European carrier eTel Group has expansion plans that involve the further use of kit from Huawei Technologies Co. Ltd. and some acquisitions, the company says. Such plans, taken with the EU expanding and Interoute Telecommunications buying its way into the region, further demonstrate that the Central and Eastern Europe telecom market is a hive of activity (see Interoute to Buy Euro Carrier).

Privately held eTel is the regional carrier -- with a network in Austria, the Czech Republic, Germany, Hungary, Poland, and Slovakia -- that recently deployed a number of Huawei switches to expand its network in Central Europe. And its CFO, Richard Duggan, says it plans to use the Chinese vendor's kit in further network expansions (see Huawei Builds Euro Backbone).

"Huawei's price offering is stellar, and its ongoing upgrade and maintenance service is not bad, too." But the price of the after-sales service doesn't come at any discount relative to other equipment suppliers, says the CFO. "Like the other vendors, they think we like to shell out a lot of money each year on maintenance."

But eTel has found Huawei to be "very flexible and responsive," says Duggan, and the carrier will use more equipment from the Chinese company to build out its network in Austria and the Czech Republic.

"We're always looking at further expansion, but it has to be at the right price," he says. That careful approach counts for spending on fiber (which eTel buys from utility companies), equipment, and network operations. "We're looking for fiber between Hungary and Bratislava [Slovakia], and also between Hungary and Vienna. We're also looking for connections from Warsaw and Western Europe. And we're pursuing a number of things at the moment in terms of buying existing assets."

Snapping up unwanted assets on the cheap is a tried-and-true expansion tactic of eTel's. It built its presence in Austria around the acquisition (for an unknown price) of a metro fiber network in Vienna from Telefònica SA in July 2002, as the Spanish operator retrenched around its domestic and Latin American businesses. That ready-installed network gave eTel access to the vast majority of business premises in the Austrian capital.

ETel had also bought the Austrian business of struggling international operator RSL Communications in June 2001, an acquisition that gave it 10,000 business customers generating about €50 million (US$60.5 million) in annual revenues.

The current expansion is needed to meet the growing demand for data services in the region, "especially IP VPN and MPLS solutions. There's also more activity in the wholesale sector, and in retail sales, too." Duggan claims eTel has annual sales of about €100 million ($121 million), from 60,000 customers, many of which are business users. He says the carrier has needed just one round of funding, the initial $50 million pumped in by Dresdner Kleinwort Wasserstein, Argus Capital Partners, and Greenhill Capital Partners in November 2000.

But eTel is still facing regulatory hurdles in many of the countries in which it operates. "It's a hostile regulatory environment, and there are lots of games going on." Many of the big operators are controlled by major Western European carriers -- Poland's national operator Telekomunikacja Polska SA is controlled by France Telecom SA (NYSE: FTE), while Hungary's Matáv Group is owned by Deutsche Telekom AG (NYSE: DT) -- and Duggan says those Western giants are using their experience to suppress the efforts of competitive operators in Eastern Europe.

"They have well laid out road maps, and speed bumps, that hold up the true deregulation and liberalization of some of these markets. It's a struggle to get proper interconnect agreements [with the national infrastructure owners] in some countries, particularly Poland and Slovakia." And even once you have an agreement, it can be as long as nine months before anything is actually done about it, complains the CFO.

Despite the regulatory problems, eTel has high hopes for its business in the region. But not all carriers are as keen. While many are rushing to grab a slice of the action, Dutch national operator KPN Telecom NV (NYSE: KPN) is sticking with its plan to hunker down in the Netherlands, Belgium, and Germany, where it has mobile operations, and sell its Central and European businesses.

Having already sold off its stake in Czech national operator Cesky Telecom a.s. (see KPN Gets Trendy), KPN today announced the sale of its business telecom services operator in Hungary (see KPN Sells Hungarian Assets). Such moves have won favor with credit ratings agency Standard & Poor’s (see KPN Ratings Raised to A-).

— Ray Le Maistre, International Editor, Boardwatch