US embassy cable - 05VIENNA2530

UNCLAS SECTION 01 OF 02 VIENNA 002530 
 
SIPDIS 
 
DEPT FOR EB/CIP (TIMOTHY FINTON) AND EUR/AGS 
USDOC FOR NTIA - CHRISTINA SPECK 
USDOC FOR OTT - JOSEPH BURTON 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, EU, AU 
SUBJECT:  AUSTRIA: TELECOMS UPDATE 
 
REFS:  A) 04 VIENNA 4102  B) 04 VIENNA 1369 
 
Summary 
------- 
1.  tele.ring, the successful Austrian mobile phone 
subsidiary of Western Wireless is for sale following 
Alltel's takeover of Western Wireless.  Interest in 
tele.ring has dropped noticeably after the Lower Austrian 
state government imposed a new tax on mobile phone masts 
effective January 1, 2006.  The tax aims to encourage 
multiple phone operators to share masts.  High fees, 
deficient procedures, and resistance from the incumbent, 
Telekom Austria, hamper local loop unbundling.  Interest 
in mobile number portability in Austria, available since 
October 2004, is limited.  The development of a Universal 
Mobile Telecommunications System (UMTS) in Austria is 
disappointing.  End Summary. 
 
tele.ring - The U.S. Subsidiary Is For Sale 
------------------------------------------- 
2.  On June 24, a tender was issued for the sale of 
tele.ring, a 100% subsidiary of Western Wireless 
International Corp., worth Euro 1-1.5 billion ($1.24-1.86 
billion).  When Alltel acquired Western Wireless in early 
2005, it reportedly decided to focus on the U.S. market 
and not maintain Western Wireless' foreign subsidiaries. 
The only bidder for tele.ring is Permira, a U.S. private 
equity firm.  Five interested telecom companies did not 
submit a bid or withdrew bids, primarily because of a new 
tax on mobile phone masts in Austria's second most 
populous state (see paragraph 4). 
 
3.  Western Wireless acquired tele.ring, one of four GSM 
mobile phone operators in Austria, in 2001.  tele.ring 
achieved a turnaround in two years and increased its 
share in the mobile phone market from 8.7% in 2003 to 
11.8% in 2004, according to the Austrian telecom 
regulator.  Due to a very successful marketing campaign 
and aggressive pricing policy, tele.ring doubled its 
number of mobile phone customers in 2003 and reported 
another 30% increase in 2004. 
 
Austrian State Introduces Tax on Mobile Phone Masts 
--------------------------------------------- ------ 
4.  On June 21, the state parliament in Lower Austria, 
the second most populous state with 1.5 million 
inhabitants, approved a bill to introduce a special tax 
on mobile phone masts, effective January 1, 2006 and 
limited to four years.  The tax will be Euro 21,000 per 
mast/per year.  The tax should yield annual revenues of 
approximately Euro 70 million.  The state government 
noted that there had been runaway growth of masts and 
that the tax would be an incentive for site sharing, 
i.e., two or more phone operators using the same mast. 
The five mobile phone operators -- Mobilkom Austria, T- 
Mobile Austria, One, tele.ring und Hutchison "3" -- have 
18,141 masts in Austria, of which only 1,194 (6.6%) are 
shared sites.  In Lower Austria, 12% of the 3,324 masts 
are shared sites. 
 
5.  Mobile phone operators criticized the new tax and 
announced they would pass it on to Lower Austrian 
customers, whose phone bills could rise by Euro 100-120 
($124-149) per year.  Georg Serentschy, Managing Director 
of the telecom regulator RTR, objected to the tax on 
several grounds: constitutional concerns; hampering 
competition and infrastructure development; and 
discriminatory disadvantaging of mobile phone operators 
because the tax will not affect other mast owners, such 
as ORF, the state-run broadcasting company.  Many legal 
experts have questioned whether the new tax law conforms 
to the constitution.  The GoA could veto the tax for 
jeopardizing federal interests, but it is unlikely to do 
so because of political considerations (Note: The Lower 
Austrian Governor, Erwin Proell, is a powerful figure in 
Chancellor Schuessel's People's Party.  End Note). 
 
Local Loop Unbundling Hampered by High Fees 
------------------------------------------- 
6.  Only 2.5% of the 3 million Telekom Austria (TA) local 
loops have been unbundled.  Unbundling fees would have to 
be 40% lower (Euro 6.71 instead of Euro 10.90), according 
to a study presented by the Association of Alternative 
Telekom Network Operators (VAT) and  the Austrian 
Internet Service Providers' Association (ISPA). 
Exaggerated costs and deficient procedures impede 
infrastructure competition and broadband expansion, 
according to ISPA and VAT, which reiterated their request 
for an improved regulatory framework for the ,last mile" 
competition.  Despite numerous court rulings and EU 
regulations, Austria remains unbundled.  The incumbent, 
TA, has blocked and delayed unbundling, according to 
ISPA. 
 
Number Portability - Limited Interest 
------------------------------------- 
7.  Mobile number portability in Austria, available since 
October 2004 (refs A and B), has received limited 
interest.  By June 30, 2005, only 42,400 (or 0.5%) of the 
8.2 million mobile phone numbers have been transferred. 
However, the two smallest mobile phone operators in 
Austria, tele.ring and Hutchinson "3," report increasing 
interest.  In June 2005, 20% of new tele.ring and "3" 
customers transferred their old numbers. 
 
3G - UMTS in Austria Disappointing 
---------------------------------- 
8.  Universal Mobile Telecommunications System (UMTS) 
development in Austria has been disappointing.  The five 
UMTS license holders -- Mobilkom Austria, tele.ring, T- 
Mobile Austria, One and Hutchison "3" -- have switched on 
their UMTS networks to comply with license conditions and 
avoid penalties (ref B), but customer interest is 
lacking.  Therefore, tele.ring is now pushing an upgraded 
UMTS version, the High-Speed-Downlink-Packet-Access 
(HSDPA), which it hopes to offer in 2006.  HSDPA allows 
downlink data transmission of up to 10 megabit per 
second. 
 
BROWN