Český Telecom (ČT) and the regulator of the Czech telecommunications market are locked in negotiations over the conditions of a tender to operate the country's phone booths for the next six years, with ČT holding out for better terms.

ČT, the country's dominant fixed-line provider, is the tender's only bidder. The Czech Telecommunications Office (ČTÚ) launched the competition Dec. 7 and was expected to announce ČT the winner Jan. 20. For the time being, however, the two sides are in a deadlock.

"We have not come to terms of an agreement with the only suitor in the bid, Český Telecom," said ČTÚ spokesman Břetislav Janík.

The delay probably shouldn't surprise the ČTU. That's because operating phone booths in this country isn't profitable. In fact, ČT, which has held the contract since before the 1989 fall of communism, loses hundreds of millions of crowns annually on phone booths, a direct result of the rise of mobile phones.

ČT was able to justify the losses in the past in part because, as a state-owned company, it got first dibs on lucrative government contracts, according to analysts. But now, ČT is privately owned — Spanish telecommunications company Telefónica bought it in April 2005 — and the game has changed.

Neither Janík nor ČT spokesman Martin Žabka would elaborate on specific points holding up negotiations. Žabka would only confirm that ČT wants to ensure that operating the booths will be a better investment in the future.

"We hope that the negotiations with the ČTÚ will eventually lead to better [financial] terms for us," Žabka said, adding that an agreement should be reached in a few weeks.

Abysmal business

Operating the phone booths has turned into a financial black hole for ČT in the past few years. Over the past three years, public phone booth use has dropped by one-third as a result of the sharp increase in mobile phone penetration.

Žabka wouldn't specify exactly how much the company loses each year on phone booths, but he pointed out that the company spends tens of millions of crowns a year on maintenance alone.

"Last year we had to fix over 4,000 receivers that were torn from phone boxes," he said.

Tibor Bokor, an analysts at Wood & Company, said ČT could in the past offset these costs with income from exclusive contracts to provide telecommunication services to ministries and other state authorities.

"But the situation changed after Český Telecom's privatization," he said. "The government lost most of its influence over Český Telecom, and the company also can't count on any exclusive deals with state authorities."

As a private company, ČT can hardly justify being pushed into a losing business, Bokor said. The only thing ČT got from the contract was, in theory, more brand awareness.

A new law on electronic communications that took effect last September should offer ČT some relief. Under the previous law, ČT had to finance all of the country's 26,000 phone booths with money from its own coffers. But the new law stipulates that all fixed-line operators on the market will share the cost of maintaining the booths. The ČTÚ is also expected to subsidize the cost in the future.

There are only a few other fixed-line providers in this country, however, so current negotiations revolve around exactly how much of the bill ČT will end up having to foot itself.

Here to stay

Given the rise of mobile phones and the fact that mobile penetration is more than 100 percent in this country, phone booths are losing their place, Bokor said.

Still, the ČTÚ insists that people have access to public phones. For a village of fewer than 1,000 people, there must be at least one phone, according to the regulator. Towns with a population of up to 50,000 must have one booth per 2,000 residents.

In this country at least, phone booths aren't going anywhere, which ČT seems to realize. The company is determined to upgrade public phones by making them compatible with SMS and e-mail, Žabka said. Today, about half of the country's 26,000 phone booths can be used for communicating via SMS and e-mail.