UNITED NATIONS DEVELOPMENT PROGRAMME

CENTER FOR THE STUDY OF DEMOCRACY

TASK FORCE ON

INFORMATION AND COMMUNICATIONS TECHNOLOGY

FOR DEVELOPMENT

ISSUES PAPER

Sofia, August 2001

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TABLE OF CONTENTS

Page

Executive Summary 2
Introduction 6
Acknowledgements 7
I. The Vision 8
1. Goals of the Report 8
2. ICT as a vehicle to Create Wealth and Overcome Obstacles to Human 8
Development
3. The Vision and Specific Goals for Bulgaria 10
4. ICT Development in Comparative Perspective 12
II. ICT and Information Society in Bulgaria: Facts and Trends 14
1. Access to ICT Network 14
2. Society and ICT 15
3. ICT and the Economy 15
4. Education and ICT 17
5. Donor Activities in the Field of IT 18
III. IT Challenges for Bulgaria: Accomplishments and Existing Problems 19
1. Strengths 19
2. Weaknesses 20
3. Obstacles 21
4 Actions 21
IV. Bulgarian ICT in the Future 24
1. Possible Scenarios 25
2. Policy Options and Recommendations 27
Annex I. References 33
Annex II. List of the Task Force Members 34
Annex III. List of Interviews 35
Annex IV. Legislative and regulatory Framework for the Information Society in 36
Bulgaria
Annex V. Indicators on the Information Society in Bulgaria 38
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Executive Summary

Two simultaneous shifts in technology and economics – the technological revolution and
globalization – are combining to create a network age to facilitate the emergence of the global
knowledge society. The truth is that information and communication technologies (ICT) are a
key enabler of the globalization phenomenon. In turn globalization has spurred the greater
pursuit for innovations which consolidate and strengthen the linkages of the network age. The
dangers of ICT becoming a force of exclusion, rather than a tool of progress, arise because new
technologies are created in response to market pressures, and not the needs of poor people. Since
ICT is a feature of globalization, so like globalization it has come under scrutiny as an engine of
creating disparities (a “digital divide”) between and within countries, which could cause the
further exclusion of the weakest groups in society.

Bulgaria has a tremendous potential to exploit ICT as a vehicle for escaping the problems of the
transition period. However translating the promise of Bulgaria as a leading country in ICT, with
benefits for its people and also for the region of South East Europe, into a reality requires a
public policy portfolio, which places the issues as a strategic national priority. In this respect
several important questions can be asked: What is the future of ICT in Bulgaria? What kind of
legal and regulatory framework is needed for it to become a major driver of growth for the
national economy? What is the role of different actors - public and private, national and
international - for the progress of ICT? How can ICT be used for the benefit of the entire
population of the country and for achieving adequate human development?

Making the Case of ICT as an enabler of Development

Although ICT should not be seen as the panacea for all of Bulgaria’s problems, empirical
evidence from other parts of the world shows that at both the micro and macro levels, ICT can
be a key driver for development. This is done mainly through the function of increasing the
effectiveness and reach of development interventions, enhancing good governance and lowering
the costs of service delivery. Although not an exhaustive list, the following items do represent
the main characteristics of ICT’s power as a vehicle for development through improving
communication, exchanging communication and strengthening and creating new economic and
social networks:

§ ICT fosters the dissemination of information and knowledge by separating content from
its physical location. This flow of information is largely impervious to geographic
boundaries—allowing remote communities to become integrated into global networks and
making information, knowledge and culture accessible, in theory, to anyone.
§ ICT allows people to access world wide knowledge networks and through this promotes new
ways of education, new ways of working and new ways of enjoying leisure activities. More
time will be gained for education and life-long learning.
§ The "digital" and "virtual" nature of many ICT products such as software, digital music or
information in general allows for zero or declining marginal costs. Replication of content is
virtually free regardless of its volume, (except for copyright issues), and marginal costs for
distribution and communication are near zero. As a result, ICT can radically reduce
transaction costs.
§ ICT's power to store, retrieve, sort, filter, distribute and share information seamlessly can
lead to substantial efficiency gains in production, distribution and markets. ICT streamlines
supply and production chains and makes many business processes and transactions leaner
and more effective.
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§ The increase in efficiency and subsequent reduction of costs brought about by ICT is leading
to the creation of new business models and new value chains for the creation of products or
services. Traditional distribution channels are being replaced by innovative and interactive
new industries and consumer producer relationships.
§ ICT links service providers (e.g. in the social sector) directly with beneficiaries and
consumers, reducing the need for intermediaries or prompting the emergence of new types of
intermediaries and thus contributing to greater efficiency and lower costs.

With all these advantages there is a tremendous potential for ICT to be applied in five key areas
identified by the UN Millennium Summit as development imperatives: health, education,
economic opportunity, empowerment and participation and the environment.

Creating a Vision for ICT as a vehicle for Development in Bulgaria

The first step towards making ICT a real driver for social and economic process is the creation
of a vision of the opportunities which ICT provides if it were mainstreamed into the national
life. The government must own any such vision, and a commitment must be made to develop
and implement a national strategy for placing ICT at the heart of the country’s development
agenda. In view of the different interests involved in this process such a vision must include the
following elements. The starting point is the development of proper laws and regulation,
respecting both macroeconomic and social needs, which stimulate the market and
entrepreneurship. The regulatory framework encourages the development and deployment of
ICT, it strengthens human capital and the innovation potential in Bulgaria. People are prepared
for being entrepreneurs and creating innovation in universities that are recognized world-wide
for their scientific level, not the least due to programs of scientific exchanges. The high level of
research at universities will motivate students to enjoy academic education and use their
knowledge in the private sector, which enjoys collaboration with academia and companies,
nationally and internationally. Foreign private investment, venture capital and private equity
support the creation and development of Bulgarian companies which develop systems and
software and offer services to clients abroad, thus also stimulating the home market and helping
to raise incomes and eventually standards of living. Overall connectivity becomes the driver for
new applications, which are accessible to everybody. Citizens participate electronically in the
government, communicate with parliamentarians, or vote electronically. People can benefit from
health services as they adopt ICT applications, while remote training and distance learning
courses become available to everyone. Access to world-wide knowledge becomes a daily
practice for all citizens. The general level of education and computer literacy is raised,
particularly in remote areas, where the infrastructure gives access to knowledge and
employment.

Bulgaria has a lot of advantages and opportunities for realizing such a vision. This is confirmed
by the 2001 global Human Development Report, which indicates that Bulgaria is a potential
technology leader. This is due in part to Bulgaria’s human potential, and a favorable
environment for the growth of the ICT sector, which has already become the most dynamic
sector in the country. The government understands the importance of ICT for economic growth
in the country, and several government programs for the Information Society, or for electronic
commerce build the basis for further development. A number of important projects have been
defined or started, for example for equipping schools with computers and Internet access.

The Challenge now is for the Bulgarian government, in close collaboration with other market
actors in public-private partnership, to embrace a vision of ICT as a vehicle for the country’s
further development and as a driver for building the capacities and opportunities for all its
citizens.
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A National Strategy for ICT in Development

The success of any national strategy and action plan for ICT for Development will depend on
the nature of its multi-dimensionality. A mixture of policies pursued in a timely and co-
ordinated fashion is needed to achieve the goals of the development vision outlined above. The
framework for this strategy must include the following inter-related elements:
§ Infrastructure – deploying a core ICT network infrastructure, achieving relative ubiquity of
access, and investing in strategically-focused capacity to support high development
priorities.
§ Human Capacity – building a critical mass of knowledge workers, increasing technical
skills among users and strengthening local entrepreneurial and managerial capabilities.
§ Policy – supporting a transparent and inclusive policy process, promoting fair and open
competition, and strengthening institutional capacity to implement and enforce policies.
§ Enterprise – improving access to financial capital, facilitating access to global and local
markets, enforcing appropriate tax and property rights regimes, enabling efficient business
processes and stimulating domestic demand for ICT.
§ Content and Applications – providing demand-driven information which is relevant to the
needs and conditions experienced by local people.

