Market Newsletter : Eastern Europe Seeks a Good Connection : New technology and joint ventures can help rescue phone systems that are 30 years behind the West, but it will be costly.


Since the Iron Curtain lifted last year, East Europeans have discovered that it will take a lot more than democracy to get them in touch with the West.

Industry analysts estimate that the telecommunications network from the Baltic to the Balkans is 30 years behind Western Europe and the United States--a gap that Britain's Telecommunications Research Center estimates will cost $350 billion over 15 years to close.

West German telecommunications minister Christian Schwarz-Schilling said late last month that it will cost $33 billion and take six years just to bring East Germany's system up to Western standards.

While the outlook thus remains bleak for the average, long-suffering East European, technological innovations and the call of an open market may mean more rapid change for well-heeled Westerners doing business in the bloc.

The busy signal between East and West is too costly for the emerging democracies to tolerate. Western diplomats say entire skyscraper projects have been scrapped because of the uncertainty of telephones for them.

It can take 10 years to get a phone installed in Czechoslovakia. The wait in Poland is twice that long. In Hungary, the Post Ministry monopoly refuses even to discuss the possibility of new hookups.

For decades, Communist rulers channeled state resources into industrial output instead of social welfare, lumping communication into the category of luxury that citizens would have to wait years for.

That created networks that are shoddy and unreliable--an economic reality that will be harder to overcome than the political deterrents. "Multi-party" has always been the rule in telephone lines, if not in politics. Dial tones can take hours to click in. Service failures are frequent, and repairs are agonizingly slow.

Technology is coming to the rescue, at least for those who can afford it.

Motorola Inc. has announced plans for a $2-billion network of orbiting satellites to provide cellular telephone service to remote areas of the planet, including Eastern Europe. The company estimates that its new Iridium system will expand the worldwide cellular market from about 7 million subscribers today to 100 million by the year 2000.

Seventy-seven low-orbiting satellites will direct cellular radio signals from one caller's handset to another's, without the need for new switching towers, relay stations or pole networks on which the currently exhausted services depend.

A flurry of new contracts between state-owned telecommunications departments and Western companies reflect the growing belief that the best way to improve the existing wire system is to work around it.

* US West Inc. has formed a joint venture with Hungarian Telecommunications Co., an offshoot of the Post Ministry, to create a cellular network for Budapest this fall and nationwide within three years. Motorola and Sweden's Ericksson electronics firms will provide the equipment.

* Atlanta-based Contel has joined a new, private Hungarian firm descended from the giant BHG state telecommunications manufacturer to provide radio-telephone service beginning early next year.

* Bell Atlantic Corp. and US West have won the right to form a joint-venture company with the Czechoslovak Ministry of Posts and Telecommunications to modernize that nation's phone system.

* Poland has announced plans to break the monopolies of its Post, Telegraph and Telephone companies and is currently negotiating with Siemens of West Germany, Sweden's Ericksson and Alcatel of France in hopes of establishing a cellular network for 200,000 users within the next couple of years.

* West Germany's Bundespost was able to lead the cellular push into Eastern Europe virtually overnight last fall by taking advantage of its island of proximity in West Berlin. The mobile telephone is already a fixture in the briefcases of Western business people in East Berlin.

Those working to get the new projects off the ground admit that they are aiming for the hard-currency customer.

"The demand for new phones is very big, but the number of people who can pay for them is very small," observed Tamas Ligeti, commercial manager of the Contel-Hungaria venture that expects to serve 20,000 cellular cellular users next year. Vast areas of Budapest are currently without phone service, Ligeti noted, thereby blocking new commercial ventures there.

The cost of the new mobile phones will exclude the average East European. The access fee alone--about 80,000 forints--is a year's pay for many Hungarians and doesn't include the price of buying or using the telephone.

The dearth of reliable service in Eastern Europe would seem to guarantee success for the new ventures. But they are far from risk-free.

Hungary, Czechoslovakia and Poland have little cash to contribute to the overhaul. The onus will be on Western investors and potential subscribers to put up starting capital.

The Hungarian ventures depend on advance payments from their clientele to provide capital for building new digital switching stations.

Contel-Hungaria promises 21% interest on the deposits if no service is provided within a year--a worrisome reminder of the region's difficulty with deadlines.

And the future is uncertain. Both Contel and US West are involved in joint ventures in which the Hungarian partners won exclusive license to their radio frequencies because of contacts in government agencies--a holdover advantage from monopoly days that may not endure as competition strengthens.

One positive impetus to the new projects was the decision by the Coordinating Committee on Multilateral Export Controls--Cocom--in early June to relax restrictions on technology transfers to nations no longer considered a threat to Western security.

However, Cocom has been less willing to clear exports for the Soviet Union, the biggest market for telecommunications contracts. US West was denied export authorization to lay a fiber optic cable across the Soviet Union on the grounds that the technology has military applications.

Who Has the Phones

Telephones per 1,000 residents: Soviet Union: 115 Poland: 118 Yugoslavia: 12 Romania: 130 Hungary: 134 Bulgaria: 200 East Germany: 211 Czechoslovakia: 226 Japan: 535 West Germany: 641 United States: 650

SOURCE: Organization for Economic Cooperation and Development

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