Brief description of the sector

In 2002 the total number of fixed line subscribers was 701 thousands of which 83.2% were connected to the digital network. Compared to the previous year the total number of fixed lines has decreased by 2.9%.

The number of mobile phone subscribers reached 917 thousands at the end of 2002 which is by 46.7% more compared to 2001.

In 2002 the number of parcels sent by post increased by 29.7% compared to the previous year, but the number of sent letters, postcards and small parcels increased by 8.8%. Money transfers decreased by 7.6% compared to 2001.

In 2002 the volume of handled letters, postcards and small parcels grew by 5.6%. The growth was achieved due to the increased volume of domestic postal services – the number of letters, postcards and small parcels sent domestically grew by 7.3% compared to 2001 while mail abroad and from abroad decreased by 2.7% and 3.8% respectively.

Telecommunications and postal policy guidelines

In August 1998 the Cabinet of Ministers accepted the Telecommunications sector policy for the time period from 1998 to 2003 and in October 1998 it accepted the Postal sector policy for the time period from 1998 to 2003. Since the telecommunications market is opened to competition (see Box 5) from 2003, in 2002 the Ministry of Transport commenced work on new Electronic communications sector policy guidelines for the period from 2003 to 2007. The guidelines of the new sector policy are planned to be accepted at the beginning of 2003.

Commission’s activities in the telecommunications and postal sector

Telecommunications sector

Legal acts

          In 2002 the Commission approved a number of legal acts which regulate the operation of telecommunications market participants in a liberalized telecommunications market. Altogether the Commission in 2002 approved twelve regulations for telecommunications, including regulations for the implementation of licensing regime, the implementation of universal telecommunications service, assigning telecommunications undertakings having significant market power, the use of national resources (radio frequency). The regulations “Quality requirements for telecommunications services provided by telecommunications undertakings and the publishing procedure of the quality report” were prepared for approval in 2003. Eight methodologies were approved which regulate such issues as tariff setting and performance of service quality tests. Recommendations have been elaborated for the content of the reference interconnection offer contract and the information to be included in the contract.

          National numeration plan was approved in accordance with the law On Telecommunications and international treaties and standards.

          In 2003 it is planned to approve reference interconnection offers for contracts submitted by the operators having significant power in the interconnection market, prepare technical regulations regarding mutual connection of telecommunications networks, as well as technical regulations for unbundling of access networks. A concept for switching to eight-digit numeration in the public telecommunications network is to be elaborated.

            Licensing of telecommunications undertakings

          According to the law On Telecommunications, there are two types of permissions in the telecommunications sector – individual licenses and general authorizations. Individual licenses are granted to telecommunications undertakings which have already installed or plan to install public telecommunications networks and provide public telecommunications services or in cases when telecommunications undertakings require scarce national resources (scarce resources in telecommunications are radiofrequencies and numeration range). In other cases general authorization is registered. Individual license is a document which is issued to each enterprise individually and contains information about the enterprise, as well as the rights granted and obligations (license conditions) imposed on the enterprise, while general authorization is a document containing information about the enterprise, its provided telecommunications services, and the territory of operation, but does not contain any individual conditions. The conditions of general authorizations are listed in the corresponding regulations of the Commission and they are the same for all general authorization holders.

          By December 31, 2002 the Commission had issued 24 individual licenses in the telecommunications sector, including one for LLC “Lattelekom” (see Box 6) and two UMTS licenses – for “Latvijas Mobilais Telefons” (see Box 7) and “TELE2”, as well as registered nine general authorizations.

Most enterprises which have received licenses have applied to provide public data, electronic messaging and Internet services, as well as leased line services. Six of the 24 individual license holders have requested and received numeration resources for the provision of voice telephony services.

Evaluating market power of telecommunications undertakings

In May 2002 the Commission’s board approved “Regulations for assignment of telecommunications undertakings having significant market power”. The regulations envisage a procedure how the Commission evaluates telecommunications undertaking’s power in the telecommunications service market. By a separate decision it was established that market power in 2003 shall be evaluated in the following telecommunications service markets:

• Fixed voice telephony service market;
• Leased line service market;
• Interconnection service market.