The above policy framework provides clearly the areas for future action, and looking ahead 10-
15 years Bulgarians should be able to see the direction in which they want to go in order to fulfil
the vision of a technology leader. The starting point down this road should begin by immediately
designing strategies to realize the following priority measures:

1. Establishment of a special ICT agency under the auspices of the Council of Ministers.
This should serve as a secretarial body to the currently existing horizontal coordination
structures dealing with the Information Society in the government and having the authority
to define an ICT strategy for Bulgaria and manage it's implementation.
2. Creation of a public-private partnership for the development of ICT. The ICT
government agency must play a leading role in making such a partnership work. This
public-private partnership will be a tool to design an effective ICT vision and strategy for
Bulgaria, enabling the government to be the key driver in this area. It should further
organize working sessions, conferences, or promotion campaigns financed by donors or the
private sector.
3. Establishment of an ICT infrastructure, which ensures wide and ubiquitous access to
the Internet for all citizens, irrespective of income level. The infrastructure will be the
foundation for the further use of ICT in all kinds of applications, where innovative
technology will be used. It will be the enabler for participation of everybody, for e-
government, for world-wide collaboration of Bulgarian industries and universities with their
counterparts abroad.
4. Penetration of ICT throughout the education system. This should aim to unleash human
creativity, through research and development and innovative approaches to education in
schools and university. IT training in schools has to be widely introduced. Education and
research in universities must be brought up to the same level as in the European Union and
IT should be used in all academic disciplines. Curricula should be adapted to meet industry
needs, but remain forward looking at the same time.
5. Liberalization of the telecom market with particular attention paid to the privatization of
BTC. Only a completely liberalized telecom market will lead to competition in this sector,
which will be beneficial for all, producers and consumers alike and especially serve
disadvantaged people.
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6. Adoption and implementation of adequate regulation. This does not apply only to ICT
per se but to the national economy in general, as only in an atmosphere of predictability and
rule of law is the industry is likely to achieve its full potential. In particular, the law has to
recognize the development of small and medium sized enterprises as one of the cornerstones
of the ICT strategy, especially outside the major urban areas.
7. Pursuance of administrative reform by the government in order to stimulate the IT
industry.
8. Specialized programmes initiated and financed by the government will catalyze the use
of ICT in the country. This should especially target underprivileged areas in the country
and affirmatively involve disadvantaged people and minorities. Projects could target e–
government as a high priority area, special ICT education for particular groups,
benchmarking of the information society, setting up high-tech parks and creating special
incentives for the better application of ICT in small and medium-sized enterprises.
9. Negotiation with bi-lateral donors concerning the possible conversion of debt
repayments into funds which could support the financing of the national ICT for
development strategy.

The vision, leading to a deliberate government policy and emphasis on ICT, with a concrete
strategy, will stimulate the private sector to invest and to eventually become the major actor in
the new Bulgaria.
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Introduction
In considering the situation of Information and Communications Technology (ICT) in Bulgaria a
number of partners, with the United Nations Development Programme (UNDP) and the Center
for the Study of Democracy (CSD) in the lead, recognized the need to coordinate efforts and
initiatives and to develop a vision for Bulgaria to benefit from the potential of Information and
Communication Technology for the economy and for human development. Following two
meetings on IT for Development – one with representatives of the donor community, the
Bulgarian government and relevant NGOs working in the country, held on February 15, 2001,
and one with representatives of private business and industry associations, held on March 8,
2001, a Task Force representing a number of stakeholders in Information and Communications
Technology (ICT) sector was formed (a list of the Task Force members is available in Annex II).
This Task Force met twice (on March 30 and May 11, 2001) with the goal to discuss the issues
raised at the two former meetings on IT for Development, to analyze policy options and to
propose recommendations to the government for the future of ICT as a stimulant of growth and
also as a tool for human development.

It was agreed that these policy recommendations should become the basis for a continuous
discussion among stakeholders and should be aimed at supporting the government in
formulating its strategy for the ICT sector and for strengthening partnerships among relevant
actors in this industry, domestic as well as international.

The Task Force asked two consultants to study and document this current situation with ICT in
the country and to prepare an issues paper, which looks at possible policy recommendations for
government consideration. The consultants started work at the beginning of April 2001 with
desk research using materials provided by UNDP and the Task Force members. (The documents
used are listed in Annex I).

In addition, meetings with selected Task Force members and other ICT professionals and policy
makers were held (a list of the people interviewed is available in Annex III). The purpose of
these meetings was to achieve a comprehensive view of the situation within the ICT sector by
getting to know their experience in the field. The meetings did not aim at building consensus but
rather at exploring most of the issues related to ICT. The consultants were able to get opinions
of representatives of all types of organizations participating in the Task Force (NGOs, donors,
associations, private companies), and a major input also provided by the national conference
"Increasing the Competitiveness of our Economy” organized by USAID on 18 and 19 April
2001.

The input from the Task Force is documented in chapters two and three. Based on this input, an
analysis was carried out using a systematic approach as described at the beginning of chapter
four. The remainder of this chapter presents the results of this analysis, along with a number of
prioritized strategic actions recommended to the new government, and put forward for
consideration by the international community and the private sector actors in the field.

Intermediate versions of this document were circulated among the members of the Task Force,
and their input was taken into account. This final version is now being presented to the Task
Force as a basis for further discussions with the government and all stakeholders in the ICT
sector.
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ACKNOWLEDGEMENTS

This paper was produced by a team of consultants under the umbrella of a joint donor’s initiative
on ICT for Development. The donors would like to thank Mr.Ulrich Boes, Team Leader and Mr.
Boyan Belev, Consultant, for their commitment to this process.
The consultants are also very grateful to all members of the donor Task Force for their valuable
input to this study, especially to Mr. Antonio Vigilante, former Resident Representative of
UNDP Bulgaria, Ms. Trine Lund-Jensen, Resident Representative, a.i, Mr. Christopher Louise,
Communication and Strategy Co-ordinator, Mr. Krassimir Benevski, Information Technology
Officer and Mr. Constantino Longares, Programme Officer, of UNDP Bulgaria who invested
their personal time and effort in making this project possible.

Funding for this project was provided by UNDP Bulgaria.

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I. The Vision

1. Goals of the Report

We are moving on to a new form of society, unparalleled in history, a networked or knowledge

society, which is at the same time a global one. This transformation coincides in Bulgaria with
its transition into a fully democratic polity and accession to the European Union.

This report addresses the role of ICT (Information and Communication Technology) in this
process and its significance in creating a global information society, stimulating economic
growth and fostering human development. At its core is the presentation of a vision and
proposed policy scenarios that may enable Bulgaria to place ICT as a central tenet of the
country’s further economic and human development. As a best case scenario the report suggests
that Bulgaria has the potential to emerge as an ICT leader in Southeast Europe.

This issues paper is addressed mainly to the government of Bulgaria, in order to provide a
possible framework for designing a national strategy on the future of ICT. It also targets the
international community and the private sector in Bulgaria as development partners of the
government on promoting and deploying ICT in the country.

The report aims in particular to:

§ develop a vision for the future of the Information Society in Bulgaria;

§ provide an overview of the Information Society and the development and use of ICT in
Bulgaria;
§ present the views and opinions of several leading actors in the ICT field in Bulgaria from
industry, NGOs, business associations, government and donors. It is not intended to achieve
consensus, but to offer a basis for further discussion among the interested parties;
§ analyze and present the strengths and the weaknesses of the Bulgarian Information Society;
§ provide policy scenarios, based on different assumptions, for further actions to better
develop the ICT market in Bulgaria and to use ICT as a tool for human development.

2. ICT as a Vehicle to Create Wealth and Overcome Obstacles to Human Development

It is generally agreed that equal opportunities and human development, along with growth and
wealth are goals to be pursued in the course of the evolution of humankind. Today ICT is
considered as an indispensable tool for the achievement of these goals - it is a basis of the new
information or knowledge society; it has the potential to render the economy more competitive,
more efficient and productive, but also more humane; it will eventually transform human
society. Statistics show today that the use of ICT has sustained high growth rates in
industrialized countries, with minimal inflation, very low unemployment and rising real wages.
It has changed the way businesses are run and how our lives are organized.

The forces of market liberalization and globalization and efforts at policy reform have not yet
achieved a socially inclusive society, while the goal of universal and equal access to ICT and to
the global information infrastructure has not been reached. Mergers between and acquisitions of
companies have lead to restructuring industries with the consequence of making masses of
workers redundant. Although industrialized countries do not have a sufficient number of highly
skilled IT professionals, traditional professions have become obsolete and unemployment has
increased. Regional disparities have become stronger, the disparities in people’s access to ICT
 9

are growing and “the digital divide” between industrialized countries and those in transition or
in development, or between the major urban areas and remote ones, is increasing.

ICT has the power to provide new opportunities for the poor and disadvantaged. Information
Technology for Development means exactly this - to exploit the opportunities offered by ICT for
the benefit of everybody, for the fight against global poverty and exclusion. ICT provides
developing countries and those in transition with opportunities to achieve vital developmental
goals such as poverty alleviation, basic healthcare and education far more effectively than
before. For this, ICT as a developmental tool has to be used as widely as possible by utilizing
the information infrastructure in a way that will serve all human beings.

Why can ICT enable progress in development?1

§ ICT fosters the dissemination of information and knowledge by separating content from
its physical location. This flow of information is largely impervious to geographic
boundaries—allowing remote communities to become integrated into global networks and
making information, knowledge and culture accessible, in theory, to anyone.
§ The "digital" and "virtual" nature of many ICT products and services allows for zero or
declining marginal costs. Replication of content is virtually free regardless of its volume, and
marginal costs for distribution and communication are near zero. As a result, ICT can
radically reduce transaction costs.
§ ICT's power to store, retrieve, sort, filter, distribute and share information seamlessly can
lead to substantial efficiency gains in production, distribution and markets. ICT streamlines
supply and production chains and makes many business processes and transactions leaner
and more effective.
§ The increase in efficiency and subsequent reduction of costs brought about by ICT is leading
to the creation of new products, services and distribution channels within traditional
industries, as well as innovative business models and whole new industries.
§ ICT links service providers directly with beneficiaries and consumers, reducing the need for
intermediaries and thus contributing to grater efficiency and lower costs.

