Cable TV multiplies Internet surfers

The Baltic Times, TALLINN
Mar 30, 2000
By Kairi Kurm

A new telecommunications company in Estonia, ComTrade, will start providing Internet access through the networks of two cable TV operators, Starman and STV.

ComTrade will provide cheap Internet access beginning in April and then offer a telephone connection in 2001, when the monopoly of Eesti Telefon ends. The company is planning also to serve those with no PCs. They can use the Internet and play computer games over the TV through special equipment, which will be brought on the market by ComTrade in a few months.

The company is wholly owned by an investment fund New Economy Venture, the majority of which in its turn belongs to an investment bank Lohmus, Haavel & Viiseman, the founder of the first Estonian Internet auction, Web site ComTrade is planning to join with an international telecommunications company as soon as a strategic partner has been found. According to Rain Lohmus, chairman of the board at LHV, many international telecommunications companies have been interested in cooperating with ComTrade. The company is initially going to invest 5 million kroons ($33,000) in development and then invest more as the business grows. The company has 10 employees.

At the beginning, the service will be available in the central part of Tallinn; the customers of the cable television companies in Oismae, Mustamae and Lasnamae and in the city of Narva will be linked next. Through the existing clients of cable TV operators, Starman and STV, the newly born IT company will take over about 100,000 clients.

“By the end of the year we hope to have even more clients,” said Sten Nugis, manager at ComTrade. “People will start using our services not only because we can offer cheaper telephone connections in 2001, but also because we offer cheaper permanent Internet access. Those who do not have a PC can access the Internet via cable TV,” said Nugis.

“The TV screen will be controlled by a keyboard, which is controlling the TV by infrared radiation instead of wire,” said Nugis. “Our special TV settings are cheaper than a PC. We will provide our customers with games and we will come up with many additional services in the future.

“Our network, which is not related to the network of Estonian Telephone, enables us to offer a good connection for a better price because our cost of maintenance is small,” he said.

The price of a permanent Internet access at a speed 512 Kb/s for private clients costs 495 kroons ($30.10) a month and for business clients at a speed 2 Mbit/s will range from 2,000 kroons to 4,000 kroons. The prices for similar services at competing companies are about 1,000 kroons for private clients and starting from 10,000 kroons for business clients.

ComTrade is also taking over about 200 permanent Internet link clients of STV. The management of cable TV operator Starman is planning to start offering data network services as soon as Telia, a Swedish telecommunications company which is also one of the owners of the Estonian Telephone, sells its stake in Starman. Nugis said that ComTrade is open for negotiations with all companies in Estonia, which provide alternative networks.

ComTrade is at present negotiating with one of its biggest competitors TELE2, which is offering both Internet connections via cable TV and telephone lines. Peep Poldsamm, strategy planning director at TELE2 said that ComTrade has not fully developed its product. He also does not believe it is possible to operate with such low package prices on the international market.

“We are pleased to rent out our network, but it seems that ComTrade doesn�t have a clear vision about their business, so I cannot comment on it now,” said Peep Poldsamm.

Poldsamm said he had two visions of the future of the cable TV network. The negative vision was that no uniform standards would be created in the United States and Europe in terms of cable TV networks and as a result it would be very difficult to operate effectively. His positive vision was that the Internet connections via cable TV would become more popular than Internet connections via telephone lines. He said that TELE2 has both networks and thus does not fear the bleaker scenario.


Pro Kapital acquires an Italian company

The Baltic Times, TALLINN
Mar 23, 2000
By Kairi Kurm

Real estate developer Pro Kapital is planning to acquire the shares of Italian Domina Hotel e Comproprieta Alberghiere Spa in April after the general meeting of Pro Kapital shareholders has accepted the merger decision. Pro Kapital is listed on the main list of Tallinn Stock Exchange.

Domina, a hotel real estate developer and hotel operator, is a leader of the hotel time sharing industry in Italy. Its subsidiaries are also dealing with health club development and computer services. The company has a total of one billion kroon assets ($65 million) and received a 261-million kroon profit last year.

The Italian company was also the first one to make the proposal to Pro Kapital in February.