In November 2002 the Commission’s board decided to establish that LLC “Lattelekom” has significant power in fixed voice telephony service, leased line service and interconnection service markets. Significant power of LLC “Latvijas Mobilais Telefons” and LLC “TELE2” was established in the interconnection service market. Decision on the telecommunications undertakings having significant market power will be reviewed before December 2003.

In November 2002 the Commission’s board on the basis of the requirements of the law On Telecommunications approved “Regulations on special conditions for telecommunications undertakings designated as having significant market power”. The regulations envisage the scope of special conditions which are applied to the telecommunications undertaking whose power in a telecommunications market has been assigned as significant. The aim of the special conditions for telecommunications undertaking having significant market power is to ensure that the undertaking’s market power is not abused in restricting or hindering competition in the specific or related telecommunications service markets.

Universal telecommunications service

In 2002 the Commission approved regulations “Regulations on the scope of universal telecommunications services” which contain a complete list of universal telecommunications service and were developed taking into account the requirements of European Union Universal service directive (Directive 2002/22/EK). These regulations specify the list of services to be included in the conditions, the scope of services to be provided, the geographical territory, and the principle that the users of the universal telecommunications service are only private persons and the service is provided throughout the Republic of Latvia. The Commission determines one or more public telecommunications network operators which are obliged to provide universal telecommunications service, as well as the universal service’s scope, territory, users and the time period for provision of the service.

The decision of the Commission’s board adopted in 2002 “On the provision of universal telecommunications service by Lattelekom in 2003” sets the obligations for the telecommunications undertaking Lattelekom to provide the universal telecommunications service in 2003. These regulations contain a complete list of universal telecommunications service obligations, but the obligations of the company are limited. In 2003 Lattelekom is the only undertaking having to fulfill the obligations of the universal telecommunications service.

The decision of the Commission’s board adopted in 2002 “On the provision of universal telecommunications service by Lattelekom in 2003” sets the following obligations for the telecommunications undertaking Lattelekom:

1)     Provide access to the Lattelekom public telecommunications network in fixed connection places enabling users to make calls and receive local, domestic and international voice telephony services, data and electronic messaging transmission services at the speed of no less than 9600 bit/s for all existing Lattelekom’s subscribers, who wish it;

2)     Provide at least one tariff plan of choice with telephone line subscription fee being less than the telephone line subscription fee approved by the Commission, and maintain discounts for disabled persons on those telecommunications services where discounts were provided in 2002;

3)     Provide access to the following public payphone services for which coins, phone card, credit card or call card may be used as a means of payment:

•         Local, domestic and international voice telephony services;

•         Toll-free emergency service numbers;

•         Toll-free number services;

•         Operator assistance service;

4)     Provide the maintenance of public payphones in working order at the same number as on December 31, 2002. If a payphone in working order is removed due to an objective reason, it must be installed elsewhere, and as an alternative to the installation of new payphones the company can install free access phones;

5)     Provide access for all Lattelekom’s users of public fixed telecommunications network to at least one Lattelekom subscriber directory which is renewed at least once a year if it is available electronically and is published in a printed form if it has not been published in 2002;

6)     Provide all Lattelekom’s users of public fixed telecommunications network including the users of public payphones with access to at least one inquiry service.

The Commission’s decision specifies requirements also for parameters of voice telephony service quality included in the commitments of the universal telecommunications service. Lattelekom regularly has to submit accounts to the Commission about conformity of the defined voice telephony service quality to the set requirements.

Telecommunications service tariffs

The Commission approved Telecommunications service tariff calculation methodology in 2002. The methodology envisages the use of price cap method for tariff regulation. Price cap was selected by the Commission as a unified method for all regulated sectors. In the telecommunications sector the methodology is binding for undertakings having significant power in the voice telephony market. Other telecommunications undertakings set service tariffs independently. The Commission will supervise voice telephony service tariffs until the time, when the provision of these services in the specific geographical area will take place under competition.

