LAST CHANCE FOR UN TO FIX KOSOVO TELECOM MARKET

C O N F I D E N T I A L SECTION 01 OF 03 PRISTINA 000219

SIPDIS

SIPDIS

DEPT FOR EUR/SCE, EUR/ACE
NSC FOR BRAUN
USDOC FOR AC, 3004:PAT NUGENT
PASS USAID FOR EE/ECA, EE/DGSR

E.O. 12958: DECL: 03/10/2016
TAGS: ECPS ETRD PGOV PREL YI UNMIK
SUBJECT: LAST CHANCE FOR UN TO FIX KOSOVO TELECOM MARKET

REF: 05 PRISTINA 1159

Classified By: COM PHILIP GOLDBERG; REASON 1.5 B/D.


1. (C) SUMMARY. UNMIK has long ruled out any reconsideration
of its October 2004 annulment, on grounds of serious
procedural irregularity, of the award of Kosovo's second
mobile phone operating license to the Mobikos consortium.
The outgoing government of Bajram Kosumi has defiantly
insisted on resurrecting the award. One of Kosumi's last
acts in office was to order the regulator to facilitate
Mobikos' market entry -- UNMIK quickly rejected the order.
Concluding that the Kosumi order legally trumps UNMIK's
rejection of it, Mobikos has vowed to construct an operating
network under the direction of its American (Harris
Corporation) and Slovenian (Mobitel) consortium members.
SRSG Soren Jessen-Petersen has discussed the second license
with incoming Prime Minister Agim Ceku and believes Ceku will
support the only way forward UNMIK will allow -- conduct of a
new tender from scratch. Many stakeholders believe that a
transparent and fair tender process can be achieved only by
hiring a world-class consultant to run it, but fear that
UNMIK will instead put off the matter until Kosovo's final
status is determined. No matter what happens on the tender,
the USG can help bring economic sanity to the Kosovo telecom
market by continuing to advocate for the United Nations to
compel the International Telecommunications Union to grant
UNMIK its own international dialing code and thereby greatly
reduce call rates. END SUMMARY.


Background
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2. (SBU) In June 2004 Kosovo's independent Telecommunications
Regulatory Authority (TRA) declared the Mobikos consortium
the winner of an operating license tender designed to
introduce competition into a market in which incumbent
monopoly Vala 900 has been providing poor service at inflated
prices since the end of the Kosovo conflict in 1999.
Reacting to compelling reports of irregularities in the
selection process, then Principal Deputy of the Special
Representative of the Secretary General (PDSRSG) Charles
Brayshaw formally suspended the award pending review of the
tender by the Irish consultancy HELM, retained for the
purpose. HELM issued a report in October 2004 that was
highly critical of the tender process, especially its
pre-qualification phase, and Brayshaw consequently formally
annulled the tender and referred the entire matter to UNMIK
Pillar I (law and order) for investigation of possible
official corruption. Then Prime Minister Bajram Rexhepi
confirmed to econoffs on March 7 (2006) that he had fully
supported both the suspension (in light of rampant reports of
PISG impropriety) and the annulment (in light of the HELM
report) but quickly became distressed when UNMIK inexplicably
refused to offer guidance on next steps and TRA Chair Anton
Berisha inexplicably insisted on issuing a license to Mobikos
notwithstanding UNMIK's annulment of the tender.


3. (SBU) (NOTE. The American company Western Wireless was a
partner in the KMPC bidding consortium until its recent
dissolution of that arrangement. Motorola's after-license
equipment supply contract with Mobikos expired last year.
Mobikos then brought in the Harris Corporation of Florida as
a consortium partner. Representatives of the
Canadian/American company Nortel recently visited USOP to
also express interest in the tender. END NOTE.)


4. (SBU) After voiding the license UNMIK officials repeatedly
rejected urgent suggestions from the PISG and the
international community that a delay in relaunching the
tender would diminish Kosovo in the eyes of potential
investors from all sectors because they were viewing the
telecom license award -- expected to involve 100 million
euros in start-up costs -- as a primary indicator of the
maturity of the Kosovo market. TRA's Berisha frequently
expressed frustration to econoffs during the ensuing 14
months that the telecommunications ministry had not
instructed him to launch a new tender yet UNMIK would not let
him implement the result of the old one.

UNMIK Neglect Invites Chaos

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5. (SBU) In November 2005 Kosovo Prime Minister Bajram Kosumi
ordered TRA to hire a consultant at PISG expense to
re-evaluate the fairness of the original tender. Berisha
complied and the British consultancy KPMG, over muted UNMIK
objection, was retained and produced a February 2006 report
that criticized the tender process but pronounced it overall
to be reasonably consistent with international standards.
Facing imminent removal from office on unrelated grounds, one
of Kosumi's last executive acts, on March 1, was to issue a
formal order to TRA to implement the conclusions of the KPMG
report, i.e. to license Mobikos, within 30 days.


6. (SBU) The SRSG did not formally countermand Kosumi's
order, but an UNMIK spokesperson explained to the press
UNMIK's view that the order had no effect and that UNMIK's
annulment of the tender remained in effect. In a March 3
meeting with E/P chief, UNMIK Legal Advisor Alexander
Borg-Olivier and Deputy Legal Advisor Ernst Tsepsche
acknowledged that the SRSG had acted unwisely in neglecting
the tender for more than a year and had thereby caused deep
resentment among PISG officials, especially in that Pillar I
had publicly opened an investigation with attendant damage to
the reputations of Berisha and other officials and then
evidently took no further action.


