Alternative telecom companies are crying foul over Český Telecom's unilateral decision to cut fees they receive for delivering Internet dial-up connections and are threatening to take legal action.

"This destroyed 60 percent of my business," said Naveed Gill, general manager of Tiscali, the No. 1 provider of dial-up Internet access to Czech households. "If they don't stop, [Internet service providers] will be out of business. It is extremely serious."

Český Telecom arbitrarily decided to cut the fees, which it paid alternate companies for providing Internet traffic that the telecom giant receives through its fixed lines leased to these operators in July. It claims it had the authority to do so under a ruling issued by the Czech Telecommunications Authority (ČTÚ). However, Internet service providers remain convinced that Český Telecom's decision is out of line with, and pivots upon, an illegitimate interpretation of the pricing law.

"What they have done is quite illegal," Gill said. "Český Telecom did not create a dispute in front of a regulator. It simply started to pay less."

Controversial ruling

Internet service providers have a symbiotic relationship with Český Telecom. The providers pay a fee to Český Telecom for leasing its network of ground cables, the largest in the country. In turn Český Telecom pays these providers for bringing dial-up access through their telephone numbers. Each time a customer calls one of the alternative providers' numbers to connect to the Internet, that person is charged with what is known as a termination fee because the Internet call terminates in the provider's local network.

In April, Český Telecom decided to dramatically reduce the minimum fee to 7 hellers for each Internet call termination.

According to Gill, that move, simply put, allows Český Telecom to pocket about 95 percent of termination fees. Alternative providers would receive the balance.

"The ČTÚ's new pricing ruling threatens to completely destroy all the progress in the dial-up sector that has been achieved during the past two and a half years. It will return the Internet service market to the 'dark ages' of monopolistic dial-up revenue sharing by Český Telecom that existed from 1999 to 2000," Gill said.

Different interpretations

The dispute between Český Telecom and Internet service providers stems from their different interpretation of the ČTÚ ruling. According to Český Telecom's press department, the company has been involved in price negotiations with Internet service providers since 2002. It said its decision to reduce the payments is perfectly in line with the ČTÚ ruling.

"Reduction of payments was based on the ČTÚ's pricing decision that took into consideration providers' costs connected with Internet call termination," the press department said in a written response. However, Internet service providers see it entirely differently.

"If somebody sends me an invoice, I first have to pay it and then I can dispute it," Gill said. According to him, the minimal fee of 7 hellers set by the ruling is far too low when Tiscali's costs are taken into consideration.

"We are convinced that Český Telecom's initiative is out of line with the pricing law," said Bruno Wertlen, regulatory affairs and wholesale director at Contactel, another alternative telecommunications provider.

ČTÚ Chairman David Stádník said in a written response that the price set in the office's ruling is a minimum limit, meaning it is the smallest amount Český Telecom can pay. However, Stádník said, particular operators are free to negotiate prices with Český Telecom.

Providers and Český Telecom are now discussing the fees and the providers have filed a complaint with the ČTÚ. They are awaiting a response. Gill, however, is challenging the ČTÚ ruling in general.

He said the decision to slash minimum fees came several days before a new telecommunications act went into effect May 1, making it impossible for operators to appeal it.

"From the point of view of Internet service providers, we don't quite understand how the logic of this decision works," Gill said. According to the new pricing rules, Internet call termination fees are determined based on the costs incurred by the Internet service providers — higher costs translate into higher fees.