Tariffs for local, domestic and international voice telephony services are calculated according to the price cap formula for tariff baskets. According to the tariff calculation methodology one or several tariff baskets may be specified. The content of tariff basket and the weight of services correspond to the average statistical bill of telecommunications service user. Thus, there is a guarantee that in case of each separate tariff increase, reduction of other tariffs must be accomplished and depending on the set tariff cap the reduction of the customer’s total bill is achieved or its growth is limited.

Public payphone and leased line service tariffs are approved by decision on each separate tariff.

To ensure that service tariffs for voice telephony, leased line service, interconnection (between holders of individual licenses and general authorizations) and special access (between holders of individual licenses and general authorizations) correspond to their costs, Telecommunications service cost calculation and allocation methodology has been developed and approved at the beginning of 2003.

Implementation of the telecommunications tariff calculation and cost calculation and allocation methodologies will ensure balanced fixed voice telephony service tariffs, market and competition development and protection of consumer rights. Tariffs of the incumbent operator have not changed since 1998.

Service quality

In 2002 telecommunications service control tests have been performed in the public fixed telecommunications network (local and domestic voice telephony services, payphone services, damage notification reception and information operator services), public mobile telecommunications network (voice telephony services) and public telecommunications network interconnection services for voice telephony. The results of these tests are summarized in the quality report for year 2002 as required by Commission’s regulations “Quality requirements for telecommunications services provided by telecommunications undertakings and the publishing procedure of the quality report”.

In 2002 a total of 41905 calls were made in the fixed telecommunications network to test the quality of voice telephony services, 613 payphones were tested and 400 calls were made to each operator service. 150 calls were made in each combination totaling 1200 calls to test mobile telecommunications network service quality and interconnection services.

Information at commission’s disposal allows comparison of some service quality parameters to the results of previous years – in 2002 voice telephony service tests in Lattelekom’s fixed telecommunications network were performed in all administrative districts of Latvia.

Comparing quality indicators from 2000 to 2002 shows that overall service quality for voice telephony services in the public fixed telecommunications network has improved.

However, by analyzing these quality indicators in the public fixed telecommunications network for voice telephony services in the administrative districts of Latvia, significant differences can be noted.

Payphone service quality has improved over the last three years. The operation of operator centers has improved considerably over this time period. The changes of quality indicators of mobile telecommunications network services are small, although the overall service quality has improved over the last three years. The changes of interconnection service quality indicators are also small and the comparison of the three year results indicates improvement of the service quality.

In 2003 the Commission will continue service quality tests increasing the number of calls for mobile telecommunications network and interconnection service quality tests.

Complaints of telecommunications service users about telecommunications services’ sub-standard quality

In 2002 a total of 77 complaints were received and reviewed. The majority of complaints were about the telecommunications company Lattelekom – 48 complaints, followed by LLC “TELE2” – 14 complaints, and LLC “Latvijas Mobilais Telefons” – 4 complaints. 11 complaints concerned other companies. 25 complaints (32.5%) were received from legal persons and 52 complaints (67.5%) were received from natural persons. After evaluation of the complaints, it was concluded that 25 of them have real grounds. The received complaints mainly concerned bill inaccuracy, followed by illegal service provision, no service provision, low quality services, misleading advertising, etc. Due to the wide and ever expanding choice of telecommunications services there is an increasing number of complaints on technologically new products, for example, complaints about ADSL service quality, low quality of Internet services etc.

Postal sector

In 2002 the Commission granted 16 licenses for provision of postal services. The Commission started working on the elaboration of the general postal service tariff methodology and basic principles of postal service tariff calculation methodology were approved.

According to the requirements of EU Directives, the Commission prepared and submitted to the Ministry of Transport the alterations in the Postal Law, the Cabinet of Ministers Postal regulations and Regulations on postal service tariffs.

