30 APRIL 2003

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Revenge of the obelisk

The Maltacom Group’s annual figures for 2002 proves government monoliths let out to play free can become profitable. Yesterday the Group celebrated a future that had been unsure back in 1998. CEO Stephen Muscat tells MATTHEW VELLA where the Group is heading.

There’s a bright future ahead for the Maltacom Group. Five years ago there was a nervous brooding about what type of direction a top-heavy government monolith would take in the liberalised playground of fixed-line and mobile telephony.
The results smack of smug self-assurance. Maltacom’s 2002 profits have put it way ahead of all the pessimism that could have made it stumble in its first years of operation. CEO Stephen Muscat knows 2002’s figures are a boon for the phoenix that emerged from Telemalta’s ashes.
"These have been the best results ever for the last five years," Muscat says.
"We are now looking towards the future with great optimism. We are not only a fixed-line operator now, but we also offer various telecommunications services, and these have also expanded greatly within the last three years.
"Go Mobile, our mobile company, now has more than 113,000 subscribers. Our ADSL operation Datastream has around 13,000 customers. There has also been a shift in the mentality towards pre-paid fixed-line telephony with our Easyine services. We have entered new markets which we had not envisaged five years ago.
"There areas being exploited now are based on infrastructure, starting with the network of underground fibre-optics, which should provide more bandwith for all users. The internet is also a major area in which we expect greater activity, and our companies are now also writing computer software and designing web pages."
The optimism with which Maltacom faces its future has somewhat been marred by what the group has seen a highly-regulated environment, often hostile towards Maltacom’s dominant status.
Muscat says that the group has had to incur certain expenses in relation to the market’s drive towards liberalisation and free competition. The decision notices of 2002 with regards to market liberalisation saw the group having to undertake additional expenses which Muscat says were necessarily justified, despite these being expected conditions within mature and competitive markets.
"Maltacom had to make a reference interconnect offer, being the rate that has to be offered to those who wanted to make a connection with Maltacom services. This process took six months to complete, where we needed technical aid in the area of regulatory accounting.
"This exercise cost us over a quarter of a million, and despite having given this offer, there is effectively none of the expected level of immediate competition. Apart from that, we used to see ourselves as already having these interconnection rates, since from 1999 we have been in connection with the Vodafone Malta network so Go Mobile subscribers could connect with Vodafone subscribers.
"However, the regulator expected us to base such exercise on a cost-based plane, and a whole set of new procedures had to be taken in order to identify this. One might say this actually justifies certain costs.
"Yet, when one sees dominant operators like Vodafone Malta, who did this exercise and have not yet produced the results of such, whilst keeping in mind that the indications show their interconnection rate will be higher, it has to be said Maltacom’s cheaper rates and level of investment are quite exceptional for a company that is considered to be dominant, big and inefficient."
Muscat says Maltacom had expected to certain decisions taken with more maturity. Accepting the inevitability that a competitive market had to be established, this happened when in the last quarter of the year, the regulator issued a consultative paper on voice-over IP, freeing up access for new players.
"This did not happen with us because there was an obligation in the National Plan for the Adoption of the Acquis, that there had to be tariff re-balancing, which had to take place before liberalisation. This hasn’t yet happened, but our plea for tariff re-balancing is still there and we are now in the stage of appeal.
"The regulator expects more face-to-face discussions on tariff re-balancing. We believe tariff re-balancing was an exercise we completed and that we gave all the information pertaining to the matter. This was not a question of negotiations but of decision-making."
At yesterday’s public announcement of Maltacom’s performance for the end of the year, Chairman Maurice Zarb Adami informs those present the divestiture of Maltacom’s twenty per cent shareholding in Vodafone Malta had been wasting some precious time for the group’s executives. Having encountered certain stumbling blocks, the group is committed to have its share interest in the company sold off as soon as possible.
"We appointed Bank of Valletta consultants and NM Rotschild to help us in the sale of the shares. The first step was an international call for a non-binding expression of interest in the foreign media. We had over 26 expressions of interest.
"From thereon we examined those companies which were ready to do a due diligence. A due diligence was also initiated for Vodafone Malta. But when Vodafone Malta did not declare a dividend in 2001 and there was no exit option for the investors, there was no active follow-up to the proposal.
"So we entered into direct discussions with Vodafone abroad. Since according to current legislation every licensed operator has to be listed on the Malta Stock Exchange since 1 January of this year, we are now in the stage of seeing Vodafone Malta Ltd being listed on the MSE. This includes a mandatory sale of at least 20 per cent of its shares.
"This has to be proportionate, and this will include a part of our shares and a part of Vodafone international’s. That would be the opportunity to invest our shares and we are insisting on a fair price for these shares, calculated in terms of today’s and tomorrow’s market.
"The relation between Vodafone Malta and Go Mobile is a commercial one. There is an agreement covering interconnection and how tariffs should be set with regards to the transmission of information. As for future relations, one has to keep in mind that before 2005 there won’t be a third operator, so there will be a duopoly and until then the consumer can see that there will are new services already being developed."
The Maltacom group is now preparing to actively participate in foreign markets with the onset of EU accession, that should also see the threat of foreign companies laying foot on the island.
The group already attempted an international offer for a company operating in the Channel Islands. After following closely the company’s performance, the local Channel authorities suspended the bidding and entered into direct discussions with another company and sell it totally.
"We were also participating in the sale of part of an Icelandic telecom company but this was suspended by the Icelandic government. Currently we are analysing another company right now where to further our investments."

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Business Times, Newsworks Ltd, 2 Cali House, Vjal ir-Rihan, San Gwann SGN 02, Malta
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