Free Internet City Poses Competition Risks?
14 June, 2012
Free Internet City Poses Competition Risks?

Tbilisi - Internet City, the project initiated by Tbilisi City Hall that intends to make free outdoor internet access available throughout the capital, may pose fair competition risks as Delta-Comm, a private company, is involved in the project. 

Delta-Comm, a communication company, will be implementing the ambitious project of Tbilisi City Hall to promote Georgian capital as an internet city and ensure free of charge internet access in major city arteries and public places, such as parks and squares, subway

stations and bus stops, public buildings and education centers. The project is unprecedented, as both the City Hall and Delta-Comm Co. assure.
“You won’t find such complete wireless internet coverage throughout the city even in famous tourist haunts like Paris, Rome, Amsterdam, Jerusalem or Istanbul, where Wi-Fi is available only within big commercial spaces,” the City Hall trumpeted. The project is already launched. The Wi-Fi is available at Tbilisi downtown, key tourist venues in Old Tbilisi and partially in outskirts  at the moment and is expected to cover the entire city by September, the City Hall TV commercials  inform.  Apart of 100% coverage the project has another big enticement: it is free.
“Thanks god have caught the [street] Wi-Fi at home,” one Facebook remark admires.  “And now am puzzled whether or not to cut the Caucasus [payable] package out.”
The puzzle is bigger for other internet market players especially mobile operators providing outdoor internet coverage and charging 1 megabit traffic service by 70 tetri at average. Their clientele is supposed to move to free internet service.
One remark on the City Hall web-page [where the Tbilisi Internet City commercial is posted] rejoices: “Let them pig cell operators go to hell now, they have sucked enough blood of us charging by 30 tetri per second talk for years…will be going plunged into internet across the streets all day long now.”
But the free service idea seems much more controversial than the naive internet geeks fancying of free internet can imagine. Some economic analysts think the free internet service project is rude state interference in the market and sooner or later it will be questioned.    
“This is violation of fair competition. The bigger will be the coverage area the more subscribers Delta Comm will seize from mobile operators as well as other internet providers since the coverage area of Wi-Fi will overlap the commercial packages of other internet operators,” Davit Narmania, Executive Director of Caucasian Institute for Economic and Social Research, said adding that the more lamentable fact is that the state encourages such behavior.
According to him, the state is first who violates the law on competition that entered into effect just two weeks ago as far as it instigated private company to undertake such controversial project. 
“It is a rude interference of the state in the market that is not prohibited by our law directly but the law on competition stipulates everybody should observe competition rules, and this “everybody” includes the state too, the state puts out rules of game and if it does not observe them it cannot demand from others to obey rules.”
Delta-Comm assures the free internet access is a pure commercial project not a charity one as some may presume and pledges to observe all competition rules.
Delta –Comm, operating as wholesale internet market player since 2002 [it takes internet in Georgia through 800 km fiber optic backbone cable running from Turkey and provides retail market internet providers] decided to hit retail market too and chose the City Hall free internet project as advertising and marketing campaign to get its niche at retail market.
“It is a part of our advertising and marketing campaign”, Dato Khubuluri, Director of Delta-Comm, said in the interview with Georgian Journal. “The reason is very clear: we have just entered the retail market this year and since competition is very tough we chose such an expensive way of advertising and marketing. It generally is a potential tool of selling our services we already have.” 
Delta-Comm won the exclusive right to deploy the Wi-Fi infrastructure for 20 years in Tbilisi public places [identified by City Hall] through an open auction held in this past April and pays GEL 25 500 each month as an initial payment for using the city property. How much will be invested in the project is not defined as of yet. Tentatively USD 14-18 million is supposed to be allocated. The internet will be free for consumers but the invested sums will be raised through other services Delta-Comm offers to clients: commercials will pop on as soon as the free internet consumers switch in the network.
Khubuluri agrees that overlapping indoor commercial packages by already available outdoor Wi-Fi infringes rights of his competitors but assures that the problem will be removed gradually.
“There are special systems restricting coverage area and now we work to choose which one is better to us. The problem will be definitely removed,” he said.  
Narmania insists this cannot solve the problem to cell operators and wonders why neither the Agency for Free Trade and Competition (AFTC) nor Georgian National Communication Commission (GNCC) sent alert signals that market games are under threat.
According to GNCC, they are not aware of contract terms between City Hall and Delta-Comm as yet and will comment an the issue only after they probe in the contract details.
“Besides, we do not put out any restriction to the company that has just entered the market. We will be closely monitoring the process and will react only after the competition is infringed this way or other,” GNCC commented to GJ.  
Irakli Lekvinadze, an economic analyst, upholds the GNCC. He finds too early to speak of unfair competition since consumers rights are safe and no other companies claim that their rights are infringed. According to him, the city infrastructure development is the City Hall’s competence and it was supposed to pay for this WiFi service in fact. Since a private company agreed to finance the project there is no reason to hail it in misbehavior for Delta-Comm won the right to deploy WiFi infrastructure through an open auction where other market players did not participate.
Delta- Comm was the sole bidder in fact for other companies asked City Hall to be paid for their service instead of paying to City Hall back as Delta-Comm agreed.
“Delta-Comm just does the thing that nobody did and uses it as a marketing tool. So what?” Lekvinadze asked.  “Consumer will not face extra expenses and has a choice – so no problem. Till this company does not abuse its power no pretensions can be raised.”
The internet market players both cell companies and internet providers shun commenting the issue. Beeline and Silknet say the City Hall initiative is a good idea as far as it promotes internet. They see no competition risks. Silknet believes the wireless internet is secondary service and cannot replace optical internet and DSL. MagtiCom refrained from comments.
Sandro Sadaghashvili, Head of Legal Department at Geocell, said they expect the initiative will take their subscribers off but they cannot claim the abuse of competition rules till the project takes off and they will make an in-depth analysis and financial calculations to find out whether or not the rules are violated.

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