KOSOVO: SECOND MOBILE TENDER PROCESS COMPLICATED

C O N F I D E N T I A L PRISTINA 001015

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EB/IFD/OIA, EB/CBA-BBEHRENS, AND
EB/CIP-AGIBBS
DEPT PLEASE PASS TO OPIC
USAID FOR EE/ECA, EE/DGSR
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEED/SSAVICH

E.O. 12958: DECL: 11/28/2016
TAGS: ECPS ECON PREL YI
SUBJECT: KOSOVO: SECOND MOBILE TENDER PROCESS COMPLICATED
BY POLITICAL AND COMMERCIAL CONCERNS

REF: (A) PRISTINA 752 (B) PRISTINA 966

Classified By: COM Tina S. Kaidanow for reasons 1.4 (b) and (d).


1. (C) Summary. Nenad Popovic, the Government of Serbia's
(GOS) economic advisor to the Kosovo final status
negotiations team and Serbian CCK representative, has
requested that UNMIK stop the Kosovo Telecommunications
Regulatory Authority (TRA) from dismantling equipment owned
by Telecom Serbia to provide service to Kosovo Serbs and thus
protect the company's business interests. UNMIK has allowed
Telecom Serbia and Mobtel (the latter now owned by Norwegian
company Telenor) to operate in Kosovo Serb areas without a
license to ensure that Kosovo Serbs receive mobile telephony
services. However, a plethora of illegal mobile phone
service providers, including the Serbian companies, are now
operating in Kosovo, constituting a serious obstacle to the
successful issuance of a second mobile license -- a key
commercial and economic prospect for Kosovo. In light of
this, UNMIK has decided to allow TRA to take action against
all such companies operating without license, though it has
specifically prohibited any action to dismantle cell towers
in Serb enclaves. American firms are interested in competing
for the mobile tender, and have complained about the illegal
mobile operators and the presence of Telecom Serbia and
Telenor/Mobtel, among others, noting that these firms have an
unfair advantage via their existing presence and the
continuing illegal expansion of their network throughout
Kosovo. While there are obvious political consequences to
dismantling illegal Serbian operators in Kosovo, there is a
compelling long-term interest in ensuring that the tender and
mobile telephony market are clear, fair and transparent. End
Summary.

POPOVIC SEEKS TO STOP TRA'S ACTION AGAINST THE ILLEGAL
EXPANSION OF TELECOM SERBIA'S MOBILE PHONE OPERATIONS


2. (SBU) Nenad Popovic, the Government of Serbia's (GOS)
economic advisor in the Kosovo final status negotiations
team, has requested that UNMIK stop the Kosovo
Telecommunications Regulatory Authority (TRA) from
dismantling antennas, communications towers and other
equipment owned by Telecom Serbia to provide service to
Kosovo Serbs and protect the company's business interests.
In a letter sent to USOP, Popovic claims that the TRA's
actions are illegal since, in his words, Telecom Serbia is
licensed to do business "on the entire territory of the
Republic of Serbia, which includes the territory of Kosovo,
and adversely impacts its customers, discourages foreign
investment here, and damages the Western Balkans economy."

UNMIK TOLERATES SERBIAN-AFFILIATED MOBILE COMPANIES TO
OPERATE IN KOSOVO, BUT WITHIN LIMITS


3. (SBU) Given the political complexities of Kosovo, UNMIK in
the past allowed Telecom Serbia and Mobtel, now owned by
Norwegian company Telenor, to operate in Serb-majority areas
without a license and business registration, in order to
ensure that Kosovo Serbs received mobile phone services.
According to UNMIK officials, in 2003-05 they offered to
provide a special license to Mobtel that would allow the
company to operate legally, but only in Kosovo Serb areas.
UNMIK officials said that in recent weeks they again offered
a special license to Telecom Serbia and Telenor/Mobtel to
operate in Kosovo Serb areas, but both companies refused, for
different reasons: Telecom Serbia refused the offer because
its representatives claimed the company was "already
licensed" by the GOS to operate here, while Telenor turned
down the idea because it plans to compete for the second
mobile tender operating license (ref A).

UNMIK PERMITS TRA TO SHUT DOWN ILLEGAL OPERATORS AND NETWORK
EXPANSIONS TO PREPARE FOR SECOND MOBILE TENDER


4. (C) In November 2005, UNMIK issued an administrative
directive to allow the TRA to dismantle illegal mobile phone
operators throughout Kosovo. It reaffirmed this decision in
October 2006, noting this was being done in preparation for
the second mobile tender process. However, TRA operations to

dismantle illegal cell towers were specifically prohibited in
Serb areas. Ernst Tschoepke, UNMIK Senior Legal Advisor,
told USOP that in addition to Telekom Serbia and
Telenor/Mobtel, a plethora of other illegal operators in
Kosovo have sprung up, primarily from Albania, Macedonia and
Montenegro, none of whom have applied for an operating
license or registered their companies in accordance with
UNMIK regulation. Tschoepke also noted that both Telekom
Serbia, which is allowed only to provide services in
Gracanica, and Telenor/Mobtel have progressively expanded
their networks without seeking a license. Tschoepke added
that all of these companies are welcome to compete for the
second mobile operating license, but asserted that UNMIK and
the PISG had to take action against the illegal operators to
enforce proper regulation of the market and protect the
integrity, legitimacy and transparency of the tender.

AMERICAN COMPANIES INTERESTED IN TENDER BUT COMPLAIN ABOUT
THE ILLEGAL OPERATORS AND PRESENCE OF SERBIA TELECOM AND
TELENOR


5. (C) American companies have evinced interest in competing
for the second mobile tender operating license (ref B),but
complain persistently about the illegal mobile operators and
specifically about the presence of Serbia Telecom and
Telenor/Mobtel. American companies have bluntly told us they
will not compete for this tender unless UNMIK stops the
illegal mobile operators and imposes limits on Serbia Telecom
and Telenor/Mobtel, noting that these firms have an unfair
advantage via their existing presence and the continuous
expansion of their networks. USOP has explained to American
companies the political sensitivities which allow Serbia
Telecom and Telenor/Mobtel to operate in Kosovo Serb areas,
but American companies remain concerned that their presence
and established networks adversely impact serious competition
and market opportunities for the second mobile tender license.

COMMENT


6. (C) Kosovo's mobile telephony market is a complex issue,
one fraught with political and commercial pitfalls. While we
support UNMIK's commitment to allow Kosovo Serbs the
necessary mobile telephone services for their well-being, we
also have a responsibility to ensure that the tender and the
mobile telephony market are clear, fair and transparent to
protect American business interests. UNMIK is exercising
oversight over the TRA's actions to ensure the regulator does
not dismantle the mobile networks serving Kosovo Serb areas,
a policy we continue to encourage. At the same time, it is
important that we not discourage American investment in
critical sectors of the Kosovar economy, which will bring
economic benefits and jobs to Kosovo Albanians and Serbs
alike. End Comment.

KAIDANOW