technological development, and the
Czech Republic's laws do not give clear guidelines on how the
Internet should be regulated. The Czech government's
telecommunications authority said last week that it would delay a
final judgement on the legality of RadioMobil's service until April.
Because this will be the first official judgment on Internet
telephony in Eastern Europe, foreign investors, cellular operators
and customers in the region are watching closely. The resolution of
the case could provide guidance to other countries like Poland,
Romania, and Ukraine with similar market conditions as to whether it
is safe for telecommunications companies to tread on regulated
"We are looking quite closely at the outcome of that judgment," says
Robert Niczewski, a spokesman for the Polish cellular service Era,
which like RadioMobil is partially owned by Deutsche Telekom. "When
you look at the know-how of our shareholders, TMobil and Media One
International, you see that the potential in the region is great.
The only limitations are legal."
Cases like RadioMobil are emblematic of a growing paradox for
Eastern Europeans, where new technology is supplanting old at such a
rapid pace that in some cases East is jumping ahead of West. Take
Estonia, where 12 percent of the population now owns a mobile phone,
more than in France, according to European Mobile Communication
Research, a market research firm based in the United Kingdom. In
Hungary, mobile phone penetration is comparable to that in Germany
Even though monopolies in those countries are still stifling
competition, the number of mobile phone users is increasing
dramatically. What's more, since mobile phones often substitute for
rather than complement fixed lines, the amount of mobile phone use
per customer exceeds that in Western countries.
Ironically, it could be the lack of a technology infrastructure
before communism fell in 1989 that ends up propelling Eastern Europe
to more international pace-setting.
"We are starting on a green field," says Jan Gruntorad, the director
of Czech Internet service provider Cesnet, which has launched a
computer-based Internet phone service. "And on a green field, we are
able to build some very pretty houses. In many ways, that open field
is our great advantage. We are quickly buying up the newest and the
best, and you can already see signs that our part of the world is
building something extraordinary."
Without passion man is a mere latent force and possibility,
like the flint which awaits the shock of the iron before it
can give forth its spark.
-- Henri-Frederic Amiel.