Caucasus Online releases a statement on TV Imedi's TV story named "Why did Caucasus Online put at risk the State by its action"

11.08.20 15:00

Caucasus Online believes that the authors of the Story have flagrantly violated principles enshrined in the Georgian Charter of Journalistic Ethics, - reads the statement.


The statement stresses that the TV story was based on inaccurate information and also notes that the press release serves the purpose to provide comphenesive information to the public.


"The story is based on inaccurate and one-sided information. The journalists have not interviewed the Company and have not asked any single question raised in the story. Dissemination of inaccurate information harms not only right of the public to true, authentic information but also causes damage to the reputation of the Company. For the purposes of safeguarding right of the public to truth and protecting reputation of the Company we would like to hereby address the questions raised by TV Imedi in the story. It is unfortunate that we were not given possibility to do the same in the television program itself. This press release also serves the purpose to provide comprehensive and accurate information to the public for unbiased analysis and conclusions.


Why did the Company put under the question transformation of the State into regional digital hub?


Caucasus Online is independently connected to the Internet exchange points (IXP) located in Europe via its own infrastructure, including the Caucasus Cable System. Judging based on the capacity of the submarine cable and geographical location of the connection points it is obvious that Caucasus Cable System has a wide range of perspectives and great potential. As of today, the Company is utilizing only approximately 15% of the total capacity of the submarine cable. The submarine cable is mainly used for the provision of telecommunications services to the customers in the countries of Caucasus region and the Middle East. It goes without saying that favorable geographical location and mere intention of the Company is not sufficient to build internet exchange points or expand the market for the provision of telecommunications services and cover more geographic areas. Any project of any scale requires respective investments and infrastructure development.


We consider it crucial to clarify what does “transformation process” or “status of digital hub” mean when one is talking about the process of transformation of Georgia into regional digital hub, “calling into question” the status of Georgia as digital hub, or “transferring” digital hub to some other place, to a different country. The story creates an impression that the digital hub already exists in Georgia and is about to be transferred to a different country. In order to avoid misleading interpretations, it shall be noted that transformation of Georgia into digital hub indeed is publicly declared will of the State, as expressed in a written form in the document, Georgian National Strategy for the Years of 2020-2025 Regarding the Broadband Network Development (The “State Strategy” provided in the Decree N60 of the Government of Georgia dated 20 January 2020). The State itself describes the plan of transferring Georgia into digital hub as an “ambitious” one. Caucasus Online fully shares and supports the strategic view of the State that the country shall use all of the opportunities it has due to its favorable geographical location, gain advantage in the international telecommunications market, enhance its competitiveness in the global digital economy. We believe that the future plans of the Company are in correlation with the State strategy: to fully utilize its transit potential, to construct digital transit hub connecting European and Asian regions through the territory of Georgia, which will increase international data exchange in the country and promote establishment and development of local Internet exchange points.


As provided in the State Strategy, the State’s view as to the implementation of the national plan is the following: implementation plan is only provided for the development of local broadband network infrastructure, which among others foresees State financing. The State does not have any specific implementation plan for the development of international broadband network and basically relies on the private investments. The State considers that raising investments is essential for accomplishing its ambitious plans envisaged for the years of 2020-2025. It is precisely noted in the State Strategy that the State shall support private investments in the country.


Therefore, it is obvious that achieving such ambitious goals is impossible without investments and the State support for such investments is essential in the process of transformation of the country into a digital hub.


Sale of shares in the parent company of Caucasus Online means new beneficial owner for the Company and new investor for the State, as well as for the Company. In its activities the Communications Commission is supposed to take into considerations State policy and among others uphold the principle of facilitation of attraction of financial and material resources. Keeping this in mind, now the Communications Commission is requesting to reverse the transaction on the acquisition of shares by the investor, thus to cancel existing and all possible future investments of the investor. Before adopting such decision, the Communications Commission, like the author of the Story, did not express its interest to investigate what are future plans of the investor with respect to the Company and Georgian market? How can the investor contribute into the process of transformation of Georgia into regional digital hub?