However putting ICT as a tool, which can benefit society as a whole, requires the co-ordination
of multiple actors. The government has a leading role to play in defining the regulatory and
legislative framework, so that ICT could contribute effectively to faster economic growth and
greater prosperity, but also in protecting consumers and creating a socially inclusive policy.
National governments enjoy the support of various donor organizations from the international
community. Universities and educational institutions contribute by training people to fit into the
post-industrial economy - they offer the necessary knowledge of ICT, without which people
have no chances of success in their professional lives.

It has been widely acknowledged, however, that the private sector is the major driver of
economic growth as it is a source of competitiveness and innovation. A competitive ICT
industry will contribute to general economic strength. Competitiveness can be defined as
continually sustained increases in productivity resulting in higher wages and living standards;
competitiveness, therefore, is demonstrated by "the ability to meet the test of free international
markets while expanding real income." It is based on generating more value through improved
productivity, quality, service and innovation. True competitiveness is not based on cheap labor,
special tax exemptions or continual currency devaluation - it is based on generating more value

1
Report of the Digital Opportunity Initiative Creating a Development Dynamic. (Markle Foundation, Accenture
and UNDP), July 2001
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through improved productivity, quality, service and innovation. It is in the interest of the private
sector to pursue in its business strategy not only immediate revenue, but also long-term gain by
developing new markets. In this sense, today's underdeveloped areas, if taking a lead in the field
of ICT, have the potential of becoming the leaders in the future.

3. The Vision and Specific Goals for Bulgaria

During the 1970s and 1980s Bulgaria developed a strong electronics and communications
industry within the framework of regional cooperation with the former socialist countries in
Central and Eastern Europe. However, due to the general economic downturn following 1989,
Bulgaria experienced a loss of markets, and lacking the capacity to compete on a global scale,
the focus on the ICT industry was lost. It was only during the last four years, when parallel to
the general economic recovery, the importance of ICT for the economy and the society was
recognized, partly driven by the application of the country for EU accession. It became obvious
that the country would not be able to achieve its political and economic objectives, including
faster growth and adequate human development, without accelerated penetration of ICT in all
spheres of the economy and society.

The government of Bulgaria has noted that there is no reasonable alternative to becoming an
Information Society. Bulgaria wants to actively develop information technologies and high-
tech end-products as opposed to only import such products and services. The "Strategy for
Information Society Development in the Republic of Bulgaria" and the "National Programme for
the Development of the Information Society" define the goals, the priorities and respective
activities in this field. This strategy strongly influenced the former government's Programme
2001. It contains two strategic objectives, which are to first satisfy the Maastricht convergence
criteria, and second, to make sure that Bulgaria becomes an information infrastructure center of
Southeast Europe. The Programme 2001 sets as one of its priorities the retention of Bulgarian
youth in Bulgaria through providing opportunities for creative fulfillment and a chance for a
better future. As part of this goal the conditions should be created so that Bulgarians, having left
the country, are encouraged to return and help create conditions that will attract foreign
investment and foreign high skilled workers to move to Bulgaria.

Bulgaria's Information Society Strategy puts a special emphasis on the use of ICT in all areas of
the economy, which should be guaranteed by a comprehensive legal framework, rules and
procedures and a liberalized environment providing guarantees for the rights of citizens and
consumers. Equal access to modern, efficient and high-quality telecommunication and
information services, including opportunities to acquire the appropriate skills, is one of the
priorities of this strategy. Small and medium sized enterprises (SMEs) are expected to play a
key role in the creation of new jobs as well as for market growth and diversity. The private
sector in general is seen as the main actor in the consolidation of the market economy - all
initiatives of the government should be designed to stimulate it.

Education and science are basic fields for the transition to the Information Society. In this
respect research and development and measures taken to “unleash” human creativity are
critical for building up the ICT sector in the country. According to the National Educational
Strategy for Information and Communication Technologies every person should have the
opportunity to obtain computer literacy.

The current development, along with the government's emphasis on ICT, seems very positive.
Nevertheless, by comparison, Bulgaria lags behind European Union states, and also behind its
neighbors in relation to skills, education and use of ICT, and the gap seems to be widening. This
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raises the question, whether currently adopted measures are sufficient to develop Bulgaria into
the Information Society and to bridge this gap.
In looking forward it will be indispensable to ask what position will ICT have in Bulgarian
society and what place will the Bulgarian ICT industry have, internationally, in the next
five, ten or fifteen years. This is the main purpose of this study, which has as its main
assumption that only an ambitious vision can drive Bulgaria forward, and such a vision
rests not only on the adoption of a winning strategy in the context of the global world
economy, but on one which must also be socially inclusive.

The government, possibly joined by the major players in the Information Society, must define
and develop such a vision and strategic programme. Given today's advantages of the country,
in particular its human potential, there is a strong opportunity for Bulgaria to assume a
leading role with respect to ICT in Southeast Europe. Bulgaria could rapidly become an
early adopter of new technology and a leader at least in selected fields of ICT. If it is in such a
leadership position ICT could be used for the benefit of all people and effectively contribute to
strong growth. Indeed, there is a willingness on behalf of most actors to work together in order
to develop such a vision, to bring it to reality by carrying out specific measures in this direction.

Bulgaria’s potential as a technology leader was confirmed by the 2001 global Human
Development Report. The Report which explores the issues of “making new technologies work
for human development” introduces a Technology Achievement Index (TAI) which measures
countries’ ability to participate in the network age. The index is calculated on the basis of a
number of factors: 1) the creation of technologies 2) the diffusion of recent innovations 3)
diffusion of old innovations 4) human skills. The index is divided into three categories –
technology leaders, which is headed by Finland and the USA – potential leaders and dynamic
adopters. Bulgaria appears in the list of potential leaders, alongside Greece, Portugal, Poland and
Malaysia.

Against this background making the vision and promise of Bulgaria’s ICT future a reality
requires government commitment to put ICT at the centre of the development agenda and
as one of the country’s economic priorities. In this frame proper laws and regulation,
respecting both macroeconomic and social needs, are required to stimulate the market and
entrepreneurship. The regulatory framework encourages the development and deployment of
ICT, it strengthens human capital and the innovation potential in Bulgaria. People are prepared
for being entrepreneurs and creating innovation in universities that are recognized world-wide
for their scientific level, not least as a result of scientific exchange programmes. The high level
of research at universities will motivate students to enjoy academic education and use their
knowledge in the private sector, enjoying the benefits of collaboration with foreign academic
institutions and companies. Venture capital and private equity, as well as foreign private
investment support the creation and development of Bulgarian companies, which develop
systems and software and offer services to clients abroad, thus also stimulating the home market
and living conditions in Bulgaria. Overall connectivity and tele-applications are rendering all
this possible, and are accessible to everybody. E-government programmes, for voting, for health
services and other public services will support accessible participation in democracy and making
it a daily practice for all citizens. The general level of education and computer literacy is raised,
in particular in remote areas, where the infrastructure gives access to knowledge and
employment.

The process of realizing this vision, however, requires answers to many questions, such as what
is the optimal legislative and regulatory framework? What are the parameters of the best
possible cooperation between the players in the market, in particular between the public and the
 12

private sector? What actions in the social sphere are necessary in order to overcome “the digital
divide”? The speed of realization may, however, depend on available funds. Making
comparisons with other countries, which are or have been in a similar situation will make it
easier to find answers and draw conclusions about the measures, which need to be adopted.

4. ICT Development in Comparative Perspective

The experience of other countries in building a competitive ICT industry can provide Bulgaria
with valuable pointers towards reaching its own ICT goals. Elements of other countries’ strategy
can be applied for the purpose of creating a vision fitting the Bulgarian situation. Due to their
specific relevance for Bulgaria we will consider in more detail the experience of three countries
– Ireland, Estonia and Costa Rica.

a) Ireland – “the Celtic Tiger”

Ireland has benefited from its geographical situation, easy access to European markets as a
member of the EU and from substantial US investment. Its economy has experienced in recent
years a rate of growth twice as fast as that of the United States and six times faster than that of
Germany thanks in part to the government's strategy on high-tech education and infrastructure.

The economic difficulties at the beginning of the 1990s prompted the Irish government to action.
It decided to stimulate in particular investment in infrastructure. The Irish research and
education networks multiplied the country’s international data transmission capacity more than
twenty-fold. The private sector has benefited from a large government project that brought new
optical fiber cables into Ireland. Now, with less than 1 percent of the European Union's
economic output, Ireland accounts for a quarter of its broadband transmission capacity. The
"Last mile" problem was expected to be solved by competitive private sector involvement,
which is a priority in 2001. As a result, the whole population of the country has benefited from
greater access to global information sources and the resulting wealth-generating growth in
general.