In June 2002 the Commission organized a seminar “Regulation principles of non-profit state JSC “Latvijas pasts””. During the seminar representatives of Latvijas pasts (see Box 8) got acquainted with the Commission’s structure, functions and general postal service regulation issues, as well as cooperation was strengthened on the preparation of tariff calculation methodology, development of service quality control system, updating of legal basis and exchange of information and experience.

The Commission’s representatives reached agreement with the management of Chief Customs Administration of the State Revenue Service on information exchange and improvement of customs control of postal shipments.

In 2002 the Commission received one complaint about subscription and use of mailboxes in Sigulda post office. The head of Sigulda post office received disciplinary punishment for low quality of customer service.

In 2002 postal service quality control was started in a test mode. 200 test letters were sent from all administrative districts of Latvia to check if Latvijas pasts ensures delivery of domestic mail from sending post office to distributing post office within five days, excluding Sundays and public holidays (Paragraph 60 of the Cabinet of Ministers regulations No.265 “Postal regulations”). As a result of tests it was concluded that 99.5% of domestic mail was delivered within five days.

It is planned to continue postal service quality control and increasing the number of test letters in 2003.

In 2003 the Commission plans to accomplish the following tasks in the postal sector regulation:

• Adopt postal service tariff calculation methodology;
• Gather and analyze information on tariffs and volumes of postal services provided by licensed companies;
• Supervise operation of licensed postal companies;
• Perform experimental testing of postal service quality;
• Participate in the working group of the Ministry of Transport on preparation of sector policy of the postal sector;
• Harmonize Latvian legal acts with the requirements of EU Postal Directive.
  
  
  
  

Box 5

Market opening

          According to the requirements of the law On Telecommunications, the fixed voice telephony service, the leased line service and the payphone service markets are opened to competition from January 1, 2003. In 2002 the Commission took the necessary measures to ensure gradual and continuous transition from monopolistic competition to complete competition in these markets in the shortest possible time. The Commission, observing transparency and nondiscrimination principles, developed a procedure for determining the undertaking whose market power can significantly influence competition development and limit the choice of consumer.

          Undertakings having significant market power face the so-called “asymmetric regulation”, i.e. the undertakings receive a number of commitments and obligations to achieve nondiscrimination of other market participants and consumers which would otherwise be possible only under complete competition.

Supply side

          The obligations (special requirements) for a telecommunications undertaking having significant market power against other market participants are formulated in the Commission’s “Regulations on special conditions for telecommunications undertakings designated as having significant market power” and contain a number of requirements. Most important of these are the following:

• to provide the connection of its public telecommunications network with other public telecommunications networks;
• to provide access to other publicly available telecommunications service provider commutation services connected to the specific telecommunications network and within the terms set by the Commission to provide the requests of telecommunications service providers regarding the special access;
• to prepare and publish offers for commercial negotiations with other public telecommunications network operators;
• to ensure that interconnection or special access service tariffs are nondiscriminatory in all interconnection or special access contracts.

Demand side

          In 2002 the Commission adopted several decisions to ensure availability of telecommunications services of certain quality and volume without relation to the geographic location of the customer and at a reasonable price, because the incumbent after market liberalization may refuse the service to specific customer groups or geographical territories due to economic reasons. Gains of the demand side from market opening are the following:

• Fixed voice telephony and leased line service tariffs correspond to the costs;
• Generally available basic set of telecommunications services at a reasonable price;
• Opportunity to choose the provider of voice telephony services by carrier selection and carrier pre-selection, as well as choose the provider of leased line services, data and electronic messaging and Internet access services.

         The activity and participation of the demand side in the liberalization process will promote competition on the supply side, but the promotion of competition on the supply side will generally ensure a positive outcome for choice options and services of corresponding price.

Box 6

LLC “Lattelekom”

          The core activities of LLC Lattelekom are the provision of fixed line telecommunications services (telephone and operator services, data and voice transmission and Internet services), IT services, sales and servicing of telecommunications and data transmission equipment of companies and private customers.

