The Noxious Nexus of Money and Politics Takes Another Turn in Central and Southeastern Europe

Allegations exploded into the news in Europe in late January that a Forbes-listed Czech billionaire’s company was colluding with a Serbian government telecoms operator to gut the market share of a competitor. In addition to concerns about anti-competitive practices, the planned deal reportedly would starve the competitor’s parent company of revenue that helps it support one of Serbia’s few remaining major independent media outlets.

The incident was the latest to raise alarms in European free press and pro-democracy circles that the Czech businessman, Petr Kellner, and his PPF Group are working hand-in-glove with autocratic leaders across Central and Southeastern Europe to win control over key telecom, digital, and media markets. Some of those connections include deals involving Chinese state or state-backed companies.

Just a few months earlier, for example, six major press freedom organizations, including ARTICLE 19 and Reporters Without Borders, wrote a public letter of concern to Kellner. They were prompted by the European Commission’s decision to clear PPF’s proposed €940 million ($1.14 billion) acquisition of Central European Media Enterprises (CME) from AT&T’s WarnerMedia. That purchase, partly with funding provided by the Russian-majority-owned and Budapest-based International Investment Bank, gave PPF control over a television entertainment firm that operates more than 30 TV channels broadcasting to 45 million people across Bulgaria, the Czech Republic, Romania, Slovakia, and Slovenia.

The European Union clearance came despite what the commission described as “feedback from a large number of customers and competitors.” The press freedom organizations expressed concern to Kellner over risks that the outlets would become politicized and lose their editorial independence, including in relation to journalistic coverage of issues such as China’s treatment of its Uyghur minority. In its October announcement that it had completed the CME acquisition, PPF asserted that it respects “the position that these networks occupy in their respective markets as independent broadcasters.”

The result of PPF’s growing ecosystem of telecom, media and digital assets, combined with Kellner’s reported cultivation of close business and political ties with a growing number of autocratic-leaning leaders in the region, illustrates the risk for the region’s democrats and free marketeers. Left unfettered, anti-democratic forces such as these stand to significantly weaken free media in the region, empower its authoritarians, and open avenues for malign foreign interventions, particularly from China.

Staging Area for an Illiberal Ecosystem

The nexus between corrosive capital and Europe’s authoritarians has been expanding in recent years. Czech billionaires are the most frequent sighting in the Forbes list, compared with counterparts in other countries of the region. And they certainly cherish and cultivate the image of being Western-standard businesses, or at least on the outside.

Consider Czech billionaire Daniel Kretinsky, who grew his energy concern EPH into a multi-faceted group with interests in various media outlets, including the Czech Republic’s largest tabloid media house and a significant stake in France’s Le Monde. Kretinsky is also Kellner’s partner in Mall Group, one of Central Europe’s largest e-commerce platforms, which includes online shopping as well as Mall TV. Another is Hungarian mogul Lorinc Meszaros. Directly thanking President Viktor Orban for his successes, Meszaros built his gas transit concern into a business empire encompassing insurance, financial services, hotel chains, and television media in Hungary and its near abroad.

PPF Ahead of the Curve

PPF is a finance and investment group co-founded by Kellner in the Czech Republic in 1991 as a small investment fund. In the mid-90’s, it acquired stakes in and management control of the country’s largest insurer before selling it to Italy’s Generali Group. Registered in the Netherlands, as many European companies are due to its business-friendly corporation laws, PPF is active in financial services, media, telecommunications, and online retail in 23 countries, concentrated in European and Asian markets, including China. Its assets total over €44 billion. Forbes ranks Kellner 68th among the world’s billionaires, reportedly with a net worth of $19.5 billion. He is the Czech Republic’s richest man. PPF is essentially Kellner’s company, as he owns nearly 99 percent of its shares.