Ireland is also the world's largest exporter of software. Many foreign companies have
technical support centers there due to the country's favorable tax policies. The country has
invested in education for over 30 years, which has resulted in strong cooperation between
universities and the private sector, leading, for instance, to successful business incubation.
Ireland has become very attractive for immigration of high-tech professionals.

b) Estonia –“ the Baltic Tiger”

Estonia has few natural resources but its leadership realized that the people are the country’s
major wealth and decided to invest in the growth of the human potential. The government
adopted policies for reducing the gap with the European Union with respect to ICT. Along with
economic reform, Estonia has made serious efforts to promote access to the Internet for it's 1.4
million citizens (as the Estonian president Lennart Meri said, "the Internet is the roof of the
world for a small nation"). The policy of stimulating ICT targets the creation of a
competitive economy, underpinned by de-monopolization, property reform, promotion of
electronic trade and banking. Provision of information services is considered of strategic
importance and access to information for everybody has become a constitutional right.

The Estonian “Bill of Target Programme of the Information Society” provides for the
organization of forums and seminars, provision of information services, setting up information
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servers and kiosks, an electronic document pilot project, and an ID card project. Further
measures adopted by the government in order to stimulate ICT were tax preferences and
exemptions, protection of intellectual property and regulations against software piracy.
Attention is paid to the regional development of ICT – access to the data communication
network is available all over the country at reasonable costs. The target programme of the
Information Society has received special support from the state budget. The IT brain drain
from the public sector has effectively been stopped through organizational changes and
outsourcing following the example of the most advanced countries in the field.

Education is emphasized as another important element of the ICT strategy of the country. The
“Tiger Leap Programme” launched in 1996 provides information based learning systems for all
schools. The Internet has become a learning tool, not just a means for entertainment. It is
estimated that about 30 percent of the population are using the Internet; Estonia ranks among the
top 15 countries in Europe by computers per capita, ahead of France and Italy. International
cooperation plays an important role – in this context an information system of the Baltic Sea
region is being developed.

c) The Experience of Costa Rica

Half way across the globe, in a middle-income country dominated by agriculture a dynamic ICT
sector was created which has become an important driver for economic and human development.
With a visionary approach the government of Costa Rica has laid the foundation for using ICT
for the benefit of the whole population. The country has invested substantial resources in
education, health and telecommunications' infrastructure and ICT research. Underpinned by
modern technology, the government has facilitated the creation of an economy based not on
cheap labor but on increased productivity, which leads to increased value-added. The
government’s programme for a sustainable development platform has leveraged the competitive
advantage of the country in the strategy of export-oriented growth.

After a long period of experimentation with economic reform the national army was abolished
which freed budgetary resources to invest in health, in infrastructure and education. The
constitution guarantees that 6% of the GNP is invested in public education, in addition to 1.1%
of the GNP that is currently invested in science and technology.

Guided by a strong vision, the government drafted several forward looking programmes
targeting, for instance, eco-tourism, creation of a comprehensive healthcare system,
equipping the country with 10,000 km of optic fiber and nationwide wireless coverage.
Several projects in the areas of tele-medecine, tele-diagnostics, and computerization of
schools were launched. In addition special institutions responsible for the formulation and
the execution of the national ICT strategy were created, as for instance, the High
Technology National Center and a Foreign Investment Promotion Agency.

The ambitious goals of the government were made possible thanks to its success in attracting
foreign direct investment. For example, a major player in the ICT field - Intel - decided to set up
large production facilities in the country. Foreign investors were attracted by a reformed
taxation system and streamlined rules for doing business in the country as well as by the
general economic stability, which was achieved by the government.

The examples of these countries demonstrate what ambitious governments can achieve with
programmes stimulating faster growth of ICT and its deeper penetration in the economy and
 14

society, provided they have the necessary political will and consistency in carrying out their
programmes for the benefit of the population of their countries.

II. ICT and Information Society in Bulgaria: Facts and Trends

Since 1997 the Bulgarian economy has been going through structural adjustment. In a stabilized
macroeconomic environment, marked by a low level of inflation, an effective currency board
and a fairly liberalized market, ICT has been one of the most dynamic sectors of the economy,
which has led to a steady growth of the Information Society in the country.

1. Access to ICT Network

Communication infrastructure is the basis on which Information Society can grow and prosper.
Vitosha Research estimated that 30 percent of the households in the country had a telephone line
in year 2000, 6 percent of the population used wireless phones and 40 percent of households had
cable TV. 2

Consumer Internet access in Bulgaria enjoys a steady growth as a result of the strong
competition between the existing 200 or more internet service providers (ISPs); the quality of
the service is not a problem for the leading companies in this field. The number of access points
for dial-up service practically doubles every year – it reached about 10,000 in year 2000. Each
access point serves not more than 5-6 customers on average while a couple of years ago there
were about 10 customers per line. Most of the Bulgarian ISPs use primary ISDN access which
was not the case in 1998; ISDN usage practically doubled in 1999. Alternative means of access,
however, are not yet very popular – Internet through cable lines is very limited mainly due to the
high cost of cable modems (about $300) and the low interest of cable operators in developing
their own infrastructure for internet access; in addition the use of xDSL technology is practically
non-existent in the country.

Corporate Internet access through leased lines grew from 200-250 lines in 1998 to about 1,800-
2,000 lines in 2000, plus about 2,000 more lines were used by financial institutions and ISPs for
interoffice connections. A major obstacle to further growth remains BTC’s monopoly in the
market (with 90-95 percent of the leased lines and high rates for connectivity). Public
access to the net at internet cafes and computer game halls has become an important factor for
the increase of the number of users, especially among those who have no access at home, at
school or in the office.

An important factor for the increase of Internet usage is its affordability. The general trend here
is toward a cheaper service – whereas in 1997 and 1998 when the average monthly wage
amounted to $76 and $82, respectively, only a limited number of people could afford an Internet
connection. Toward the end of 2000 Internet access turned into a commodity due to the greater
number of users and lower fees (from $0.20 to $1.20 per hour on average) as a result of greater
competition and better peering networks. This trend is expected to continue in the future. With
regard to the quality of the networks and the speed of traffic the capacity of the networks has a
direct impact on the ultimate number of users as well as the type of services offered. In this
respect, it is notable that there is a 10-30 percent failure rate of all dial-up connections in the
country. Most of the dial-up access occurs at 28.8 Kbps and higher, while corporate clients have
predominantly 64 Kbps access or better. Future developments could be expected to furnish a

2
All the numbers for this part of the paper were borrowed from Vitosha Research. Current Situation, Tendencies
and Problems of the Development of Technologies and Services of the Information Society in Bulgaria. Sofia, 2000.
 15

truly competitive environment, which may be facilitated by private investment in optical

networking infrastructure.

Only a limited number of services are provided through wireless technology in Bulgaria, mainly
the transmission of voice through mobile phone networks. Current fees for services are too high,
while the existing market structure is unlikely to lead to serious competition since the second
GSM licensed operation is starting very slowly.

2. Society and ICT

Vitosha Research has been constantly monitoring Internet usage since the beginning of 1997 and
its studies show an annual increase of 80 percent. Service providers claim, however, that the
number of end users is not high – between 30,000 and 50,000. IDG considers this number to be
about 100,000 in Bulgaria. The difference in the numbers above may be due to the fact that ISPs
consider only the number of people who pay for their services; IDG counts the people who can
afford using the Internet on a daily basis (about 1.5 percent of the population). The number of
people who say they access the Internet in Bulgaria is much larger (between 5 and 6.8 percent of
the population or between 325,000 and 400,000 people in October 2000). It is clear, however,
that the typical user in the country cannot yet afford home access to the net and that
“internet junkies” most often use office access: only 2.4 percent of the population has home
access to the internet.

It is probable that the dynamic growth of the Internet in Bulgaria will level off in the near future.
Under current conditions the number of people who have an interest in computers and ICT and
at the same time can afford it is limited; if the current rates of growth persist, the maximum
number of PC users will be reached by 2002. If prices on hardware continue to fall and a real
second-hand market comes into being, then this saturation may come a little later – in 2004.

The issue of the language barrier has been clear to most of the largest players on the web from
the early days of its existence. In this sense, the domination of the English language has
turned into a major obstacle to the integration of a larger number of users, as only 6-8
percent of the people in Bulgaria understand English. At the same time this creates
opportunities for Bulgarian content providers to develop the local market – in fact, about 50
percent of the hits by Bulgarian users target Bulgarian web pages. We have to give credit for this
to the growing number of Bulgarian portals (online.bg, dir.bg, giuvetch.bg, search.bg, hit.bg,
etc.). These websites play an important role in the creation of virtual communities of Bulgarian-
speaking people with shared interests, domestically and abroad, to actively exchange ideas and
information and maintain permanent channels of communication in the form of newsletters, e-
mail lists, message boards, chat rooms, clubs, etc.