7. (C) Post's continual soundings of virtually everyone
involved in the tender reveal a hardening of PISG position as
the Rexhepi administration gave way to the Kosumi
administration. Very high officials of the LDK-AAK governing
coalition (Democratic League of Kosovo-Alliance for the
Future of Kosovo) have acknowledged to us in recent months,
with frequently disarming forthrightness, that a political
dimension has come to dominate their approach to the tender.
Ekrim Lluka, CEO of Mobikos local member Dukagjini Company,
has long been a primary AAK benefactor, most recently by
making major financial contributions to the defense fund of
former Kosovo Prime Minister Ramush Haradinaj in connection
with the prosecution pending against him before the
International Criminal Tribunal for the Former Yugoslavia.
Senior coalition officials confidentially tell us that they
are expected to deliver the license to Mobikos and that they
cannot agree to a new tender so long as Mobikos continues to
assert a right to a license. Berisha, a member of the LDK
general council, acknowledges that he is under enormous
political pressure and claims he would resign rather than
implement a new tender.


8. (SBU) On March 7 Mobikos General Manager Fatmir Gashi,
noting that UNMIK has never revoked its transfer to the PISG
of competency over the tender as contained in the 2003
Telecommunications Law, insisted to econoffs that Kosumi's
order takes priority over the UNMIK press statement in the
absence of such a formal revocation of PISG authority.
(NOTE. Jurisdiction over the Kosovo telecom market is an
UNMIK-PISG hodgepodge with UNMIK administering the Vala 900
monopoly but TRA responsible for market entry. END NOTE.) On
March 8, Gashi made a similar argument to the Kosovo media
and announced that Mobikos would shortly begin construction
of a mobile phone network under the supervision of
specialists from consortium members Harris Corporation of the
United States and Mobitel of Slovenia.


9. (SBU) In a March 9 meeting with liaison offices, attended
by DPO, SRSG Jessen-Petersen said he has discussed the mobile
tender with incoming Prime Minister Agim Ceku and that Ceku
is receptive to the only way forward UNMIK will allow --
conduct of a new tender from scratch.

New York No Help Either
--------------


10. (SBU) Monopoly capitalism is not the only reason Kosovars
have the worst telephone service and the highest call rates
in Europe. Vala 900 also passes on to consumers the fees and
opportunity costs (50-100 million euro per year according to
UNMIK) associated with the rental of an international dialing
code from Monaco Telecom (owned by British giant Cable and
Wireless). In an effort to escape these costs,
Jessen-Petersen filed an application in the summer of 2004
with the International Telecommunications Union (ITU) for a

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dialing code to be dedicated to UNMIK for use by all Kosovo
operators. Several months of often-contentious discussions
between ITU (a UN specialized agency) and UNMIK (with strong
USG and UN support) seemingly removed all legal obstacles yet
failed to convince ITU leadership to give UNMIK the code.
After a sharply worded letter from UN Undersecretary
Jean-Marie Guehenno to the ITU demanding that UNMIK be given
a code, New York seems to have lost interest in the matter.

COMMENT
--------------


11. (C) Post has studied both the HELM report and the KPMG
report. Neither is overwhelmingly persuasive on the question
of whether the 2004 tender would be salvageable.
Fortunately, however, we are not compelled to resolve this
battle of experts. UNSCR 1244 and Kosovo's Constitutional
Framework leave no room for doubt in our view that UNMIK has
bottom line jurisdiction over all issues in Kosovo. UNMIK's
original decision to annul the tender certainly represented a
reasonable course given the available evidence of impropriety
(flaunting of pre-qualification rules, review commission
members who could not read English (the required language for
all bids),over-reaching by government officials, etc.) and
was not subject to appeal.


12. (C) Having voided the tender, UNMIK obviously took on a
responsibility to fix the process it so obviously had
concluded was broken. However, UNMIK has declined to exert
authority out of misguided fear that doing so would amount to
a retreat from its mandate to transfer governing competencies
to the PISG. By leaving the tender in limbo for well over a
year, the SRSG has created a pervasive impression in the
investor community that UNMIK can't execute the tender
either. Many investors (Western Wireless evidently among
them) have reached the reasonable conclusion that Kosovo,
regardless of who's in charge, just isn't ready to do
business.


13. (C) The coming of the Ceku government, sworn in on March
10, presents an opportunity for UNMIK and the PISG to
conclude the tender at long last. As a life-long
military/civil defense official, Ceku has little business
background and comes to this issue without preconception.
Early indications are that he is fully open to the obvious
solution (reftel) of instructing his government to work with
UNMIK to retain a reputable international consultant with
expansive terms of reference allowing it to de facto run the
entire tender process. United Nations headquarters in New
York could yet play a positive role, both by encouraging
UNMIK to insist, by taking over the process completely if
need be, that a tender be concluded and by ordering the ITU
to give UNMIK a dialing code.


14. (C) The opportunity presented by Ceku's arrival may be
the last before Kosovo's final status is determined. Should
UNMIK fail to resolve matters before itself departing the
scene, Kosovo would be left to its own devices which, judging
by the first tender, would inspire little of the foreign
direct investment Kosovo will need to develop a
self-sustaining economy.

END COMMENT
GOLDBERG