Minister Pikalo would sell Telekom Slovenije without infrastructure

The Slovenian minister for electronic communications Jernej Pikalo has recently announced that he is going to propose structural separation of Telekom Slovenije. The announcement has come as a surprise as there had been no prior consultation on the issue, neither within the government offices nor publicly with other stakeholders. Besides, Telekom Slovenije has been on a list of state-owned companies for sale and the Parliament has already approved the government’s privatisation plan. The next step in privatisation was made at the end of August when shareholders, the majority of them state-owned companies, signed an agreement to sell a combined stake of 72,75% in Telekom Slovenije, which is valued at EUR 710 million at current market price. The state’s stake is worth EUR 517 million.

The minister’s motivation for structural separation is not very clear. Structural separation remedies are typically applied to advance the process of market liberalisation. Structural separation is usually imposed as a remedy for a competition violation, but can also be imposed as a remedy merely to preserve a competitive market structure, without finding any infringement of competition rules.

In Slovenia, the Electronic Communications Act does foresee functional separation remedies but not the structural ones. Where the national regulatory authority establishes that the obligations related to transparency and price control and cost accounting have failed to achieve effective competition and that there are important and persisting problems and/or market failures identified in relation to the provision of operator access, it may, as an exceptional measure impose an obligation on a vertically integrated undertaking to place activities related to the provision of operator access in an independently operating business entity.

As competition in the electronic communications sector has increased in recent years, the imposition of functional separation as foreseen by law in the Slovenian telecommunications sector is unlikely. In addition, the remedy as envisaged by the Electronic Communications Act may not eliminate the incentive of the regulated vertically integrated incumbent to restrict competition as functional separation may be in general less effective at facilitating competition than structural remedies.

The minister’s proposal for structural separation of Telekom Slovenije may sound ambitious but is not primarily concerned with facilitating competition in the Slovenian electronic communications market. When explaining his motives for the proposal, the minister emphasised the strategic importance of the electronic communications infrastructure and issues of its further development. His proposal envisages separation of both fibre and copper network infrastructure from services operations and placing it into a separate (state owned) legal entity.

The proposal is now being drafted by the ministry. Without knowing details, the implementation of structural separation would slow down, if not stop, the selling of Telekom Slovenije. It would have significant impact on its market value. There are also other important issues to be considered that we are going to discuss in our next posts.