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Sunday, 23 December 2012

An SMS from Ernst (26): Of crime and punishment. The Feodor Dostoyevski version…

It is time to reintroduce an old friend to you. This is episode 26 of the SMS from Ernst: the Short Messages  Service.

Today is a special episode with some important and interesting news of last week. News that you might have missed in other newspapers... 

I call today's episode the Feodor Dostoyevski version, as all stories mentioned in it are about crime and / or punishment.

The following story was mentioned in the Dutch daily newspaper 'Trouw':

Czechia has committed fraud on a large scale with EU subsidies. This is disclosed by secret documents of the European Audit Office and the European Commission that are in the hands of 'Trouw'.

As a consequence of the fraud, the European Commission diminished the funds for Czechia by €450 million. However, the sheer size of the irregularities appears to be a lot bigger. The European Commission seemingly tried to downplay the fraud.

In May, the Audit Office concluded that the Czechian authorities lied systematically to the authorities in Brussels. The Czechs ‘improved’ the results of audits to keep the corruption out of sight. For its necessary information, the Commission is very dependent on the member state who receives the subsidy. 

The secret reports mentioned here are the result of secret audits that took place randomly.

Officially, the commission calls the fraud ‘shortcomings in the functioning of Czechian governmental audit organs’. However, the Commission's own secret report from August 2012 speaks a different language: ‘The Commission cannot trust the [Czechian] results, as presented in the annual reports and audits’.

The secret reports describe how the fraud worked. Price agreements have been made. Projects are not assessed on their economic relevance. Budgets have been exceeded largely. Specificiations of governmental tenders have been rigged in such a way that only one firm could meet them.

To penalize Czechia, Brussels now pays 10% less support for infrastructure and 5% less for the environment. Combined, this is about €450 million. The percentages are the result of bargaining between Brussels and Prague. The Commission originally wanted to deduct one-third more, according to the secret report.

In Czechia, the loss of millions in subsidies has hardly become mainstream. ‘Neither Prague nor Brussels has any interest in publicizing these events’, according to a source in Prague that has good knowledge of these reports.

Everybody that thinks that the European Union spurs financial waste and fraud in the member states has one more justification to think so. However, there is a difference between not applying the (complex) rules of the European Union during an application for European structure funds and subsidies on one hand and straight-forward fraud on the other hand. 
This Czechian fraud seems to be of the latter category. 

I hope that the Czechs now understand that the EU and the European Commission are not stupid. I also hope that this message is clearly understood in other European countries as well, that have been planning to bend or break the rules. Especially in these times of economic hardship, the EU cannot waste money on corruption and fraudulent bogus projects.
Our second story is about fraud in a different way: forming a cartel and making agreements on mininum prizes.

This seemed to have happened in Spain, between the telecom behemots Telefonica, Vodafone and Orange. The following story comes from Reuters:

Spain's antitrust body said it fined telecoms companies Telefonica (TEF.MC), Vodafone (VOD.L) and France Telecom's Orange (FTE.PA) a record 120 million euros (97.65 million pounds) for charging too much for text messages.

The regulator said on Thursday Spain's three biggest mobile operators had exploited their dominant position between 2000 and 2009 and passed on overpriced services termination rates to consumers with high charges for text messages.

Former monopoly Telefonica must pay 46.5 million euros, while Vodafone and Orange must pay out 43.5 million euros and 30 million euros respectively, the National Competition Commission(CNC) said in a statement.

"Telefonica totally disagrees with the fine imposed by the CNC today because it considers it completely unfair," a Telefonica source said, adding that the company would appeal.

Vodafone, which has the second highest market share in Spain and no.3 player Orange, also said they would appeal the CNC's decision.

Telecom companies are regular guests of my blog (a.o. link1, link2, link3; use the search engine on top of my blog for much more info).

The enormous profits coming from the telephone calls (especially roaming calls outside the regular territory of the caller) and the number one cash cow SMS (‘the other one’) had made the large telephone companies too bold at the end of last century. The hundreds of millions European citizens calling and SMS-ing their heads off through their cellphones, seemed at the time like the goose with the golden eggs.

In the year 2000, the telecom behemots thought that the new technology of wireless, mobile internet (UMTS) would bring a time of unlimited profits for many years to come. This was the reason that these oligopolist companies overpaid heavily for the UMTS licenses that had been auctioned in the European countries (see the first aforementioned link).

UMTS became a real disaster, as the auctions turned into bottomless pits in Germany and the United Kingdom: in these countries prices had to be paid to the tune of €600 for every British and German citizen. 

On top of that, the people were not very enthusiastic about the telephones that were for sale in the beginning of the UMTS era. This circumstance made that UMTS had a very disappointing start with limited subscriptions, due to the disappointing possibilities, the high prices and the lousy telephones. That changed only when state-of-the-art telephones, like the Blackberry and especially the iPhone emerged on the market, that didn’t have the drawbacks of the earlier online telephones.

In order to stay alive during the difficult early years of this millennium, many telephone companies have seemingly chosen for a silent cartel; instead of offering the best possible price to their customers, they negotiated with their “competion-colleagues” a price for normal calls, roaming calls and SMS’s that would give everybody in the business a huge profit. Everybody that has called abroad in Europe for a few hours during a holiday or business trip knows what I am talking about.

Therefore I applaud the actions of the Spanish telecom watchdog. I also invite the Dutch, British, Italian and German telecom watchdog to do the same.

Although I can’t prove it, I wouldn’t be surprised if the telecom watchdogs would dig up a few ‘cartel bones’ after thorough investigations all over Europe. This is now especially important, as the Dutch auction of the 4G LTE Advanced network licenses has turned again into a financial disaster for KPN, Vodafone et al.

Let’s keep the telephone companies at close watch…

The last story is about another usual suspect in this blog: Ryanair. The Dutch Business News Radio station BNR reported that Ryanair has rigged the weights of starting airplanes. Here are the pertinent snips of this story:

The Irish pricefighter has rigged the weight statements of its planes and has thus evaded millions in extra expenses. This is written by the German newspaper Die Welt (

During the reporting process on the lift off-weights of its Boeing 737-800 airplanes, Ryanair would have reported up to 8 metric tons less in lift-off weight. By doing such, the airliner could have paid €17 per flight less in tariffs in Germany. This doesn’t seem like a lot of money, but on a yearly scale this could be €370,000 in Germany and even €50 million all over Europe, according to aviation experts who talked with Die Welt.

Ryanair didn’t want to react on rumours or speculations, but stated that it met the rules of Boeing and that it will answer questions of the European aviation authorities immediately. The German aviation authority DFS investigates the case. This could lead to legal steps and reclaiming of unpaid commissions.

I don’t have much against Ryanair. It is a quite cheap airliner that brings you all over Europe for a few bucks. What I do have against pricefighters in common and (unfortunately) especially Ryanair, is that these companies seem to bend the rules to the point where something has got to give. Unfortunately, you know what this means in an airplane.

Please, read once again the shocking witness story of aviation engineer Fred Bruggeman on the differences in the number of defects between outbound and inbound flights.

Pricefighters in aviation are litterally flying on the edge to remain profitable: every cent they spend less in repairs, kerosene, duties and other expenses adds to their profit in an industry where margins are very narrow.

Their message is (in my humble opinion): “we remain doing what we do until one of our planes crashes down. If such a thing happens, we first deny having done something wrong. If we can’t deny it anymore, we change our behavior for a while until the storm has blown over. Then we return to business-as-usual, probably”.

Please be careful during the holiday season…

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