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Greek Investment in Balkans Telecommunications

Hellenic Telecommunications Organisation SA (OTE) Greece

By Christina Haralanova




Greek investments on the Balkan Peninsula

Greek companies have invested more than 4 billion USD in the Southern European countries after the fall of the communism period. Leading investors are the telecommunications operator OTE and the National bank of Greece with its majority share in the Macedonian Commercial Bank and the United Bulgarian Bank. [1]

Greek investments in FYROM are most significant as Greek companies over the past few years bought controlling shares in a number of important companies there, such as the OKTA refinery, Macedonia's only such enterprise. And, in April 2000, the National Bank of Greece, the European Bank for reconstruction and development, and the International Financing Corporation bought 65 percent of the shares of Stopanska Banka, Macedonia's biggest commercial bank, for $46.5 million. Of the foreign-held assets, approximately 80 percent belong to the National Bank of Greece. [2]

In the period 1992-2000 Greek investments in Bulgaria amounted to 515 million USD, placing Greece in one of the top positions among foreign investments in Bulgaria. [3]



Hellenic Telecommunications Organisation SA(OTE)

OTE was established 1949 as a state - run monopoly. The Company develops, installs, and operates mobile and satellite telecommunications systems, telefaxes, video-conferencing, and audio-visual communications. [4] The Company is a full services communications group providing local, long distance, and international communications services to Greek and foreign businesses, customers and government agencies. The services rendered by OTE include: mobile telephony, Internet access (both wireless & satellite communications), ISDN, high-speed data communication and paging, leased lines, maritime and satellite communications, sales of equipment, telecards and directories. [5]

In March 2001 the Greek government sold 15 percent of OTE's share capital, remaining owner of another 36 percent. One more step forward of OTE's privatization is that the state has waived its right to appoint the Executive Director and the President of the Company. At present, OTE shares are offered at the Athens Exchange, NYSE and The LSE, and their total market price is evaluated on 12 billion USD.

In the middle of March 2001 Standard & Poors reviewed OTE's financial and management strategy and raised its long-term corporation rating from (A-) to (A).

Intracom S.A. is a Greek ISP providing Internet access to OTE. It is OTE's major supplier and Greece's largest telecommunications equipment and information systems manufacturer. The company also has a 100 percent owned subsidiary in Bulgaria.[6] Intracom is main supplier of OTE in Romania and Armenia.



OTE Subsidiaries

OTE owns completely or holds majority shares in nine domestic companies involved in telecommunications and Internet sector, offering services like: Internet provision, leasing, insurance and international infrastructure development, as well as mobile telephony. Some of the biggest ones are the following:
    COSMOTE is a mobile operator in Greece, as well as it owns the license for the second GSM operator in Bulgaria, called Cosmo Bulgaria Mobile. OTE owns 70 percent of COSMOTE shares.

    OTEROM is the company that bought the mobile operator in Romania and COSMOROM is OTE's subsidiary that owns shares in the Romanian mobile operator.

    ARMENTEL is OTE's subsidiary in Armenia.

    Hellascom Intl was set up in 1995 as a telecommunications company; owns 50 percent of the Trans Jordan Tele Services joint venture. The company operates both in Greece and abroad.

    COSMOONE provides electronic solutions concerning procurements between companies. It is a partnership among OTE, Cosmote and the American company, Commerce One.

    OTESAT is established in 1996; provides satellite mobile communications of the global INMARSAT system.




Investments

a. Within Greece

COSMOTE commenced operation in April 1998 and comprises the third mobile service in the Greek market. Currently COSMOTE has a 31.4 percent market share and over 1,500,000 subscribers within Greece.

OTE is operating on the Greek ISP market through OTEnet. The subsidiary was set up in 1996 providing Internet and other online services. Its market share is about 45 percent in the dial-up connections and a 34 percent in the permanent connections.


b. International

Serbia. In June 1997, OTE acquired 20 percent of the capital shares in the Serbian Telecom, the national monopoly organization in Serbia, providing domestic and international fixed telephony services.

Armenia. In March 1998, OTE acquired 90% Armentel's capital shares on the price of 142.5 million USD, the Armenian public, and mobile telecommunication organization. Armentel is the exclusive provider of all telecommunication services, including public and mobile telephony services running the country's entire telephone network.

