Frank Leiter: The battle continues

by Anthony Manduca

An extremely well attended - probably the best ever - business breakfast organised by The Malta Business Weekly and Le Meridien Phoenicia was held last week and was addressed by Frank Leiter, chief executive of Melita Cable plc. Mr Leiter, who gave his first public speech since his company's dispute with Maltacom and the Internet Service Providers, spoke on "The challenges of telecommunications" to a packed audience of local Internet Service Providers, telecoms executives, businessmen, diplomats and journalists. Notably absent were representatives from Maltacom, although one senior executive has actually confirmed his attendance.

Mr Leiter did not mince his words. Melita's infrastructure network was nationalised in one day, he told his audience. He went further: In one day last month, he said, "they" took away the basics of our business: our system and infrastructure. "We had invested a lot of money and until then, we thought the infrastructure was ours. In one day we found out that it was no longer ours and that we have to share it with everyone.This was done without us being consulted at all," he said.

Mr Leiter said that Melita is now reviewing its options and might consider suing the government for compensation over the "nationalisation" of Melita's infrastructure.

Melita's chief executive also passed on some advice to the regulatory authorities. Malta is a small market, he said, and it cannot have more than three players in any sector. He cited the example of the country's many radio and television stations, which, in his view, are unsustainable.

"If the regulatory authorities allow more entrants in the field than the market can take, there will be some three or four companies who will do badly and they will introduce a feeling of inferiority in the market. The best solution would be to allow only two to three companies to enter the market and to monitor their progress in order to consider other possible entrants," he said.

Mr Leiter warned the authorities to be careful about granting licences to all companies and said that viability should be taken into consideration rather than the principle of licences for everyone.

Malta occupies a very strategic position, Mr Leiter said. It is moving in the right direction, and can catch up with the rest of Europe which is now overtaking the rest of the world in telecommunications technology.

Malta can be in the forefront of technological change if it wants to, but its present position is uncertain: its underwater link to the outside world consists of one fibre optic cable. If this was accidentally cut, Malta would be cut off from the rest of the world. Hence the urgent need for Malta to have a back-up system, possibly through satellite. Having more than one system will also be good for competition, he said.

Malta has the right technology to attract work, he said, and cited the example of Citibank which has just chosen Barbados to host its credit card back office system, as this country has a good telecommunications network.

Mr Leiter said that in his opinion, Maltacom, Melita and Vodafone are the three companies that are viable for a market such as Malta's.

He said that in the coming months, it will be technically possible to access e-mail and eventually pictures through mobile phones and Melita was ready to offer Internet accession through its network.

Mr Leiter said that technology is developing at a fast pace and a number of companies were consequently merging. Eight or nine years ago, we did not have Internet but today if a business is not Internet-literate, it will be left behind, he said.

"Malta is a very small market. It is very difficult to host two players in such a small market, and it is no place for small companies who do not have the necessary finance. For example, Melita will need about Lm15m to Lm20m for its next upgrade and it is now not so sure how it can get hold of such money," he said.

He explained that it took seven years for Melita to arrive at its position in the Maltese market, and now it is finding it is impossible to operate over here.

"It is important for Malta to invest in new technologies. Malta is paying about three to five times more for international communications because it has to pass through Maltacom's international tariffs. Satellite communications can make international communications far cheaper. This is where the major expense of the ISPs lies," he said.

Mr Leiter said that due to converging technology, there will be no difference between television and telephony but that Maltese businesses at the moment are hindered from being able to compete with the rest of the world because of a slow connectivity.

"A few years ago faxes did not exist, neither did cellular phones. In a few years' time it will be possible to have 600 cable channels, an Internet connection, a telephony system connected to the television set and a phone which is inside the home and a mobile phone outside it. This will be done all through the addition of one new cable television box inside the house.

But where is Malta in all this? asked Mr Leiter. "Hopefully it will be together with the rest of Europe striving to overtake other countries. For this to happen, the mentality in Malta must change. In the future, businesses in Malta will not be limited by the country's size or its distance from other countries as they can sell their products on the Internet, which is where business will be in the coming years. The size of Malta's market will be 100 million subscribers, expanding by 60 million more subscribers. If the Maltese miss out on this opportunity, they will have lost touch with the world," he emphasised.

Is Malta going to be there? he asked. "It is somewhat like jumping on a train that is moving at 100mph. It is important to get people to understand the mechanics of it all and to help them start making money. Melita still has to upgrade its system to be able to offer this opportunity," he said.

A question and answer session followed which mainly consisted of an exchange of arguments between Mr Leiter and some of the ISP representatives. When one ISP executive accused him of wanting "control" and a monopoly situation Mr Leiter replied that the issue at stake was viability. If a system is viable, it should be allowed. But what if it is not viable, should we allow it just the same? he asked.

At one point Mr Leiter asked the ISP representatives if they were ready to provide Lm15m for the up-grading of Melita's system which was needed to allow all the IPS's clients to hook onto the Melita system. Aldo Calleja, of Waldonet, answered yes. Mr Leiter, jokingly, walked towards him with his hands held out to receive the money.

Just a few seconds later Mr Calleja offered Mr Leiter a consultancy to be able to set up the system. He also said he had a technical solution to Melita's problems.

Mr Leiter questioned why Maltacom should invest in ISDN and ASDL when it can get a better technology through the cable system.

David Thake, on behalf of the ISPs pointed out that the real issue is control and that Melita's vision of the future is a chain of three monopolies.

Mr Leiter objected to this and said that for Melita, the vision of the future is three viable operators. Mr Thake, however, pointed out that ISPs have 95 per cent of the market, and without them it is Melita which would not be viable. Mr Leiter replied that Melita has invested US$100m but to carry the ISPs it will have to invest a further Lm15m. Are the ISPs ready to be charged for this?

Aldo Calleja from Waldonet said it is not true that local Internet provision is more expensive than abroad. In the UK 45 hours of "free" Internet cost Lm18 a month. In Malta the cost is Ł10 to Ł11.

Is Melita telling the ISPs that while they could continue to invest with three years of research and 20,000 customers in the background, Melita's network cannot handle this amount of customers? How was it going to offer it to just 1,000 customers then? He pointed out another scenario: three months ago Cisco stopped investing in cable technology. He hinted that it is cable technology that is being rendered obsolete by the fast pace of technological development.

Mr Leiter said Melita studied the technological problems of handling 7000 users as initially it was going to target high-end users. But if Internet users increase to 40,000 or 50,000, this would slow down the whole system. "That is why, in order to service such an amount of customers, Melita will have to consider upgrading its system. Abroad, it has been shown that 12 users can crash the whole system if they abuse it and make a heavy use of the service," he said.

Mr Leiter said that Melita now has to study various options. "Does it have to extend the fibre optic network to the rest of the country? Will it have to deal with 10 ISPs or will there be more ISPs? When the regulations were changed, nobody asked Melita if it had the technology and the finance to be able to take on all the ISPs' networks. The whole business environment has been suddenly turned upside down," he said.