This case describes the market of telecommunication in Georgia and its liberalization. For the first time in its history, the company Georgian Telecom, former monopolist of long distance and international calls in Georgia, was allowed to set its own tariffs within the wide tariff band defined by the newly established Regulatory Commission. The Regulatory Commission for Telecommunications was established by the end of 2000. One of the functions of the Commission was to regulate telecom market - to promote competition and regulate monopolies. The Commission planned to develop and implement new interconnection rules in 3-4 months, but GT's management expected this process to take much longer (6-8 months). Small ILDTs were not happy with this band - their current tariffs were 10-20% below minimum, so they were forced to increase tariffs (these operators believed that it provided certain advantage to bigger operators).
Liberalization of Georgian telecommunication industry in recent years caused many problems to GT. In the beginning market liberalization was not considered as a threat by GT management - the company was too big compared to new small entrants. In 1997-1998 GT's revenues were increasing despite declining market share - overall market was increasing. In 2000 the profit was less than half of 1998's. The management was forced to take measures against competition and improve the company's efficiency. Negative trend continued in 2001. The company was losing its market share to newly emerged competition. Declining revenues put pressure on the management to increase former monopolist's efficiency. The key issue is what tariffs for international calls Georgian Telecom will set because setting right tariffs is crucially important for GT to defend its market position against small aggressive competitors.
Author: Archil Melikadze
Institution: Center for Enterprise Restructuring and Management Assistance (CERMA)
Number of pages: 6
Language: English
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