SKOPJE, Macedonia, March 14 (UPI) -- In many Central and Eastern European countries in transition, cellular phones are more ubiquitous than the old-fashioned ones hooked up to fixed lines.
The number of telephones is low to nearly nonexistent throughout large swathes of Central and Eastern Europe (CEE), and the relatively rare phone lines available -- especially in urban centers -- are still being multiplexed and shared by four to eight subscribers, greatly reducing both quality and usability.
Terrestrial television competes ferociously with satellite TV, though cable penetration is low.
Internet access is prohibitively expensive and intermittent while broadband and e-commerce are distant rumors.
Many technologies rely on network effects (a critical mass of users), and CEE is far from reaching this elusive point.
When communism imploded in 1989, pundits were quick to spot the silver lining. The countries in transition, they said, could now leapfrog whole stages of development by adopting novel technologies and, through them, the expensive Western research they embodied.
It was reasoned that the East could learn from the West's mistakes and, by avoiding them, achieve a competitive edge.
In his seminal 1999 book, "Leapfrogging Development -- The Political Economy of Telecommunications Restructuring," J.P. Singh examined the acceleration of development through the adoption of readymade, off the shelf, technologies.
His melancholy conclusion was that development preferences were the outcomes of an intricate interplay between pressure groups and coalitions of interest groups -- and not the result of progress ex machina. He distinguished three types of states -- catalytic, near catalytic and dysfunctional.
While Singh deals exclusively with Asia and Latin America, his conclusions appear to be applicable to post-communist Europe as well.
The CEE communications market will double itself to $17 billion by 2003, the consulting firm IDC predicts. Pyramid Research predicts a $60 billion communications market by 2005.
Buzzwords and slogans such as "Information Society," "leapfrogging," and "better online than in line," are often heard throughout the region.
A horde of non-government organizations -- both regional and international -- are collaborating with a wide range of domestic governments, local authorities, foreign governments, multinationals and international organizations in a concerted effort to make the dream of a digital Europe come true.
Russia has pledged to attract $33 billion in investments in its telecommunications infrastructure and services by the year 2010 as part of an initiative optimistically called "Electronic Russia."
The U.S. Commercial Service office at the American Embassy in Moscow predicts an annual growth rate of the Russian ICT sector of 15 percent-20 percent through 2003.
Conferences abound. An important one regarding municipal collaboration in constructing an information highway is to be held in the Czech Republic on March 26-27.
Even devastated Armenia succeeded in exporting $20 million worth of technological goods in 2001 Its IT sector grew by 30 percent last year and it hosts branches of such Silicon Valley household names as Credence, HPL and Virage Logic.
More than 4,000 professionals are employed in 200 companies in Armenia. LEDA, a prominent IT firm, finances IT programs at the Armenian State Engineering University.
All candidates for the European Union strive to get incorporated in existing European networks such as ELANET, Telecities, IDA, and ERISA, and new, candidate-only initiatives such as eEurope+.
The EU has also applied its "universal service" rule to Internet access, making it affordable.
EU members adopted a variety of measures to increase Internet awareness and usage. Portugal, for instance, granted individuals tax incentives coupled with free e-mail accounts and Web hosting services to encourage them to purchase PCs. The Dutch established public computer literacy centers for the disenfranchised and unemployed and provided them with discounted and subsidized hardware and connection time.
In one of its more grandiose moments, the heads of governments of the EU countries decided in Lisbon two years ago that "each citizen should have access to the Internet and the whole European Union should become computer-literate."
This is an ambitious undertaking not only because Europe in general is behind the United States where Internet matters are concerned, but also because the countries that used to be behind the Iron Curtain are now lurching along on the wrong side of the Digital Divide.
According to Vasile Baltac of the Information Technology and Communications Association of Romania, the author of "The Balkan and Eastern Europe -- Digital Divide or Digital Opportunity," Romania invested $25 per capita in Internet communications technology in 1999, compared to Greece's $567 and the EU's average of $1,215.
There were only 2.5 Internet users per 1,000 inhabitants in Romania and Bulgaria, compared to 56.4 in westward-looking Slovenia.
New technologies are used mostly by the elites in CEE, as pointed out by Zassourski and Vartanova in "Transformation in the Context of Transition," and perhaps intentionally.
Still, Baltac points to the managerial class as the main obstacle to the rapid dissemination and assimilation of advanced technologies. They pay lip service to modernization, he contends, but they actually feel threatened and repelled by it.