“We are interested in expanding our businesses in the Baltic states,” said Luca Milani, manager of commercial and real estate division at Domina. “Pro Kapital is active in all three Baltic states and has very good development opportunities in here. The economies of these markets are growing fast and the returns on investments are high”.

He said that it is difficult to develop and expand in Italy, because the competition is tough.

“We can bring our know-how on managing and developing high level hotels,” said Milani. Milani also confessed that the taxation system in the Baltic states is very favorable.

“Pro Kapital is developing many different real estate projects. After we had finished the Ilmarise Residence project, we sold it to Domina. Now we do not have to look for hotel operators from outside, everything is done within one company,” said Ilona Saari, finance director at Pro Kapital.

The advantages for Pro Kapital behind the consolidation are primarily the access to Italian financial resources at low interest rates and the positive cash flow from the business activities of the Domina group, which can be used to finance Pro Kapital’s future large-scale investment projects. Saari said that the agreed takeover would also increase an international interest towards the shares of Pro Kapital, because the structure of ownership will change.

“The circle of shareholders of the consolidated company will expand by approximately two-hundred shareholders and change the current shareholders’ structure to positively influence the liquidity of the company’s shares. Ernesto Preatoni’s share will be less than 50 percent,” said Saari.

According to Saari the consolidation will almost double the company’s market value, which is presently 0.9 billion kroons.

The executives of both companies decided to approve an exchange rate, according to which one share in Pro Kapital will be exchanged for five shares in Domina. The exchange rate was set up according to the market value of Pro Kapital’s shares and the book value of Domina’s shares. Pro Kapital will acquire shares in Domina in return for non-monetary payment in the form of ordinary shares of Pro Kapital to be issued.

Ernesto Preatoni, chairman of the supervisory board at Pro Kapital, said that the exchange rate is very favorable to the shareholders of Pro Kapital. Domina’s market value is 600 Italian liras more than its book value and thus the shareholders of Pro Kapital will get additional 600 liras per one share.

“The shareholders of Pro Kapital will win 43 billion liras, which is about 360 million kroons,” said Preatoni.


Lukoil expands in Estonia

The Baltic Times, TALLINN
Mar 23, 2000
By Kairi Kurm

Lukoil, the biggest oil company in Russia, is planning to increase its presence in retail sales in Estonia from 7 percent to 10 percent in the near future. The company is unifying its service stations with the Estonian Oilstop service stations under one company called Lukoil Tanklad and is planning to build four service stations in Estonia this year.

Both Lukoil Estonia and Oilstop have 13 service stations in Estonia. The retail sales of both companies reached about 120-130 million kroons ($7.5 – 8 million) last year. According to Vaido Virro, sales director at Lukoil Tanklad, Oilstop earned a small profit last year. The total turnover of Lukoil Estonia in 1999 was about 400 million kroons, said Aare Kauri, member of the board at Lukoil Estonia.

“The aim of unifying these two service stations was primarily to increase their profitability. It will also help to provide better petrol and more service stations to our clients,” said Virro. “The cooperation with such a well-known and strong partner is a big honor to Oilstop.”

Lukoil already has a strong presence in Lithuania and Latvia and is now planning to strengthen its presence in Estonia. Virro said that the company is planning to invest $1.5 million to $2 million this year.

“Lukoil fell behind Neste and Statoil in Estonia all the time. The timing of the unification of these two companies is not unexpected,” said Haim Kogan, head of Lukoil Baltic region. “Lukoil is hoping to bring its market share up to 25 percent -30 percent in the Baltic countries,” said Kogan.

Statoil’s share in Estonia is about 20 percent, and in the Baltic states it is a little bit above 20 percent, said Epp Kiviaed, head of Statoil Eesti. The main service stations represented in all three countries are Neste, Shell, Lukoil and Statoil. Kiviaed said Hydro Texaco is also planning to increase its presence in these countries.

The management of Lukoil says the advantage of Lukoil petrol lies behind its good price.

“We keep our prices on an average level. We sell the same product as Statoil or Shell, but we can offer it for a much cheaper price. People from ex-Soviet republics believe that Western products are better,” said Kogan.

