Information and Communication Technologies in Bulgaria

1. Information and Communication Technologies in Bulgaria NEDELCHO NEDELCHEV Deputy Minister Ministry of Transport and Communications IT Conference, 19 October 2004 SYSTEMS 2004

2. Bulgaria – most attractive FDI location in CEE • Best EU accession status • Transparent rules & practices • NATO member, political stability • Low inflation - 2003 average inflation was 2.3% • Low budget deficit – 0% in 2003 • No currency fluctuations – Bulgarian lev pegged to the euro • High real GDP growth • High levels of education & skills • Competitive labour, rent and construction costs • Best in CEE quality of labour / cost ratio

3. Gross Domestic Product (EUR bn) Source: National Statistics Institute

4. GDP Dynamics: 7 consecutive years of growth Source: Bulgarian National Bank

5. Foreign Direct Investment, USD mil Source: Bulgarian Investment Agency, Bulgarian National Bank

6. Doing Business in Bulgaria (1) • Taxes and tariffs • Corporate profit tax – down from 28% (2001) to 15% (2005) • Industrial commodity groups, such as ICTs and components, energy sources, raw materials, medicines and others, are treated with zero rate of customs duties • 0% VAT rate on exports of software • WTO membership since 1996 • European Union Association Agreement • EFTA agreement • CEFTA membership • Bilateral effective free trade agreements • Personal taxation: top rate dropped from 38% (2001) to 24% (2005)

7. Doing Business in Bulgaria (2) • Rent • Boom in the offering of real estate – from EUR 8 to 20 / sq.m • Telecom services • 2 active GSM networks, 3-rd in progress • 85% of households covered by the fixed network • Digitalisation: 45% by end 2004, 80% by end of 2007 • 20.5% of the population estimated to have Internet access in 2004 • Over 3,000 km of optical transmission lines • Transport links • Daily direct flights to most European countries • Five international transport corridors crossing Bulgaria

8. Telecom Market Mobile • First GSM operator: Mobiltel– 2.8 mil subs • Second GSM operator: Globul – 1.2 mil subs • NMT operator: Mobikom – 100 K subs • Third GSM license: BTC, part of privatization of the incumbent, start operations in April 2005 • Forthcoming licenses: UMTS licenses to be issued in early 2005 Mobile market in 2003 recorded 10.9% y-o-y growth Penetration - 50% end of 2004, expected to reach 75% in 2008

9. Telecom Market Fixed telephony- on the road of liberalization • Incumbent BTC privatized in June 2004 in a landmark for CEE private equity deal, total effect of privatization proceeds plus investment of over euro 1.1 billion • 12 new operators of fixed voice service have been licensed (as of August 2004) • Reference interconnect offer /RIO/ approved in June 2004 • Local loop unbundling effective from Jan 2005

10. Telecom Market Internet Users Source: ICT Development Agency

11. Telecom Market Legal and Regulatory Framework • New Telecommunications Law - fully harmonized with 2000 acquis and partially with 2002 acquis • Transparent regulatory system • Significantly shortened terms and procedures for license issuing have been introduced • Decreased number of activities that require individual licenses • Law on the Electronic Document and Electronic Signature • Law on the Protection of Personal Data • Convention on Cyber Crime

12. Telecom market - investments Foreign Direct Investments in Communications, 1998 – June 2004 USD 6.556 mil USD 1.049 mil

13. Telecom market - conclusions • Both mobile and fixed markets still have high growth potential • Large investments expected in every segment • New market entrants in mobile, fixed, satellite to fuel growth and competition • Telecom market in Bulgaria is of interest for: • Investors • Vendors • Service and applications’ providers

14. ICT Highlights • More than 1,000 small and medium sized IT enterprises • Traditions (35 years of experience) in this area • Very well developed educational system in electronics, engineering and computer sciences • Areas of competitive advantage • Software – computer system software, networking software and web-design, CAD/CAM/CAE software, telecommunications and wireless development software, application software, firmware • Hardware – computer and systems assembling, digital and analog printed circuits design, PCB manufacture, analog mixed engineering • Microelectronics – design ASIC’s, front-end and back-end microelectronic activities • Automation – systems for industrial automation

15. Wide range of specializations of the Bulgarian ICT companies

16. IT – Quality through Certifying of Companies and Specialists • Over 100 ICT companies certified under the ISO 9000 • 15 companies certified under the ISO 14000 • In January 2004 the European Software Institute (ESI) launched a Regional ESI Center of Excellence in Bulgaria Bulgaria was chosen out of other Eastern European countries to lead this project and host an ESI Center because: • Bulgaria has remarkable specialists in software development • Bulgarian industry is ready to adopt modern certification and quality standards to operate globally • ICT sector is a national priority and the Bulgarian government is committed to develop the software industry

17. ESI Center Bulgaria (1) Mission: • Develop industry competitiveness on the Balkan and Eastern European countries. • Bulgaria - center of excellence and leading technologies Target area: • Bulgaria and the Eastern European countries Target Groups • IT companies and specialists • IT-intensive companies and organizations • State institutions and departments (e-government) • Citizens – e-awareness, e-government, IT penetration

18. ESI Center Bulgaria (2) How can ESI Center Bulgaria help the ICT sector to increase its competitiveness? • Support businesses to increase value added in their operations through implementation of latest good practices in: • Quality management – Capability Maturity Model Integration (CMM®I) • Strategic management – Balanced IT Score Cards (BITS) • Increased productivity of SW intensive development processes • Support universities in design and execution of modern practical oriented software engineering programs • Rise awareness in the society and motivate citizens to increase their general IT knowledge level

19. Investing in ICT in Bulgaria: Case studies • SAP, Germany – SAP Labs Bulgaria, Sofia (2000) • Focused on developing a leading-edge J2EE Application Server • Largest FDI in the software development sector • SAP Labs Bulgaria employs more than 250 people • EPIQ, Belgium – EPIQ Electronic Assembly, Botevgrad (1997) • Core business activities transferred to Bulgaria • 1,000 employees and 8,000 sq. m production area • Electronic and module assembly, development and manufacture of plastic injection moulds & factory automation equipment • Bulgarian Telecommunications Company (BTC) • Investor – Advent International, USA • Price – EUR 280 mil for 65% • Investment of EUR 700 mil in the next 5 years

20. Reasons to invest in Bulgaria • Cutting-edge expertise in a multitude of ICT areas • High growth rate of Internet users, mobile phone subscribers and Internet services suggests opportunities for future growth in the ICT sector • Availability of new technologies promoted by public ventures and investments • Integrated chain from academic research and discovery to global market launch • Strategic location

21. Investors in Bulgaria will find … • Institutional support for major investment projects • Robust legal framework, focused on attracting and protecting foreign investment • Among the lowest costs of doing business in Europe • Low regulatory obstacles and start up costs • Highly educated workforce • Excellent labour quality / labour cost ratio