There are substantial regional disparities both in the sense of access to ICT infrastructure
and provision of Internet-related services. The major reasons for this situation come from the
existing socio-economic division between the capital city and the country. Different government
agencies, however, have already taken on the task of bringing the people from all regions
effectively to the Information Society (for instance, the UNICOM project of the Ministry of
Education and the DISNY project of the Ministry of Finance). Due to the shortage of data,
however, this issue cannot be analyzed in detail within this paper.
 16

3. ICT and the Economy

The accomplishments in building an adequate infrastructure for the Information Society in

Bulgaria have resulted in a dynamic market for ICT products and services which accounts, to a
large extent, for the growth in the Bulgarian economy as a whole. As national statistics have
only just begun to account for ICT, we have had to rely on unofficial estimates. In 1999, for
instance, the market value of the ICT sector amounted to 1.273 billion leva, or 5.6 percent of the
GDP. According to Vitosha Research 7.5 percent of the active population uses a PC at work.
Roughly a quarter of all small and medium enterprises are equipped with PCs – as a rule, they
are hooked up to the Internet and use e-mail. A possible indicator for the state of the Information
Society is the number of web sites of local companies. In 2000, the number of hosts in the DNS
domain “.bg “ was 1076. In addition there are hundreds of other Bulgarian sites hosted on
domains which are not their own (for example sites of companies which use free hosting offered
by Bulgarian portals). Within the directories of online.bg alone there are about 4,000 Bulgarian
companies with web sites of their own.

Nevertheless, only 17 percent of 2,000 firms surveyed by Vitosha Research use e-mail as a
means for communication with their clients, while only 23 percent of the small and medium
enterprises are equipped with PCs, 5.7 percent of these firms have LANs, 9.4 percent are
connected to the Internet and 27.2 percent use mobile communication. Fax messages and
phone calls are still the major means of communication, while in most cases, paper copies of
interfirm correspondence is required. The sector of the economy which has the greatest IT
penetration is the financial services sector (banking and insurance).

IT jobs in Bulgaria are quite attractive. According to IDG 3,588 people were employed in 96 of
the 100 largest IT companies in the country – companies with an average of 37 employees. (This
data does not include BTC, which has about 26,500 employees, not, all of whom are IT
specialists). The total number of employees in the IT sector may be between 11,000 to 35,000.
On average ICT workers are some of the best-paid employees in the country. If the average
monthly salary for the country in 2000 was 238 leva, the average monthly salary in the IT sector
was 590 leva in September 2000. The pay for IT personnel is higher in companies with foreign
owners and companies doing work for export only. Nevertheless, the local IT labor market
cannot offer the opportunities sought by young and qualified IT professionals. A lot of these
people seize every opportunity to leave the country if offered a more challenging position
abroad. According to Alpha Research in the last quarter of the 2000, alone, 43 percent of the IT
firms saw employees “handing in their notices” to go to a job outside of Bulgaria. This is a real
“brain-drain, since only 3 percent of these people come back to Bulgaria later. A number of
managers have a valid concern that Bulgaria will soon have to import IT professionals from
abroad.

An important indicator of the role of ICT in the economy is the progress in e-commerce. Most
electronic transactions in the country fall within the category of Business to customer (B2C),
while the Business to Business (B2B) share of the e-commerce market is very small. Vitosha
Research found that in September 2000 B2C commerce in Bulgaria included only about 600
transactions amounting to 38 thousand leva. However, these transactions are not purely
electronic as the Internet is primarily used for processing orders while payment is done in a
conventional manner upon delivery. Consumers usually order books, meals, stationery, flowers
and other items. The number of online transactions, however, is very low, with consumers
preferring cash payments as a rule.
 17

E-government may serve to render administration more efficient, but also to increase democratic
participation and promote human development. Bulgaria has made its first steps in this field
which includes the use of ICT by central and local administrations for the services they provide
for the purpose of greater efficiency and higher quality. The work on the DISNY project,
managed by the Ministry of Finance, has already resulted in a number of government “front
offices” providing the citizens of large and small towns in the country with services which
traditionally originate either from the central or the municipal administration. Practically all
central government agencies and the municipalities in large towns are hooked up to the Internet.
Most of the central institutions (the Parliament, the Presidency, the Ministries, the Constitutional
Court, various agencies and commissions) have websites of their own, while a small segment of
the local administration has an on-line presence (e.g. Varna, Yambol, Silistra). The information
on most of these sites is updated daily and they usually have a Bulgarian and an English version,
while some of them offer specialized databases to the public. With regard to the technological
level and human resources the public administration accounts for about 14 percent of the PCs in
the country and related equipment sales. Practically all newcomers to the civil service are
computer literate.

However, there is no general policy regarding the Internet presence of the public administration
– this is evident from the domain names of a number of agencies which represent simple
abbreviations of their English translations (for instance, www.ssec.bg, www.stc.bg) or
abbreviations of their Latin transliterations (for example, www.mvr.bg) or pages within other
domains (e.g. www.bulgaria.com/aba). Not all links from the government portal
(www.government.bg) to the websites of other agencies are maintained in good order;
sometimes entire sites are not in service or the quality of the information provided is very low.

4. Education and ICT

Information about the use of ICT in education is fragmented and often hard to find. The Ministry
of Education has a database on the number of computers used in secondary schools (3,207
schools nationwide for 1,340,000 students) but it has little information about connectivity. It is
hard to make an assessment of the state of affairs in higher education – the existing 42
universities providing training to 270,000 students have academic autonomy and no government
agency collects comprehensive information on them.

2,159 out of all 3,207 schools for secondary education have no PCs and the hardware in a
number of other schools is not good enough to be used for Internet connection (e.g. 8-bit
computers or computers with processors Intel 286). Thus, roughly 82 percent of all schools are
unable to connect to the Internet. Only about 140 secondary schools have registered access to the
Internet; 64 of them have their own web pages. At a number of schools PCs are used only in
administration (i.e. in accounting) and not for education. According to "Pari Daily", the
currently available PCs would suffice to equip only 243 classes while there are 958 teachers of
computer science.

There are between 4,000 and 5,000 PCs with processors not slower than Intel 486 at the
universities in Bulgaria; 60 percent of these universities use the services of private ISPs. The
current level of access to ICT in higher education is possible thanks to funding from abroad or
donations from Bulgarian private sponsors as university budgets do not allow sufficient ICT
spending. ICT resources are dispersed and used inefficiently due to the serious increase of the
number of students and campuses together with the decrease of spending on education. There is
no sufficient use of ICT in subjects other than those directly related to information technology
which represents a major brake on progress in most academic disciplines. It is not an
 18

exaggeration to say that Bulgarian universities run the risk of seriously falling behind their
counterparts in the rest of Europe if they do not bring innovation both to the educational
curricula and teaching and research methods.

The existing situation with the use of ICT in Bulgarian schools and universities is the result of
the sharp decrease of public spending on education – from 6.06 percent of GDP in 1992 to 3.2
percent in 1998, against the background of a shrinking GDP during this period. Current efforts
toward a turnaround include the work on the project UNICOM-2 within which all high schools
should be supplied with PCs and become a part of a nationwide network by 2005. The goal of
the project is to add computer and Internet literacy to the set of skills acquired by Bulgarian
children at school and prepare them to become the workforce of the information age.

As a further consequence of the reduced public spending on education, both the level of
education and research at universities has decreased. Research output of Bulgarian universities
is in general far behind that of other countries, and research activities can only be maintained
with external funding, especially by the R&D framework programmes of the European
Commission.

5. Donor Activities in the Field of IT

International donor support has been of crucial importance for the progress in ICT. Foreign
donor organizations have committed significant funds (grants and loans) on a number of projects
directly or indirectly related to ICT. It is clear that the donor effort in such areas as
macroeconomic management, support for the government administration, industry,
transportation, telecommunications, social and human development have an IT component, but
so far it has not been possible under the existing statistical standards to assess it. What is
extremely important, however, is that for a few years already there has been a donor
coordination mechanism thanks to the leadership of the World Bank Mission in Bulgaria and the
special efforts of UNDP to keep an inventory of all projects with donor participation. This
mechanism includes special forums on particular sectors (e.g. working groups on small and mid-
size enterprises, social development, healthcare and the environment). In the beginning of 2001
a UNDP initiative started a process of specific co-ordination on ICT (which included donors,
NGOs and private sector actors) in the form of coordination meetings on IT for Development.
Still, it is not easy to have a comprehensive view on the donors’ activities in this sector as many
ICT initiatives are part of broader programmes and only few programmes such as the “Research
and Development Framework Programmes” of the European Commission specifically target the
ICT sector.
 19

III. IT Challenges for Bulgaria: Analysis of the Accomplishments and the Existing
Problems

The members of the Task Force and others interviewed in the course of the preparation of this
paper expressed a number of concerns about the current state and the future of ICT in Bulgaria
and its implications for human development. The following paragraphs include their
considerations on the strengths and weaknesses of the sector as well as the actions they believe
are appropriate for the government to undertake in order to stimulate the progress in ICT. Part of
this analysis does not address issues of ICT development per se but rather issues, which relate to
creating the right type of environment, in which ICT as an industry and as a vehicle for
development, may prosper.

1. Strengths

The Task Force members identified the following major strengths of the Bulgarian ICT:

The public interest in ICT is very high and there is a large number of highly qualified and well
experienced IT professionals in the country, with expertise practically in all areas of ICT.

The positive tendencies in the economy create a favorable environment for growth of the ICT
sector, and vice versa - accelerated growth in this sector has already had a positive effect on the
economic reforms undertaken over the last 3-4 years. The private sector in particular is getting
stronger. Not only the government, but also other sectors have become consumers of ICT.
Internet service provision is liberalized and competitive.