In the Czech Republic, PPF’s sizeable presence in business is matched in politics. Kellner and populist Czech President Milos Zeman collaborate to strengthen the country’s relations with Beijing and Moscow. Since Zeman’s election in 2013, for example, the two have sought closer trade and investment ties with China and Russia in 5G infrastructure, nuclear energy, and mass media. Zeman flies to Beijing annually to drum up business, while PPF covertly promotes and publicly defends Chinese investment in the Czech Republic.

Kellner has good reason to curry favor with the government of President Xi Jinping, as PPF’s Home Credit is the first foreign consumer loan service to have been granted access to China’s markets. When asked about Home Credit’s China activities and their impact on PPF’s reputation,  minority shareholder Jean-Pascal Duvieusart replied that “business in China is just business” and that criticism of PPF “was extremely unjust.”

As PPF has grown in size and capital, it has branched out quickly to other Central European countries and the Balkans. PPF’s presence in Hungary, Slovenia, Serbia, Bulgaria, and elsewhere in the region increasingly evidences its ability to capture overlapping market segments. The effect is that Kellner is building telecom-media ecosystems through PPF deals with anti-democratic leaders who reciprocate with access to ever-greater market dominance.

Dancing with Huawei

PPF’s regional approach towards multiple-market dominance can be illustrated in its formerly robust advocacy for Huawei to build the Czech Republic’s 5G network infrastructure. PPF subsidiary CETIN operates the country’s fixed-line and mobile access networks. In 2019, PPF penned a memorandum of understanding with Huawei to expand its already existing cooperation into 5G development via CETIN.

When the Czech Republic’s state security agency, BIS, published a report on the threats of Huawei integration into the country’s telecom systems, the ensuing public outcry and advocacy efforts eventually compelled CETIN to partner with Sweden’s Ericsson instead. Had that not occurred, the stage would have been primed for monopolistic PPF multi-market dominance and China’s deep entrenchment in the country’s information and communications spheres.

Slovene Attacks on Independent Media

PPF’s acquisition of the aforementioned CME broadcasting system is casting similar shadows across the region. Early in December, Kellner met with the Slovene far-right Prime Minister Janez Janša. The prime minister’s and his Slovenian Democratic Party’s relentless attacks on independent media had prompted European Commission Vice President for Values and Transparency Věra Jourová and the International Press Institute to issue concerns over the state of media there. Politico reported that journalists, watchdogs, and advocates consider Janša’s actions to have had “a toxic effect on media freedom.”

Janša’s vitriol is especially directed at news channel 24UR on PRO Plus, the CME media affiliate in Slovenia. In October, Janša rejoiced on Twitter over the EU’s greenlighting of the CME sale to PPF, calling 24UR Slovenia’s “largest opposition party.” Fears of media capture spiked a couple of weeks later, when Janša met with 24UR’s new owner, Kellner, in what was reportedly supposed to be a secret meeting. While no apparent action has been taken yet as a result of that meeting, its covert nature and timing raise suspicions of further dangers for independent media.

When considered together with PPF’s 2018 acquisition of Norwegian telecom giant Telenor’s operations in Bulgaria, Hungary, Montenegro, and Serbia, PPF’s majority-share purchase in CME creates an ominous picture.

In Belgrade, a Prophecy Fulfilled

Concerns over PPF’s potential for unfair and non-competitive business practices in regional telecom and media sectors extended recently to Belgrade. In late January, reports surfaced that PPF’s Telenor Serbia telephone and banking company and state-owned telephone, internet, and cable provider Telekom Serbia were working to shut competitor Serbia Broadband (SBB) out of the country’s telecom and media markets. The agreement between the two provides for Telekom Serbia to grant Telenor Serbia access to its national cable TV infrastructure.

SBB and Telekom Serbia have been in stiff competition as dueling cable and broadband providers, possessing approximately 47 percent and 27 percent, respectively, of the media content market, based on 2019 data. The 24-hour cable news outlet N1 Serbia, a sister company of SBB, reported what it said was a leaked slide presentation of the joint plan, which one of us also obtained (the context in which the presentation was produced and presented is unclear). According to N1’s reporting of the presentation’s content, the stated aim of the Telekom-Telenor plan is “’the complete destruction of SBB. Following Telenor’s entry [into the Telekom Serbia infrastructure] SBB’s market share will quickly drop below 30%. It won’t have capacity to invest into content and so Telekom Serbia will remain the sole quality supplier of content.’” The scanned copy of the presentation that we examined corresponded with N1’s reporting.