In April 2001 OTE announced its decision to sell its shares in ArmenTel even if the deal will bring to a loss of part of the invested capital. OTE has contacted the Turkish Turk Telecom who is interested in ArmenTel offering to exchange its shares for ones in the Turkish telecom, which is now subject to arguments [7] However, other sources announce that OTE is planning to invest 100 million USD in the next two years for the further development of Armentel.

Romania. In November 1998, OTEROM subsidiary, acquired a 35 percent share in ROMTelecom S.A. at the price of 675 million USD, the Romanian public telecommunication organization. The OTE's COSMOROM mobile telephony network has started operating in Bucharest, Kostanza and Brasov and along the road arteries linking these cities with coverage in the above areas over 70 percent.

OTE officially acknowledged that had problems with the funding of the purchase of the capital shares for OTEROM. The OTE Director officially announced this fact still before the finalisation of the deal and then retired. After the scandal in Romania, the Greek media accused OTE of working for the private interests of Intracom, a company owned by Socratis Kokalis and that through its aggressive policy on the Balkans (the strategy was to buy the Bulgarian and Macedonian Telecommunication Companies right after the purchase of the ones in Serbia and Romania) aims to provide deals for Kokalis. There were many scandals in Greece about the fact that exactly Intracom receives OTE's state commissions thanks to political protections. [8]

Ukraine. OTE is active in the field of wireless communications, trough its participation in the Ukrainian Wave, the country mobile operator, working since December 1999.

Albania. COSMOTE acquired 85% of Albanian Mobile Telephony Company (AMC).

FYR Macedonia. In December 2000, OTE made the top bid for a majority stake in the country's mobile phone network, Mobimak. However, the Macedonian government sold the 51 percent stake to Hungary's Matav. Prime Minister Georgievski said this was the 'biggest [single] foreign investment' in the country. Although the Greek OTE had offered more than Matav's 674 million USD, a government spokesman said the cabinet was impressed with the Hungarian company's pledges to further development of the mobile phone network. Another reason not to offer MobiMak to OTE, however, may have been the increasing resistance to selling further 'strategic' enterprises to Greek companies. [9]

Bulgaria. OTE comes to Bulgaria after the deal for the Romanian Telecom and the scandals originating from the bad financial condition of the Greek state telecom at that time.

After one year of negotiations between the consortium KPN/OTE and the Bulgarian Government, on August 1, 2000 Bulgaria called off plans to sell 51 percent stake in the national telecom BTC after many disagreements in a number of provisions of the contract. The companies had expected to sign a contract on July 25 for the BTC sell at the price of 600 million USD. [10]

One of the reasons for the denial of the Bulgarian Government for selling the BTC was that the consortium insisted on having monopoly rights over the international telephony including the mobile operators. In the improved bid as of February 2000, KPN/OTE withdrew its requirement to have monopoly over the transfer of data and Internet services. Besides this, the candidates accepted that the state would receive its rightful dividend, amounting up to 30 percent of the profit of the BTC. [11] The Greek and Dutch parties demanded changes in the Bulgarian legislation concerning telecommunications. Moreover, they wanted to coordinate possible future changes in various normative acts with them.

Other reason for the fail of the deal was the staff rocades in OTE, which will be mentioned below. The Bulgarian government also considered OTE was not suitable strategic investor because of the recently emerging information in the foreign press about problems with the company's management and liquidity, as well as because of the fact that the Bulgarian telecom would remain under the control of a neighboring country.

According to the International Transparency Association who was supervising the privatization procedure of the BTC, there was a corruption in the deal because of the following reasons:
  1. The consortium wanted to obtain illegal monopoly and legislation guarantee rights.

  2. The OTE/KPN position was orientated to introducing monopoly over the international telephony. It is inadmissible to create a private monopoly in areas with an exclusively important national meaning. [12]

  3. OTE/KPN aimed legal evading of the Bulgarian legislation by wanting the company managing power to be concentrated in the Board of Directors and thus to be avoided the opinion of the Managing Assembly and therefore, the state interests if the Republic of Bulgaria. The Association considered the management of the Company should be subject of a more serious control and that a bigger transparency should be guaranteed.