The government understands generally the importance of ICT for economic growth in the
country. A number of government agencies have been created to solve problems related to ICT.
Top government officials realize that the state should provide the regulatory framework for e-
commerce and let the majority of initiatives be carried out by the private sector. A national
strategy for the development of the information society has been developed, although it is not
detailed enough and lacks prioritization. For the first time in 2001 the ICT sector will be
properly included in the national statistics as well as in the state budget.

The regulatory framework for ICT is good and significant parts of the relevant legislation have
been harmonized with that of the EU. The recently drafted law on high-tech parks might have a
significant impact on the information society.

A number of important projects with government involvement have been drafted or started – for
instance, the UNICOM-2 project designed to provide PCs for all high schools as well as
Internet access, the DISNY project on e-government, etc. At the same time, the government is
the major consumer of the ICT industry. The purchases of ICT equipment are expected to grow
in volume over the next 4-5 years.

The government understands the importance of its support for ICT in education. A number of
universities have achieved successful cooperation with the private sector on specialized
education or professional IT training.
 20

2. Weaknesses

The Task Force members found the following major problems areas in the development of ICT
in Bulgaria:

Policy-makers do not necessarily grasp the importance of ICT as a powerful vehicle for
development in the country or as a driver for resolving Bulgaria’s social and economic
problems.

There is a lack of special managerial skills for ICT projects, and qualified professionals are
insufficiently motivated to stay in the country. Salaries are not high enough and working
conditions could be better. Access to financing for ICT is difficult and little seed capital exists.
The technical infrastructure is not well developed and only a small part of the software is
localized, which hinders further purchase of such software.

There is a need to strengthen the cooperation between the government and some private sector
associations as well as to strengthen the strategic coordination within the donor community.

The government strategy on the information society is a compilation of different ideas prepared
by different agencies. There are no real priorities and an implementation plan is lacking.

The telecommunications liberalization has not been completed yet and there seems to be a
significant delay. The slow process of the privatization of BTC in particular is a major obstacle
to further progress in ICT.

Tax regulations (for instance, depreciation schedules, VAT, etc.) hinder further growth of ICT.
Intellectual property on software does not get special treatment and its protection seems
inadequate. Mechanisms for public tenders on government procurement do not work well
enough. Law enforcement on IT issues is generally inefficient.

Although the government is generally aware of the importance of ICT, it is not reflected at all
levels of its work; conservative attitudes are a serious obstacle to its application. The
institutional structure does not provide adequate horizontal links between the agencies of the
state administration. There are no sufficient resources for follow up on the implementation of
projects. Available IT resources are not efficiently used due to lack of training and skills of
officials, obsolete equipment and problems with network access.

University education and research is not up to the level of state of the art technology. Private
sector companies do not get people trained according to their needs and there is little interest in
cooperating with universities. Project and business management skills, marketing,
entrepreneurship and knowledge of industrial practices are not taught. Telecommunications
infrastructure at universities, training facilities and the use of ICT in disciplines other than
computing are little developed. The relationship between universities and the Ministry of
Education does not seem to be well developed.

A general problem is the existence of regional disparities in the access to ICT, while the
government does not yet show a comprehensive vision concerning ICT as a tool of human
development. Meanwhile few activities in the state budget aim at reducing “the digital divide”.

Other obstacles to ICT penetration include the limited knowledge of English, the pervasive
nature of corruption in society and the low reliability of business partners. The failure to attach
 21

any special value to software, as to intellectual property, is also is another obstacle to

innovation and adoption of new technologies.

3. Obstacles to the further development of ICT

Resulting from the described weaknesses, several general factors have to be taken into account
when defining actions and scenarios to accelerate the growth of ICT. Partially, they relate to
society in general, like the attitude of people, the grey market and corruption. Regional
disparities are strong, and purchasing power is low in the regions.

University education does not produce the high qualification needed for this economic sector,
and the most qualified professionals leave the country, due to better working and career
conditions abroad. Telecommunications infrastructure is weak, including the pricing and the
competition in this area, and finally, access to financing is difficult for companies. The latter is
related to the fact that other countries' confidence in Bulgaria as a place for investment or as a
provider of goods and services is still quite limited. Cooperation and dialogue between the
private and the public sector is not well developed, and administration is not efficiently
organized.

4. Actions

The members of the Task Force proposed the following actions as priority areas for immediate
attention.

Public Awareness and Education

§ The weaknesses and obstacles to ICT development concern the whole society. The
government would have to catalyze the use of ICT and its growth, but the private sector and
the whole society should be the most active players in solving the problems.
§ Raising awareness about the possibilities of ICT is the basic condition for the widespread
use of computers. Communication and dialogue between the private and the public sector
can be very useful for catalyzing the use of ICT and facilitating its growth. All stakeholders,
(private sector, civil society organizations, educational institutions, local authorities, citizens
groups and donors) should help form a consensus in defining and implementing a successful
ICT strategy. Such a partnership and dialogue will not remain unnoticed abroad and could
attract more foreign investment to Bulgaria.
§ The media can play an important role in the information society, mainly by raising public
awareness through promotion campaigns.
§ Universities should be pro-active and work together with the private sector. Teaching at
universities should be more practically oriented so that graduates have the necessary skills to
be employed by a dynamic ICT sector, not neglecting their obligation for forward looking
research. A nation-wide framework for academic education does not appear to exist. It
should be developed in close cooperation between universities and the government.

Policy and Legislation

§ The government has to continue to work on the strategy for the information society,
particularly emphasizing issues related to human development and the use of ICT as a
vehicle for strengthening human development and resolving Bulgaria’s social and economic
problems. Priorities for the development of ICT, on the basis of such a strategy, have to be
formulated and implementation plans have to be developed. Government policy should be
 22

flexible and coherent; fragmentation and ambiguity has to be avoided. Ubiquity and
universal service has to be one of the goals of government’s strategy.
§ A true and comprehensive industrial policy should be adopted to stimulate the ICT sector so
that it can later serve as a growth engine for the entire economy. Industrial policy needs to
be proactive and to take a regional and sectoral approach. Such a policy will set the
framework for private sector growth to include rules for competition, promoting SMEs, tax
policy, incentives, reduction of bureaucracy, public procurement, etc. It should provide for
investment in innovation and penetration of ICT into new sectors (tourism, for example),
taking into account market demand. Special economic zones for free trade need to be
created.
§ Work on the legislation on high-tech parks should continue.
§ The liberalization of the telecommunications sector needs to go on as planned or preferably
even accelerated.
§ The regulatory framework should induce banks and investors to provide long term financing,
especially to SMEs.

Public Sector Priorities

§ The government should establish a better coordination and communication mechanism with
donors and the private sector in order to work with them on financing its strategic
programmes. Convincing and detailed action plans have to be developed.
§ Donors should contribute to the development of ICT in financing and catalyzing its use in all
areas and regions. Along with the government and the private sector they should finance
special programmes to raise IT awareness and to expand the information society. Donor
assistance for IT should target primarily the private sector and not the government.
§ The reform of the administration has to continue and become more comprehensive. In order
to benefit from the opportunities presented by ICT a special government agency under the
Council of Ministers could be created to deal with the overall ICT strategy. This agency
should have the necessary staff and resources, understand the overall picture of ICT and be
the front office of the government when dealing with foreign donors on ICT matters. The
level of officials involved in decision making on ICT should be raised. Special rules should
be created for organizing tenders for public procurement. Organizational structures created
should aim at better cooperation among government agencies and provide more
transparency.
§ State employment should be made more attractive through higher salaries and a better
working environment. It may be possible to outsource some of the IT jobs in the
government sector. If this cannot be done, special packages should be offered for IT
professionals to stay with their jobs. Serious investment in IT training of civil servants is
necessary.

The Role of the Private Sector

§ Within the private sector various actors can contribute to the further development of ICT for
the growth of the economy and the well-being of the citizens. Associations, along with
NGOs, should define their strategy and co-ordinate it with the government. They should
also contribute to follow and benchmark the industry competitiveness. Their public relations
campaigns should aim at changing the mindset and the attitudes of the people.
§ Companies should support the government to enforce the laws and market mechanisms
should stimulate this. They should provide IT professionals with good salaries, working
conditions, career prospects and IT training if they want to prevent them from leaving the
country.
 23

§ Banks should better serve the needs of the ICT industry and provide more credit to ICT
companies, especially SMEs. The credit system should be made more easily accessible to the
ICT industry. A special role can be played by venture capital.

The Importance of Projects

§ Special pro-poor strategies and programmes for ICT should be designed.
§ Mechanisms for controlling the implementation of ICT-related projects need to be
established. Law enforcement has to be effective and efficient. Special efforts should be put
in the fight against corruption.
§ Existing programmes, such as bringing the Internet to schools or e-government, need to be
continued or extended.

The actions as compiled above constitute a tentative list of measures to address the weaknesses
identified by the members of the Task Force. Not all of these actions have equal weight, and it
would not appear realistic to expect that they all be carried out. The following scenario
development will provide the framework to define the necessary priorities and select the most
appropriate measures.
 24

IV. Bulgarian ICT in the Future

The analysis of the strengths and the weaknesses of ICT as well as the actions proposed by
members of the ICT Task Force provide sufficient insight for projecting the current trends into
the future. On the basis of this analysis this section presents the possible scenarios for the future
of ICT and the information society in Bulgaria in mid-term perspective. The underlying
difference among them is the degree of government involvement (including spending and
regulation) which may range from no effort to influence the status quo to a maximum possible
involvement targeting not only ICT growth but also successful human development in the
country.