It shall be noted that Caucasus Online has submitted to the Communications Commission all necessary documents and information, including information about the future plans of the investor, and explanation of the purpose of the transaction. We believe that in order to be able to answer the question “what will happen tomorrow?” it is absolutely necessary the Communications Commission to commence proceedings and study the future plans of the investor, if necessary, the Communications Commission can inquire additional information and investigate what actual impact does the transaction in question has on the competition in the telecoms market.


It shall also be noted that the new investor as well as the management of Caucasus Online have numerous times made a public statement and expressed their intention to build digital hub in Georgia. The Communications Commission, should it find respective risks as a result of the commenced proceedings, has all legal means available to impose specific obligations on the Company as a condition for the entry and stay of the new investor. Contrary to this, the Story is disseminating misleading information that the new beneficial owner intends to transfer currently nonexistent internet exchange point, digital hub from Georgia to a different country.


Is gaining more financial profit of greater importance for the Company than national State interests and the security of users of internet services?


Caucasus Online has been operating on the Georgian telecommunications market for years and during these years interest of the customers with respect to the security, quality and accessibility of the services has always been top priority for the Company. We are proud to say that Caucasus Online has always been one of the most innovative companies aimed towards development of its business and making positive contributions to the development of the telecommunications market of Georgia. The State and the Communications Commission are proud that the telecommunications sector of Georgia has successfully coped with the crisis caused by the pandemic. We can confidently say that Caucasus Online as a wholesale telecommunications operator made an enormous contribution to this process.


Since the year of 2019 the policy and approach of the State is repressive towards Caucasus Online, circa GEL 1,000,000 financial sanctions has been imposed on the Company by the Communications Commission for the failure to fulfill obligation to ensure reversal of the share sales transaction in its parent company. In addition to financial sanctions the Parliament of Georgia, in an expedited manner, with the initiation of the Communications Commission, has adopted new regulation specifically tailored to Caucasus Online. Based on this new regulation the Communications Commission is entitled to appoint special administrator for the Company with powers to intervene in the business activities of the Company and restrict its freedoms and rights.


The Communications Commission does not have an answer to the question what was an actual impact of the transaction on the competition in the telecoms market in Georgia. It is manifest and obvious that the State and Communications Commission are avoiding to answer the question because the change of the beneficial owner of the Company did not have any negative impact on the competition in the telecoms market in Georgia. Even more so, it has been more than a year since the change of beneficial ownership of the Company, during this period there has not been any negative developments on the market, but in opposite, as the Communications Commission itself noted there has been a positive development on the wholesale telecommunications market. Had author of the story thoroughly and comprehensively investigated the facts, it should have noticed that there has been no single proceeding initiated or claims made against the Company for the violation of its obligations towards its customers or otherwise violating any norms regulating provisioning of services on the respective market segments. Caucasus Online has been duly fulfilling all of its duties and responsibilities owed to its national and international contractors, partners and customers. The Company continues to carry out its business operations uninterruptedly, which is mainly possible due to the efforts made by the employees and management of the Company, who in fact are the most unique asset of the Company, their hard work, dedication and professionalism makes it possible for the Company to successfully handle all the difficulties.


Considering the legal and economic nature of the Company, of course, Caucasus Online is oriented at increasing its profit and financial gain, by carrying out its activities in conformity with the laws and policies of the State. Determining what constitutes national state interest, national security, critical infrastructure does neither fall within the jurisdiction of private entity nor is based on the subjective judgment of any state organ, and becomes relevant only when such notions and respective regulations are provided for in the law. In the first place it is the legislative body of the State, which shall determine the legal framework for defining what is the critical infrastructure, strategic assets of the State, and what obligations do private entities have towards State with respect to the use of such critical infrastructure and strategic assets.


These questions remain unanswered. In this case asking the question to the right person is not enough. It is necessary for the State to reflect its views and approach with respect to critical infrastructure in a normative act. In other words, it is the State who should have clear policy what is national state interest and then the executive bodies of the State shall impose obligations on private entities within the existing framework.


In the absence of a legal framework regarding critical infrastructure, any discussion on potential violation of state interests is legally ungrounded and contributes to the increase of already high risk of arbitrary behavior from the state organs, to interfere and restrict rights and freedoms of a private entity.


