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Strom Telecom rapidy expands

Relatively unknown Czech company eyes further growth

By Katya Zapletnyuk
Staff Writer, The Prague Post
September 13th, 2006 issue

Ned Electronics, the springboard for a top-100 company, was founded by three men fleeing the Bosnian War
Viewed from inside its giant office complex in Prague 4, the laboratory of the high-end communications equipment producer Strom Telecom can make an unprepared visitor feel giddy. Rooms are filled with enough exposed wires, circuit boards and computers to make the company seem like something from the future.

Strom managers even joke that the employees from 22 different nationalities speak the high-tech language they call "Strom." And, if it continues to grow at its current pace, there will be a few more nationals able to speak the company language by year's end.

An emerging player on the telecommunications equipment market, the company employs more than 1,200 Czechs, but it remains a relative unknown in its home country, partially because the brunt of its business is conducted abroad.

The result of a partnership between a failing communist-era state-owned company and three refugees from Sarajevo, Strom's revenue has doubled in each of the past three years, and the Czech Economic Chamber recently called it the fourth fastest-growing exporter in the country.

Company revenue topped out at $250 million (5.5 billion Kč) in 2005, winning it a place among the Czech Republic's top 100 companies.

The company — which already has subsidiaries in five other countries — will open an office in Dubai later this month.

"We are already well-established in Eastern Europe," said Strom Telecom's Production Director Berislav Čupič. "Our priority is to conquer new markets, including Western Europe, Asia and Latin America."

The company has benefited from snuggling up to Russia. It provides hardware to Moscow City Telecommunications Network (MGTS) and Svyazinvest, a telecom holding controlling about 80 percent of the fixed-line communications market in Russia and serving 36 million subscribers.

From war to business

The company came about as a result of crisis. After civil war broke out in the former Yugoslavia in 1991, three electrical engineers — Bosnian Muslim Nihad Hurem, Serb Miodrag Škrbiç and Croat Mirko Jelčiç — fled from war-torn Sarajevo to Germany, where they established Ned Electronics. They developed analog switchboards for telecommunications companies.

Several months later, they decided to move their operations to the Czech Republic to take advantage of the lower costs and greater business opportunities that Eastern Europe was providing for analog telecommunications equipment.

The entrepreneurs partnered with state-run electronics producer Tesla. Once the largest employer in its region, Tesla was struggling to adjust to the free market and was saddled with debt.

Tesla and Ned Electronics founded the joint venture Strom Telecom Tesla, based in Votice, about 60 kilometers (37 miles) outside Prague.

"It was a synergy effect," said Čupič, who has been with the company since its foundation. "People at Strom knew how to design and test innovative products. Tesla brought the ideas to the production phase and to the assembly lines."

Two months after opening its doors, Strom got its first order from Česk˘ Telecom, the monopoly fixed-line provider.

With its second big order, Strom Telecom struck gold.

In 1995, the company, which at that time employed approximately 100 people, used Tesla's old contacts in Russia to get an order from the MGTS, which had nearly 4 million subscribers, more than the entire Czech Republic had.

"When the Russian market started to develop, a demand emerged for telecommunications equipment. Local producers could not meet it either in terms of quality or production volumes," said Natalia Aristova, chief analyst at ComNews Research, a Moscow-based telecom market research company.

In 1999, Strom Telecom's owners sold a controlling stake in the company to one of Russia's largest telecom holdings, AFK Sistema, which resold the stake in 2002 to its technological division, Sitronics.

Both companies remain tight-lipped about the price of the deal.

"Strom Telecom became a core of Sitronics' telecommunications solutions division," said Alexander Boreyko, Sitronics' investor relations director.

Sistema has an interest in the largest Russian telecom operators, including MGTS, which had more than 65 million cellular subscribers.

Aristova said Sistema owner Vladimir Yevtushenkov has "close relations" with the top management of Svyazinvest and the Russian Communications Ministry, which is on Svyazinvest's board.

Katya Zapletnyuk can be reached at kzapletnyuk@praguepost.com


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