In all scenarios, the government can be active in four major areas: (1) design of the legal and
regulatory framework for the ICT sector, (2) stricter control and enforcement of the existing
regulation, (3) direct government funding for specific projects, and (4) institutional reform. The
scenarios will be distinguished by activities within all or some or none of these areas, and the
degree of fulfillment of the tasks. Scenarios will differ by variations of a qualitative nature as
illustrated in Figure 1. Evidently, it is only a simplified model of government activity, which
has been developed for analytical purposes only.

Figure 1. Dimensions for building scenarios

Regulation, Policy
100%
50%
Institution Building 0% Law Enforcement

Spending
 25

1. Possible Scenarios

a) Comprehensive scenario with ICT as a key tool for development

This scenario would include the adoption of a comprehensive industrial policy focusing on the
deployment of ICT into all sectors of the economy. Guided by a vision on the use of ICT for the
economy and for human development, the ICT budget of the government will be considerably
increased, as compared to today's situation. A reform of the institutional and regulatory
framework within which ICT operates is an integral part of this scenario – in this sense, a special
government agency responsible for planning and coordination of IT-related programmes,
including donor efforts, should be established. In cooperation with other interested parties this
agency will do most of the work not only on creating a comprehensive regulation for ICT but
also provide significant guidance for the efforts of the other players in the field. The long-term
effect of the measures to be adopted will be accelerated growth of the industry which, in its own
turn, will serve as a catalyst for achieving greater dynamism in the national economy in general.

Elements of this policy would include a favorable tax treatment of the ICT industry (possible
elimination of VAT for certain procurement transactions like equipment and software for
schools and decrease of depreciation periods for IT equipment and software), special incentives
to promote exports, alternative military service for young IT professionals, establishing a flat
rate for telephone charges for internet connection, and providing interest-free loans for students
for the purchase of PCs and related equipment. The government would fund strategic projects
for infrastructure building, the use of ICT in education, health or other areas with particular
attention paid to social and regional disparities.

b) Status Quo Scenario

The status quo scenario assumes little additional effort on behalf of the government to take a
pro-active stance in the development of ICT. This scenario is represented by the innermost
polygon of the diagram in figure 1.

The advantages of this approach are evident – there can be no unintended consequences of state
involvement, which could possibly bring adverse shocks to the economy. In this situation it will
be left to market forces to shape the development of ICT in the coming years. As its growth
prospects and potential for competitiveness are significantly higher than those of other sectors of
the economy, it has a much brighter future than a number of the other sectors. Thus in this
scenario ICT will be an accomplished leader on a national scale in 3 to 4 years. However,
Bulgarian ICT would not be competitive internationally given the fact that in a globalized
marketplace competition from foreign ICT companies will be stronger, even on the Bulgarian
ICT market, and for a national ICT industry the penetration in foreign markets will be crucial for
its survival in general. This scenario will contribute only to a limited extent to the further
penetration of ICT into the society and to address human development issues.

In the status quo scenario a large part of the Bulgarian ICT is expected to remain in the “grey
economy”, with its positive and negative sides. It will be able to provide employment and
seemingly cheaper products and services although its overall efficiency will suffer and it will not
be able to turn into the growth engine for the entire economy it could otherwise become. On the
negative side, it could be considered a hostage to the general socio-economic and political
situation in the country. In case of serious downtrends in the latter it may face severe hazards
(for instance, in case of political instability the brain drain will substantially increase).
 26

In this scenario great opportunities will be wasted. For example opportunities for financial
support for ICT from donors may be lost since the status quo scenario does not envisage any
tremendous development of sophisticated local partnerships, which are usually a key
prerequisite to donor funding programmes. In other words the current state of the coordination
mechanisms between the different government agencies and the private sector for meeting the
ICT challenges in their respective spheres of competence are very much below par. If the
commitment of the government to fund ICT training of high school students is kept, then the
next generation will have the necessary IT literacy. This is very good but not enough – if this
effort does not extend to universities and research and development, Bulgarian IT specialists and
the Bulgarian ICT industry as a whole will remain only as a low-key player on the global ICT
marketplace.

Although in the current situation this may appear to be a likely scenario for the
development of the Bulgarian ICT industry, Bulgaria has the resources to design and
implement a broader and more progressive vision, which if pursued would bring a
brighter future to the ICT industry and also contribute to alleviating some of the country’s
most prevalent social ills and improving the general socio-economic climate of the country.

c) Selective Actions for Human Development

This scenario, represented by the middle line in the diagram, includes a pro-active role of the
state in the planning and coordination of ICT-related activities but does not require substantial
public spending. The government, supported by donors and other partners, carries out a number
of measures in order to stimulate the economy, catalyze follow-up actions and create a favorable
investment climate. A specialized government agency could be created to supplement the
currently existing mechanism of the Coordination Council on the Information Society and serve
as its secretariat for planning and follow-up on its decisions.

Some of the possible steps of a new government ICT strategy could include the following:
adoption of measures through education or special remuneration packages to motivate IT
professionals to stay in the country and keep their jobs; sufficient spending on IT in education,
especially in high schools; sufficient regulation of ICT without significant increase of direct
state involvement; possible elaboration of details of the tax system which would stimulate ICT
without introducing major changes in taxation; enforcement of laws and regulations mainly by
incentives, rather than by penalties; elaboration of the idea of high-tech parks (to include, for
instance, the possibility for virtual high-tech parks in order to minimize costs); target
underdeveloped regions in ICT-related programmes in order to help alleviate the existing
disparities.

This scenario is definitely possible in the current situation and does not require major
institutional changes or shifts in the general economic policies, i.e. the measures, which would
otherwise be included in a comprehensive industrial policy could be implemented within the
legal and regulatory framework of the currency board and the general economic strategy of the
government. It will require, however, investment in organizational resources and some spending
– if the former is made available, the bulk of the necessary financial resources could be
mobilized from sources other than the state budget. What is needed most is political will on
behalf of the new government to set ICT development as a priority. This is considered to be the
best case scenario in which a great deal of the opportunities for the development of the
Bulgarian ICT sector will be captured.
 27

2. Policy Options and Recommendations

On the basis of the scenarios outlined above, their feasibility and the desired prospects for the
future of ICT, it is important to formulate specific general strategies and adopt particular
measures, so that ICT could enjoy a dynamic growth and thus serve as a catalyst for the growth
in the national economy as a whole.

A recent report “Creating a Development Dynamic” produced by the Digital Opportunities

Initiative (an initiative by UNDP, the private philanthropic Markle Foundation and the global
management consultancy Accenture) highlights the critical role ICT can play in developing and
transition countries, and points to a strategic framework to help stakeholders in investing and
implementing strategies which take advantage of the potential of ICT to accelerate social and
economic development. The framework consists of five critical areas for strategic intervention:

§ Infrastructure – deploying a core ICT network infrastructure, achieving relative ubiquity of

access, and investing in strategically-focused capacity to support high development
priorities.
§ Human Capacity – building a critical mass of knowledge workers, increasing technical
skills among users and strengthening local entrepreneurial and managerial capabilities.
§ Policy – supporting a transparent and inclusive policy process, promoting fair and open
competition, and strengthening institutional capacity to implement and enforce policies.
§ Enterprise – improving access to financial capital, facilitating access to global and local
markets, enforcing appropriate tax and property rights regimes, enabling efficient business
processes and stimulating domestic demand for ICT.
§ Content and Applications – providing demand-driven information which is relevant to the
needs and conditions experienced by local people.

The policy recommendations and government actions suggested by the Task Force members fall
very broadly within the scope of this framework. Within this context the major initial step, on
which there is broad consensus, is the change in the government institutions which it is hoped
will have a far reaching impact on the future of the information society as a whole. A set of
priorities and measures in the field of ICT, which may have to be adopted for the purpose of
finding comprehensive solutions to the problems of the Bulgarian Information Society follows
below.

a) Institutional Change

On the basis of the analysis of the situation in the Bulgarian ICT sector we propose to adapt the
institutional governmental framework to prioritize ICT for the further development of the
country. An initial step should be the establishment of an ICT agency in the form of a horizontal
structure within the government. The mission of this ICT agency would be to define the vision,
the strategy and the policy of the government with respect to ICT, to define the role of ICT for
the further growth of the country, for human development and for the private sector. It would
provide support for the implementation of the vision and the strategy. In order to achieve this
goal it would be provided with organizational, human and financial resources for its activities, as
well as authority to make and implement decisions within its scope. This agency would set
priorities for the ITC sector and the deployment of ICT in application areas, develop
implementation plans and mechanisms, coordinate throughout the government as well as interact
with the private sector and foreign donors. It would further perform analysis, supported by
donors and the NSI, and promotion of ICT-related activities.
 28

The ICT agency will be the preferred government contact for the private sector and for donors
concerning ICT. Its efforts will create an effective public-private partnership, which may be
able to set in motion mid-term and long-term planning for the ICT sector. The process of
planning and coordination will not preclude competition, which guarantees the dynamic growth,
but it will provide the necessary information and guidance to the players involved and will help
avoid duplication of efforts.