The Telenor-Telekom collaboration may be about even more than excessively competitive business tactics. As a state enterprise, Telekom Serbia has been accused of being subservient to President Aleksandar Vučić’s authoritarian political agenda. Under his watch, media freedom in Serbia has steadily declined, as he takes actions to control the country’s information space. Owned by SBB parent company United Group, N1 has a region-wide reputation for fact-based journalism with integrity.  If the alleged plan for undercutting SBB were to play out, there could be potential limits on SBB’s access to telecommunications infrastructure that would unfairly curtail its audience reach and operations revenue. Veselin Simonovic, editor-in-chief of Nova.rs, warns that “[the Serbian] authorities are firmly determined to use all their resources […] to destroy SBB and United Group. The company’s sin is that it has given its journalists and editors the freedom to do their job professionally.”

PPF’s public defense is that this is simply a “trade war,” accusing United Group of orchestrating “fallacies” in N1’s reporting and arguing the business agreement between Telenor Serbia and Telekom Serbia is “very standard.” Yet the Serbian political opposition remains fearful about the potential effects of the proposed Telenor-Telekom partnership. 

No Recipe for Free Press Success

The combination of media, telecommunication networks, and other digital services under single ownership — whether PPF or another conglomerate — is a threat to democratic transitions in Western Balkan states, where rule of law is malleable and leaders like Orban and Vučić show no regard for separation of powers. As the Telenor-Telekom case demonstrates, the possibility of malfeasance by business and state actors is all the greater when opacity trumps transparency and accountability is near-absent.

Media and telecom capture in Central and Southeastern Europe by authoritarian governments collaborating with potentially unethical business is preventable. As Huawei’s failed attempt to jointly develop the Czech Republic’s 5G network with PPF shows, the right mix of awareness and cooperation between public and private actors can prevent unscrupulous deals from undermining national security.

Relevant EU Commission entities could be more helpful in this regard by more often including media watchdogs and other civic actors in decision processes for media and telecom mergers.  The commission also should make clear to EU candidate states that their prospects of future membership depend on a robust media space and genuinely competitive markets. Financing from the European Bank for Reconstruction and Development and possibly the U.S. International Development Finance Corporation (IDFC) in these sectors (e.g. the EBRD’s minority share in United Group) should come only with demonstrated commitment by the recipients to transparent dealings and fair play.

The risk is that, without such oversight in countries where democratic institutions are in name only, anti-democratic actors public and private will continue to place their selfish interests well before greater European security and prosperity.

IMAGE: (Image on left) China’s President Xi Jinping, right, shakes hands with Czech Republic’s President Milos Zeman before their meeting at the Great Hall of the People on April 28, 2019 in Beijing, China. (Photo by Madoka Ikegami-Pool/Getty Images); (Image on right) Serbian President Aleksandar Vucic, left, and Chinese President Xi Jinping, right, are going to attend the meeting at the Great Hall of People in Beijing, China on April 25, 2019. (Photo by Kenzaburo Fukuhara/Kyodo News – Pool/Getty Images)

 

About the Author(s)

Richard Kraemer

Richard Kraemer (@RichardKraemer7) directs the Balkans program at the European Values Center for Security Policy in Prague, Czech Republic. He is also non-resident fellow for the Frontier Europe Initiative at the Middle East Institute, and board president of the US-Europe Alliance.

Albin Sybera

Albin Sybera (@ASybera) is a non-resident Fellow at the Warsaw-based Visegrad Insight think tank and magazine, and currently is conducting doctoral research involving critical discourse analysis of texts produced by Czech media about the Velvet Revolution anniversaries, at the Faculty of Social Sciences of the University of Ljubljana, Slovenia.