Kiviaed said that Estonian service stations sell Danish petroleum, but Lithuanian stations sell the same petroleum as Lukoil does, which is actually a little bit more expensive. She said she believes that the unification of two companies may decrease the number of clients, because some might not want to stay in the new company.

Lukoil is most active in Lithuania, where it has more than 60 service stations and a market share of 25 percent on the retail fuel market. In Latvia, the company holds a 10 percent market share with about 13 stations. All in all, Lukoil has about 1,000 gasoline filling stations in Russia and the other former-Soviet republics.

The Lithuanian market is in best of order in terms of smuggled petrol, but the Estonian market needs a helping hand from the government, said Kogan.

“The share of illegal petrol is big in Estonia and Latvia, especially in Estonia. The government is taxing wholesale, but should also pay more attention on how much money is circulating in retail,” said Kiviaed.


Management of bankrupt ERA Bank under investigation

The Baltic Times, TALLINN
Mar 16, 2000
By Kairi Kurm

 Three managers of the bankrupt ERA Bank were arrested on March 7 and held for 48 hours in connection with a criminal investigation related to the bankruptcy of the ERA Bank. ERA Bank went bankrupt in April last year. The arrest was initiated by the application of the bankruptcy trustees of ERA Bank and Polaris Insurance, the subsidiary of ERA Bank.

The majority shareholder, Andres Bergmann, former board chairman Jaak Kiiker and finance director Peep Akkel were arrested under a code dealing with embezzlement on a large scale through misappropriation or squandering. According to this law, the suspects can be sentenced from three to eight years in prison.

“The suspects are released now. The police is doing its job,” said Urmas Tross, bankruptcy trustee of ERA Bank.

The police wanted to hold the bankers for a six month investigation, but the court turned down the application, ruling that the suspects would do no harm to the investigation. The suspects also promised not to leave their residences.

The troubles of the bankrupt ERA Bank started with its establishment in 1991, when the value of initial contributions was overestimated.

“The biggest problem in the bank was the artificially increased asset side in the balance sheet, which did not bring the inflow of liquid assets. Accounting can no more be objective in this case,” said Tross. “The loans were not paid back. One of the managers (Peep Akkel) dealing with the bank’s finances used the bank’s money without the knowledge of others,” said Tross.

The managers of ERA Bank also used the money to buying personal things like alcohol, pet food, clothes and watches. “As I mentioned at the meeting of creditors, the use of the bank’s assets has not caused any difficulties to the bank,” said Tross.

ERA Bank has credit claims worth of 361 million kroons and assets for 120 million kroons. The bank has 1,079 creditors and Tross believes about one third of the credits will be paid back.

“It depends much on how the companies related to Andres Bergmann will pay back their debts,� said Tross.

According to Tross, all three suspects claimed innocence.


Media companies planning to unify Estonian tabloids

The Baltic Times, TALLINN
Mar 16, 2000
By Kairi Kurm

 Two Estonian media companies, Ekspress Grupp (Express Group) and Eesti Meedia (Estonian Media), are planning to merge the tabloids Ohtuleht and Sonumileht in order to cut costs on publishing. The management of the two media concerns announced the decision on March 10. The parties hope to launch a concrete plan by July 1.

The publication of Ohtuleht and Sonumileht together brought 35 million kroons ($2.3 million) loss to the media concerns last year. According to Gunnar Kobin, chairman of the board at Ekspress Group, the two media companies are now planing to get rid of that loss. The cooperation between two rival companies helps to reduce management, printing, distribution and financial costs, as well as to save on marketing and administrative costs. One of the new joint ventures will be established for publishing and the other one for editing the new publication.

“It is too early to predict the circulation for the new joint newspaper, because we do not know whether we want two newspapers or one,” said Kobin.

Although the circulation of Ohtuleht is bigger than the circulation of Sonumileht, the share of both parties in the new joint venture will be 50/50. The circulation of Ohtuleht is about 44, 000 copies a week, while Sonumileht publishes 30,000 copies.

