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see how a hasty privatization can go wrong, a look across the border will suffice. A few years ago, the Croatian government sold the country's telco incumbent to Deutsche Telekom, the German telco giant, which immediately proceeded to exploit its dominant position by raising prices for its services. The lesson is clear: privatization is not a panacea, especially if it means switching from a state to a private monopoly without adequate regulation.

There is no doubt that Telekom Slovenije, which combines fixed-line, mobile and internet services, is the dominant firm on Slovenian market. Comparing incumbents' market shares across the EU, it is clear that the group's position is much stronger than that of its peers in other European countries (see chart). Nevertheless, Telekom Slovenije's market share has been dropping steeply, especially in the fast-growing internet and mobile segments.

Given that the incumbent controls such a large share of the market, one would expect that prices would on average be higher in Slovenia than abroad. However, this is not the case. The prices business and residential users in the country pay for the standard telco services package are below the EU average. The regulators are obviously doing their jobs; recently Telekom Slovenije even felt the need to issue a statement, saying that the regulatory pressure might have a negative impact on its bottom line.

Breathing down their necks

APEK, the Slovenian telco regulator, as well as the competition watchdog, UVK, have many open fronts with the incumbent. Most of the cases concern the group's unwillingness to offer access to its telecommunications infrastructure on appropriate terms to its competitors. The latter complain that, despite European regulations and directives mandating a level playing field in the provision of telco services, Telekom Slovenije is still in a position to harass the competition.

Users switching providers have reported that it takes an unusually long time for the incumbent to respond. Although it seems that new providers of broadband internet access are entering the market every few months, this does not necessarily mean that the market itself is competitive. Not only can the incumbent restrict the access to its infrastructure by imposing onerous conditions, it can also leverage its market power to undercut competitors by lowering prices for its services.

In Slovenia, the implementation of local loop unbundling (LLU), where the incumbent must open up the access to the so-called "last mile" connecting the telephone exchange to customers' premises was crucial in ushering in a new era of competition in the telco market. As the European Commission noted, Slovenia is amongst the best performers in terms of LLU lines per capita in the EU. With LLU in place, broadband internet access providers have started chipping away at Telekom's market share in this segment. The share of LLU lines in total broadband lines surged to 23 percent in just two years by end of 2007.

Optical illusions

While local loop unbundling is an efficient remedy to solve the problem of the natural monopoly that incumbents tend to exercise over the copper wires, the latter are becoming increasingly obsolete as data carriers. With the arrival of fibre optics, not every new entrant to the telecommunications market is forced to deal with the incumbent, as the costs of building one's own fibre optics infrastructure are not prohibitive, as is the case with copper lines.

T-2, the biggest alternative provider of broadband access in the country was the first to seize the opportunity. While at the start, residents of bigger Slovenian towns were irritated by heavy machinery ripping up their streets and pavements, they can now subscribe to much faster internet access than in the past. In addition, Telekom Slovenije was suddenly kicked into action, offering its subscribers to upgrade to fibre optics. It seems that in the fear of losing market share even a behemoth such as Telekom Slovenije group can move quickly.

The ultimate benefactors of these battles are households and businesses. Broadband penetration has been rising, although it is still below the EU average. What is more problematic is the so-called digital divide within the country. In towns around the country, households can be reasonably confident that they can get the broadband access, if they so decide. In rural areas, however, only around three quarters of the population has broadband coverage. Of course, it is much more profitable to build the broadband infrastructure in densely populated areas with many potential subscribers than in rural areas; still the regulators should start thinking about prodding the operators into doing something about this divide.