  4. The Consortium aimed to limit the possibilities of Bulgaria for accession talks, undertaking, and implementing commitments of the World Trade Organisation, EU and NATO by requiring that the government should coordinate the accession talks with the future owners of BTC.

  5. As OTE had plans to establish three offshore companies to avoid the Bulgarian legislation, Bulgaria should not admit the companies, owners of BTC and the second mobile operator to be registered as offshore companies because this creates possibilities for export of capitals from the country. [13]

On December 18, 2000 OTE won an auction for Bulgaria's second mobile phone license with a $135 million bid. The company intends to invest between about 300 million USD in Bulgaria's mobile phone network. [14] This transaction was completed in January 2001, with commercial launch expected on July 11, 2001.

OTE has plans to cut down its investments both in Greece and abroad. Investments in 2000 were 710,4 million USD and the intentions for 2002 are 302,6 million USD. OTE plans to reduce its investments in foreign fixed telephone networks and to concentrate them in the mobile telecommunication services. [15]



OTE Staff Members - rocades and dismissals

On December 1, 1999 was announced the news about the criminal accusation of two higher officers of OTE of deceptions and abuses in the purchase of ROMtelecom. Only a month before that, the Company Manager, George Caraplis was fired. He was responsible for the company financial matters and its international investments. He was one of OTE representatives in the negotiation talks about the Bulgarian telecom, too. The unofficial reasons for his dismissal was his quarrel with the superior management of the company concerning a euro bond loan for 800 million Euro.

The dismissal is one of the many rocades in OTE's management, which was interpreted as a new evidence for crisis in the company management. It was the subsequent complicated overlapping of interests among political figures, suppliers like Intracom and the management body itself. In fact, the Intracom manager Socratis Kokalis and one more officer of the company were prosecuted about the deal for the ROMtelecom and the suppliers contract with Intracom at a price of 306 million USD for Romania. [16]

The Greek government suddenly changed OTE's Executive Director. On the place of George Simeonidis who was director for 15 months, was appointed Nikolaos Manasis - Chairman-chief Executive Officer. Manasis is former director of COSMOTE. This is the fourth change of the OTE staff for the last 3 years. In the investment banks analysis the regular chief dismissals of the Greek telecom directors are evaluated extremely negatively as an indication for state intervention and control in the company policy. The formal explanation for Simeonidis and Rapanis removal is that OTE's management was wrong because of the arguments between them, as well as Simeonidis' disagreements to the Greek Ministry of Finance concerning the forthcoming privatization of 15 percent of OTE capital (49 percent are already traded at the Athens stock exchange), and because of a swap deal with the National Bank of Greece.

On April 4, 2000 was made executive change in the Investor Relations Office of OTE: Constantinos Bratsikas was temporally appointed on the post of Investor Relations Manager, in Nick Demos' place. On April 25, 2001 Mr. Kyriakos Filippou was appointed as the fifteenth member in the Bord of Directors representing the minority shareholders. Mr. Filippou is taking the place of Mr. Tsoupidis who recently resigned from OTE's Board of Directors. [17]



June 6, 2001



List of Sources

  1. Financial Times, 2001

  2. Transitions Online magazine, http://archive.tol.cz/countries/macar00.html

  3. Economic Relations Report of the Greek Embassy for 2000

  4. Bloomberg Information Network

  5. OTE web site view http://www.ote.gr/

  6. Greek Information Online Agency http://www.invgr.com/ote/bulgaria.htm

  7. Capial newspaper, www.capital.bg

  8. Capital newspaper, February 19, 1999 http://www.capital.bg/

  9. Trasitions Online Magazine, http://archive.tol.cz/countries/macar00.html

  10. Bloomberg Information Network

  11. Capital Newspaper, February 4, 2000 http://www.capital.bg

  12. Article 18, paragraph 4 of the Constitution of the Republic of Bulgaria

  13. Capital Newspaper, August 05, 2000, issue 31 http://www.capital.bg/

  14. Bloomberg Information Network

  15. Capital Newspaper, April 28, 2001

  16. Capital Newspaper, December 4, 1999

  17. OTE original web site http://www.ote.gr/

Note: Information from the Capital Newspaper is very broadly used in this report because of the huge research that was made by the Capital reporters over the case of OTE.





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