Both companies have been controlled by Scandinavian media corporations since 1998, when Estonian Media was taken over by Norway’s Schibsted and Swedish Bonnier acquired half of the shares of Ekspress Grupp. The other half of Ekspress Grupp belongs to an Estonian businessman Hans H. Luik. According to the dailyEesti Paevaleht the initiative to unify two tabloids came from Schibsted.

Although the possibility of the tabloids’ unification was discussed for more than half a year, the news came as a surprise to the employees of both tabloids.

The two media companies may also decide to combine some of the competing publications or terminate the production of similar publications. According to the management of both media concerns, the daily Eesti Paevaleht and Postimees will not be unified. Postimees with its 60,000 copies a week is the most popular newspaper in Estonia. The circulation of Eesti Paevaleht is 40,000 copies a week.

Estonian Media is the publisher of the leading Estonian daily Postimees, the tabloid Sonumileht, five local newspapers and magazines. Estonian Media also owns a majority share in a printing shop Kroonpress and two distribution companies.

Ekspress Grupp publishes the daily Eesti Paevaleht, the tabloid Ohtuleht, the weekly Eesti Ekspress and several magazines. Ekspress Grupp owns the Kroontrukk printing office.

Ekspress Grupp received a 48.7-million kroon loss last year, while Estonian Media ended the year with a 5-million kroon profit thanks to the sale of the Plusspunkt newsstand chain.


Latvian and Lithuanian economies wait for the right policies

The Baltic Times, TALLINN
Mar 09, 2000
By Kairi Kurm

 The development of Baltic economies in 1999 was based for the most part on the right policies, says a report from Hansabank Markets, an independent investment banking and brokerage division for Hansabank. Thanks to fast and radical changes in economic policies right after the Russian financial crisis, Estonia recovered much faster than the other Baltic countries.

The Estonian economy is flourishing because of the absence of political problems, while the outlooks for Latvia and Lithuania are not so positive, according to the report.

Hansabank Markets rated Latvia’s outlook as “stable+” as an indicator for economic improvement.

“There are some problems in the Latvian economy related to the country’s economic policies,” said Maris Lauri, macro-economics research analyst at Hansabank Markets.

The Lithuanian economy went through big changes last year. The new government put in place much stricter economic policies.

“I am looking forward to strong developments in Lithuania, but at present the situation is weak,” said Lauri. Hansabank Markets rated Lithuania’s current outlook as “negative,” but is ready to increase it to “stable” if the country’s outlook does not deteriorate in the face of the upcoming elections.

The biggest export market for the three countries is the European Union.The outlook for this market is optimistic in Lauri’s opinion. The agriculture and food industries of the three countries are suffering the most because of the decline of exports to CIS countries and lack of access to the EU markets.

Lithuanian companies have suffered the most from the decline of the Russian market, but the growth of exports to the EU markets indicates a shift of markets.

“A lot of Scandinavian companies have bought up Lithuanian companies after the crises. The production costs in Lithuania are low, more favorable to foreign investors than in Estonia or Latvia,” explained Lauri. The decline in Lithuanian imports is related to the decline in its foreign reserves.

Estonian exports and imports are expected to grow next year, said Lauri.

“Exports are the source of the growth of the Estonian economy. A big share of imported products is reproduced and then exported,” said Lauri.

Latvia’s imports are increasing while the country is facing difficulties with exports.

“Latvia is exporting a lot of wood and timber products, most of which is unprocessed. The demand for these products is in decline in Europe,” said Lauri. In terms of imports Latvia has been trying to protect the domestic market with very strict measures.This protectionism annoyed Lithuania, Estonia and the EU, but Lauri hopes Latvia will soon solve the problem.

The Latvian banking system is another sign of improving economic stability.

“The future of the Latvian banking system will be the same after the consolidation as it was in Estonia: There will be some major banks with strong foreign investors and several small, highly specialised banks with domestic capital,” said Lauri.

Lauri said he believes that the change in the income tax law does not have any major impact on foreign direct investments but rather works in favor of domestic investments. Starting from 2000, corporate incomes will not be taxed except in cases where income is distributed outside the company, for example in the term of dividends and wages. The government believes these changes in taxation support the economic growth.