          In 2002 Lattelekom maintained its position as the biggest telecommunications service provider in Latvia in terms of turnover and the number of customers.

          In 2002 Lattelekom paid special attention to the modernization of telecommunications network in the rural areas. At the end of the reporting year in 17 of 26 districts more than half of the telephone lines were connected to the digital network (only 6 districts were connected at the end of 2001). Such a rapid telecommunications network modernization was possible due to considerable investment in the development of telecommunications network.

          In 2002 the total number of telephone lines decreased due to the rapid development of mobile telecommunications market and the use of modern communication equipment. In the reporting year the total communication flow was 6.1% less than in 2001.

          In the reporting year Lattelekom continued developing and improving DSL and ISDN services for private and business customers, as well as introduce new services and technologies. Within a year the number of ISDN customers grew by 38% and DSL customers by 206%.

          In 2002 Lattelekom began providing telecommunications services in Lithuania and Estonia, operating in the Internet wholesale sector and providing data transmission services to the companies having subsidiaries in all Baltic States.

          The Internet market continued developing and in 2002 the number of permanent Internet connections provided by Lattelekom’s internet service provider Apollo increased three times and Apollo’s dial-up minutes grew by 11%. In the reporting year Lattelekom’s inquiry service 118 maintained its leading position in the information service market receiving 10% more calls. Lattelekom continued operating successfully in IT sector using the trademark Verdi Informacijas sistemas un konsultacijas.

(Based on unaudited information provided by the company)

Box 7

LLC “Latvijas Mobilais Telefons”

          The total number of LLC “Latvijas Mobilais Telefons” (LMT) service users grew by 125 thousands reaching 474 thousands at the end of the year which is 20.36% of the population of Latvia. In the reporting year LMT made its biggest ever profit – 34.8 million lats. The turnover of the company was one of the biggest in Latvia – 115 million lats which is by 9.7 million lats more compared to the previous year.

          LMT was the first telecommunications company in the Baltic States which introduced and certified quality management system receiving ISO 9001:2000 quality management system certificate issued by the management system certification company “Det Norske Veritas Latvia” on January 16, 2002.

          In February 2002 LMT opened a new administrative building which is regarded as the biggest new building in Latvia since regaining independence. Now LMT employees can work together in the new building. As a result internal communication and work efficiency improved significantly in the company.

          In addition to the popular HSCSD (High Speed Circuit Switched Data) data transmission service, in June 2002 LMT introduced GPRS (General Packet Radio Service) – a new data transmission technology in GSM mobile communication network. GPRS is provided throughout Latvia, as well as in Lithuania and Estonia.

          LMT participated in UMTS (Universal Mobile Telecommunications System) tender and in October 2002 received the right to set up and provide third generation mobile communication services in the future.

          In 2002 LMT installed 72 base stations in Riga and elsewhere in Latvia. Now LMT GSM network provides coverage of 96.5% of the territory of Latvia, allowing 96.3% of the population to use GSM mobile communications.

(Based on unaudited information provided by the company)

Box 8

Non-profit state JSC “Latvijas pasts”

          In accordance with the Postal Law, non-profit state JSC “Latvijas pasts” provides general postal services. “Latvijas pasts” has monopoly rights to accept, send and distribute domestic and international mail correspondence – letters, postcards and small parcels in Latvia.

          In 2002 the total revenue of “Latvijas pasts” from the provided services was 24.3 million lats. Letter correspondence accounted for the largest portion (44%) of the revenue. Significant share in total revenue was also made up by the revenue from press and advertisement delivery, as well as payments of pensions and benefits – accordingly 16% and 9%.

          965 post offices operated in Latvia at the end of 2002 (4 offices less than at the end of 2001).

          The average number of employees in the company reached 6441 in 2002 (of which 2794 were postmen). In 2002, compared to 2001, the average number of employees increased by 57 persons (the number of postmen decreased by 166 persons).

(Based on unaudited information provided by the company)

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