Why did the company sell its shares unlawfully avoiding the Communications Commission and why did the company transfer the only optical- fiber cable of the State to foreign country?


Caucasus Online is an owner of 1200 km long Black Sea submarine optical-fiber cable (the Caucasus Cable System). The Caucasus Cable System is laid across the Black Sea between Poti, Georgia (through its territorial waters, contiguous zone and the exclusive economic zone) and Balchik, Bulgaria (through its territorial waters, contiguous zone and the exclusive economic zone). Since the construction of the cable by Tyco Telecommunications (currently TE SubCom), i.e. since 2008, Caucasus Online and its 100% subsidiary company registered in Bulgaria have been the sole owners of the submarine cable. The ownership of the submarine cable has not changed and the cable still remains under the possession and ownership of Caucasus Online, a company registered, operating and regulated under the laws of Georgia.



Statement made in the TV Story that “Caucasus Online has secretly and unlawfully sold strategic asset of the State” is factually incorrect. Reference to the “strategic asset of the State” is actual reference to the Caucasus Cable System, which remains under the ownership of Caucasus Online, and Caucasus Online remains under the jurisdiction of Georgian state. What was actually sold is not the Caucasus Cable System, but the shares in the parent company of the Company: Mr. Makatsaria sold the shares in Nelgado Limited (which owns directly and indirectly 100% of participation shares in the capital of Caucasus Online) to Weco Investment and Finance S.A. (a BVI company, owned by Azeribaijani national Mr. Hasanov). Caucasus Online was neither a party to the sales transaction, nor did it lose ownership over Caucasus Cable System.


It is theoretically and practically impossible for a company in any jurisdiction to sell shares in the capital of its own parent company, i.e. to sell assets owned by third parties. Caucasus Online is an independent entity and acts within the powers granted to it under the law and its constituent documents. The same instruments provide for the obligations and responsibilities of the Company. The Company can alienate only its own assets, whether tangible or intangible, including shares which the Company owns in its subsidiaries. The Company may be held accountable before the Communications Commission only for the sale of its own assets.


Had the journalist based the story on true facts they should have provided the following minimum information: that Caucasus Cable System was and still remains under the ownership and possession of a Georgian company, Caucasus Online. The Company has been paying state fees to the state budget of Georgia, its business activities fall within the jurisdiction of Georgia, the Company is an authorized person and information about its activities is public and transparent. Caucasus Online has not alienated any part of the Caucasus Cable System. It is the beneficial owner of the Company who sold its assets owned in the parent company of Caucasus Online. Caucasus Online may be regarded as the subject matter of the transaction but is in no way a party to the transaction, especially the “seller” of a “strategic asset of the State”.


Why is the Company not complying with the decisions of the Communications Commission and the law for more that 10 months already?


Answer to this question is very simple: fulfillment of the obligation imposed by the Communications Commission on Caucasus Online does not fall within the control, capacity of the Company, since the Company cannot ensure reversal of a transaction, which was conducted by third parties, and which concerned sale of shares in the capital of the parent company of Caucasus Online.


Whether the decisions of the Communications Commission are in compliance with the law is a different issue and this question now has to be addressed by courts of Georgia within the proceedings initiated by Caucasus Online to assess lawfulness of the decision of the Communications Commission.


Why is the Company avoiding to answer questions?


Caucasus Online is not avoiding any single question, on the contrary, Caucasus Online is trying to use every forum irrespective of its form to provide correct information to the public. We are trying to express our position in every possible instance, at the administrative proceedings, during the hearings at the Parliament, on TV and via printed and internet media platforms.


Unfortunately, journalists of TV Imedi deprived us of the possibility to protect our interests and express our position in their TV program. We think that by such actions, the journalists have not only damaged the interests of the Company, but have flagrantly violated principles enshrined in the Georgian Charter of Journalistic Ethics.


Caucasus Online intends to address the Charter of Journalistic Ethics regarding the violation of the main principles of the Charter by the authors of the Story", - reads the full statement.


For the record, TV Story named "Why did Caucasus Online put at risk the State by its action" aired on TV Imedi's television program "Imedi Week" on 2 August 2020.


source: IPN

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