On the positive side, Baltac also notes the annual yield of qualified professionals -- most of who find work in the West -- and the emergence of telework and e-commerce.
The technological vacuum makes CEE countries receptive to state-of-the-art technologies. GSM penetration in Romania has surpassed the level of fixed line coverage in 1989. The number of cable television subscribers in the region is projected to double to 20 million by 2005.
But the true picture is often obscured by anecdotal evidence, wishful thinking, phobias such as the fear in Western European of a mass migration from Eastern Europe, a lack of reliable statistics, and a lack of qualified analysts and investment bankers.
Factors such as hostile terrain and climate, cross-subsidies, lack of real competition, corruption, red tape, moribund financial systems, archaic legal ones, dearth of credit card holders, urban-rural gaps, and English language illiteracy rarely appear in neat, colorful presentations.
Pyramid Research is bearish on broadband.
"Internet access is and will remain for the foreseeable future a predominantly narrowband, dial-up affair, even in the most advanced countries (in Central Europe)," it says.
This is despite plans by regional operators to offer DSL, Fixed Wireless Access, cable TV and leased-line broadband access already offered in the Czech Republic by cable networks. There is also a regulatory welcome in all three central European EU candidates -- Hungary, Poland, and the Czech Republic.
Luckily, mobile telephony -- the other pillar of the leapfrogging theory -- is getting increasingly concentrated in the hands of fewer operators though it remains at a minimum of three per every major market)
Pyramid projects that by 2006, 94 percent of Russia's cellular phone market will be in the hands of the five leading providers, compared to 85 percent at the end of 2001.
Mobile penetration will increase to about 10 percent and prepaid customers will account for the vast majority of users.
Revenues from cellular networks exceed revenues from fixed line networks in certain markets. SMS is booming. Second and third mobile-operator licenses are tendered by all cash-strapped governments in the region, though a Polish attempt to sell an UMTS license ended in a fiasco.
Poland introduced a wireless local loop service. Macedonia just handed a second mobile operator license to the Greek OTE.
"By the end of 2005, the total number of mobile subscribers in CEE will exceed 50 million (compared to 30 million by end-2001) and mobile Internet accounts will constitute approximately 21 percent of total mobile accounts", projects Pyramid.
The Czech Republic will have 78 mobile users per 100 population and Hungary 66. In a second tier of countries -- the likes of Bulgaria, Romania, Ukraine, and Russia -- a mobile phone will remain a luxury and a status symbol.
Hitherto domestic operators, from the Greek OTE to the Russian MTS, are becoming regional. Multinationals, such as the British Vodafone and the French Orange, have entered the regional fray.
Some CEE markets are as saturated -- and customers as savvy and demanding -- as many advanced Western European ones. A host of value-added services is thrust upon the sometimes reluctant users, leading naturally to "wireless access protocol" WAP, recently introduced throughout much of CEE. They also include4 "2.5G" and "3G" wireless Internet services.
Moreover, Pyramid sees an intriguing opportunity in VoIP, or Voice over IP, telephones.
"As the incumbents in the CEE markets continue to dominate long-distance circuit-switched telephony," Pyramid said, "VoIP offers a unique opportunity for new operators to gain a foothold in this traditional monopolistic stronghold."
Internet Telephony Service Providers have sprung up all over the region. An Israeli firm is now planning to offer VoIP services in Macedonia, Kosovo and Albania.
In his keynote address to The Economist CEE Telecommunications Conference, in December 2001, Ofer Gneezy, president and CEO of iBasis (a global ITSP), cited industry analysts projecting VoIP average annual growth rates in CEE of 80 percent through 2006.
This, coupled with a growing number of Internet users and access providers spurred on by telecoms liberalization and growing incomes, may revolutionize the landscape in the next 5-10 years.
Pyramid expects annual Internet adoption growth rates of 40 percent through 2005, a rate of 30,000 new users a day. Internet related revenues will reach $10 billion by 2005. That would be five times today's $1.8 billion, but only one-seventh the Internet market in Western Europe.
Internet penetration in Central Europe will reach 15 percent in 2005 from 4 percent today. That compares to an increase to 40 percent in Western Europe from 18 percent today.
Mobile Internet accounts will constitute a third of the total in CEE -- about 20 million users. Harald Gruber of the European Investment Bank is even more optimistic, saying in "Competition and Innovation: The Diffusion of Telecommunications in CEE", March 2000": "About 20 percent of the population will adopt mobile telecommunications".
Part 2 of this survey, looking at the way ahead, will appear Friday.