Estonia�s economic growth for 2000 will be supported mainly by external demand, which in its turn is expected to grow in support of investments and household spending. In spite of growing inflation and growing demand for loans, lending rates in Estonia are expected to decline as a result of the improving economy and high liquidity. Hansabank Markets predicts a five percent growth for the Estonian economy and a two times smaller growth for Latvia and Lithuania.

“In Latvia the interest rates should decline, but they can also stay volatile because of political tensions in the country. All kinds of negative news may cause the outflow of foreign investments. Latvia should continue privatizations in order to bring in foreign investments,” said Lauri.

“There are problems with liquidity in Lithuania. A privatisation of a big company would do good for the country. Lending rates in Lithuania depend much on the economic policies. The good news is that Lithuania gets a loan from the World Bank.There are many opportunities out there for this country.”


Customers to pay more for better banking services

The Baltic Times, TALLINN
Mar 02, 2000
By Kairi Kurm

 Thousands of Hansapank clients were surprised last week by the bank’s new Internet service prices. Hansabank announced on Feb. 22 that beginning April 1 they will charge private clients 3 kroons ($0.19) on every Internet transaction and increase the monthly payment for debit cards by 50 percent.

Uhispank clients read the same day in the newspaper Aripaev that Uhispank’s vice president, Jurgen Lamp, is planning to start charging for withdrawals from automated teller machines (ATMs).

Estonia has so far had one of the larger shares of Internet banking clients, and Internet banking services have always been free of charge for private clients. The number of services, products and official applications available on the Internet is increasing every day. Even the Estonian Tax Board started accepting income tax declarations through the Internet on March 1, and this service is free.

Hansapank explains the new fee with the improved quality of their services.

“We have offered Internet banking services free for three or four years now. The product has developed a lot during that time and it has a very high value. It is more functionable and has a better quality,” said Raul Parusk, retail banking director at Hansapank.

Hansapank is planning to increase the monthly debit card payment from 10 kroons to 15 kroons.

“Hansapank has been charging the same fee for debit cards since the very beginning although the number of automated teller machines and terminals has increased tremendously. People can make more transactions with their cards now. They can pay with it in payment machines on the streets,” said Parusk.

Hansapank has about 585,000 debit card owners, but not all of them have to pay the same monthly payment. He said that youngsters under 25 as well as elderly people above 60 years old have smaller fees and Internet services are still free for them.

According to Parusk, monthly payments are more profitable for the bank than Internet fees, but he could not say exactly how much revenue the new fees make.

Hansapank has about 78,000 private Internet bank users. Each client makes an average of two or three transactions per month. The companies have been charged for Internet services since the beginning of the year.

The bank explained the new price list then with the decrease of transaction fees the bank received from its offices. Transaction fees usually make up a big part of the bank�s revenues. Almost 80 percent of the transactions are made through the Internet now and the number of offices have thus been decreased. Effective April 1, local transactions in local currency will cost 25 kroons up from 15 kroons.

Parusk said that a bank always leaves an alternative to a client. “Transactions through payment machines and through direct debit are an alternative, which is free of charge,” said Parusk.

Uhispank clients do not have to pay for Internet services. Uhispank has a total of 35,000 Internet banking clients.

“We are not planning to charge for the withdrawal of money from ATMs nor for Internet services at least during the next couple of months,” said Eero Raun, spokesman for Uhispank. “We will see how Hansabank is doing after April 1 and then analyze whether we need the fee or not,” said Raun.

He said that the vice president’s statement in the newspaper was just an idea for a long term perspective. Uhispank’s vice president Jurgen Lamp said in the newspaper that the cost of maintainance of ATMs is very high, and thus, charging clients for ATM services is normal.

Parusk from Hansapank explained that the most expensive tasks in maintaining an ATM are transport, communications and security. The machine itself costs about 400,000 kroons but the monthly costs are more than 10,000 kroons. Hansapank has about 350 and Uhispank 200 automated teller machines in Estonia.