This new institutional mechanism will provide the necessary interface to the private sector and
to donors who require a high degree of sophistication on behalf of the local counterpart. With
the help of the new agency Bulgarian companies and organizations can pool resources to match
the donors’ requirements for effective participation in their programmes.

The ICT agency could be established under the auspices of the Council of Ministers in addition
to the existing mechanisms for government regulation of the Information Society in Bulgaria
and serve as a secretariat to the Coordination Council on the Information Society. A two-layer
structure of this council will be possible - one permanent set of members, including
representatives of the relevant ministries and government agencies (at the rank of deputy
minister), and an ad-hoc layer, composed of representatives of the private sector (business
associations, major ICT companies), along with NGOs representing civil society and donors.
The new body does not have to be large; it might have only a few units or departments, each of
which will perform the secretarial functions for the Coordination Council within a special
sphere. For example, there may be a department on the legal and regulatory environment, a
department on public-private partnership within the information society, one charged with
analysis of long-term trends in the industry and the implications for the Bulgarian ICT and one
for promotion of the information society. The permanent staff of each department may be just 1-
2 people, totaling up to 20, plus a small back office. The efforts of these people should be
complemented by a pool of consultants who should do most of the analytical work on an ad-hoc
basis.

This proposed institutional mechanism is feasible within the existing economic and regulatory
environment in Bulgaria. We believe that it is worth investing some public funds in order to set
up this committee and maintain its permanent staff. Financing for consultants and for the work
on specific projects can come from donor support on specific programmes. Some donors have
already indicated that they would be willing to do so. The efficiency gains from better
coordination as well as the logical increase of donor funding should not only compensate for the
initial government spending but also provide an additional impetus for the growth of the sector.

b) Suggested Priorities for Future Action

The analysis of the strengths and weaknesses of ICT in Bulgaria shows a number of constraints
on its development as well as significant opportunities for future action in the field. The
measures proposed by the members of the Task Force and the other players on the ICT market
whose representatives were interviewed in the course of this study range from general wishes to
very specific activities. Each of the major issues mentioned in this study needs a more detailed
study before a comprehensive set of policies targeting individual aspects of ICT development in
Bulgaria can be formulated. The proposed changes in the coordination mechanism, if
implemented, can successfully take on this task. However, it has to be noted that no single
policy will be the key for new conditions; rather, a mixture of several policies is needed. In
general, the opportunities offered by the new technologies can only be seized if a country
invests in education and labor market policies to expand investment in human capital,
 29

while frameworks have to be conceived to stimulate entrepreneurship and innovation as

well as open and competitive markets.

The following priority actions seem appropriate for a new strategy for development of ICT, and
are proposed for further government consideration:

1. The government needs to develop a new strategy for ICT, forward looking and ambitious, to
turn Bulgaria into a leading country with respect to ICT development in Southeast Europe
including the vision on IT for human development. This should be done through the
special ICT agency under the auspices of the Council of Ministers, which will establish
a comprehensive national strategy for the development of a competitive ICT sector and
also for the use of ICT as a tool for human development. This strategy will build upon
existing programmes like the National Strategy on Information Society, or the European
Commission's programme on eEurope, and will specify which segments of the ICT sector
deserve greatest attention (for instance, Internet access for all, electronic government,
electronic commerce, broadband and mobile communication services or applications areas
such as transportation, health or tourism). Detailed programmes for the promotion of these
segments need to be developed.

2. Public-private partnership is an important tool for achieving progress in ICT. The ICT
government agency must play a leading role in making such a partnership work. They
should for example organize working sessions, conferences, or promotion campaigns
financed by donors or the private sector.

3. Bulgaria needs to establish an ICT infrastructure, which ensures wide and ubiquitous
access to the Internet for all citizens, irrespective of income level. Existing programmes have
to be continued and guarantee that everybody in the country can have access to the
telecommunications and Internet infrastructure. The private sector should play a leading role
stimulated by the government. The infrastructure will be the foundation for further use of
ICT in all kinds of applications, where innovative technology will be used.

4. ICT should deeply penetrate the education system in Bulgaria. IT training in schools
has to be widely introduced since schools are the best place to reduce the digital divide.
Education and research in universities has to be brought up to the same level as in the
European Union and IT should be used in all academic disciplines. It should be in the
education sector, and through research that ICT should be used as a vehicle for unleashing
human creativity. Curricula should be adapted to industry needs. Along with promotion of
IT in the whole country, special projects should be realized to teach the whole population in
the use of IT. Programmes for vocational training will complement university education.
There also needs to be a focus on placing more Bulgarian language content on the Internet.

5. The telecom market should be liberalized as soon as possible with particular attention
to the privatization of BTC. Only a completely liberalized telecom market will lead to
competition in this sector, which will be beneficial for all, producers and consumers alike
and especially serve disadvantaged people

6. Dynamic ICT growth needs adequate regulation. At the same time, enforcement of laws
and regulations needs to be stricter. This does not apply only to ICT per se but to the
national economy in general, as only in an atmosphere of predictability and rule of law the
industry is likely to achieve its full potential. In particular, the law has to recognize the
 30

development of small and medium sized enterprises as one of the cornerstones of the IT
strategy, especially outside the major urban areas.

7. The government should pursue its administrative reform in order to stimulate the IT
industry. It will be necessary to development a strategic programme for ICT deployment in
administrations, and some IT activities in the government can be outsourced. Administrative
procedures can be simplified.

8. Special programmes and projects should be adopted to promote the opportunities that ICT
creates for the progress in the economy and society. These programmes should specifically
target underprivileged areas in the country and address disadvantaged people and
minorities. Such projects could target e-government with a high priority, benchmarking of
the information society, setting up high-tech parks and creating special incentives for better
application of ICT in small and medium-sized enterprises. Such ideas need to be further
conceptualized so that special projects and programmes can be drafted and implemented as
soon as possible.

9. The Government should devise a strategy for exploring options for converting part of
the national debt into a trust fund for ICT for development. This will require negotiation
with different donor governments.

c) The Private Sector

Stimulated by the vision and the emphasis on ICT of the government strategy, the private sector
will react with increased activity and foreign investors would be attracted, leading to a growth of
the economy. Eventually, salaries will increase and wealth will be generated. By the right
investment climate, foreign direct investment will be attracted and foreign companies will be
encouraged to invest in Bulgaria. International trade will be encouraged.

Industry cannot rely on the government - it should build its own strategy, and such strategies
must add value to the current situation. The private sector should actively participate in and
launch activities to achieve growth in ICT and a more effective public-private partnership in the
sector, with a view to using ICT for human development. Outsourcing can be a winning
strategy for IT jobs and services in dealing with shortages of qualified labor and insufficient ICT
penetration into individual industries and the public administration.

Business associations can play an important role as representatives of the private sector, and as
intermediaries between the government and the private sector. They should define a strategy for
representing the views of the private sector. They can also design special programmes to provide
entrepreneurial training in areas like finance, law, marketing, improving production quality and
competitiveness.

d) Financing Options

The government should optimally increase its ICT budget in order to finance some selected
projects and to catalyze further actions, which subsequently would be financed by other sources.
The private sector, on the other hand, will invest, where they see an adequate return. The key to
financing options will be the nature and extent of public private partnership (which should
include government, private sector and donor funds). The donor community could provide
seed funding for specific types of intervention in the field of ICT. This spending should be
aimed at attracting private sector investments such as venture capital, private equity or
 31

loans, to support larger and more long-term ICT projects and programmes. The private sector
could also establish foundations that could support the long-term research and
development needs of the ICT sector. This could also be done as part of the institutionalization
and operations of the proposed ICT agency. Preliminary statements from donors suggest that it
would not be difficult to support, financially, the government in setting up this agency.
However, a quick action from the side of the donors is required.

Another ambitious option for financing the implementation of the national strategy could be
through debt for Technology Swaps. Bulgaria’s gross external debt stock is in the range of US$
10 billion, and if only a few of the smaller creditors waived Bulgaria’s debt repayments, this
could potentially provide a large resource for an ICT Trust Fund, which could be managed by
the ICT Agency and monitored by joint internal-external supervisory mechanisms. The ICT
Trust Fund would be utilized to fund projects and programmes, build up the country’s ICT
infrastructure and support training and education in ICT. Bulgaria has already secured a debt
swap and Trust Fund modality with the Government of Switzerland for the environment. As
with the Environmental Trust Fund the characteristic of a debt conversion mechanism for ICT
would involve the Bulgarian government negotiating with each bilateral donor (who agrees to
explore the option) the specific terms of a full or partial swap of official debt.

e) Elements of an Action Plan: A vision of the Future

1) The government should set up as soon as possible the special agency on ICT, which was
mentioned above. This agency should immediately start with the definition of the strategic
programme, and define the first strategic projects like infrastructure building, education, or the
promotion of scientific research. All conceptual work can be finished in the first half of 2002
and at the same time, mechanisms for public private partnership and promotional activities can
be designed. Parallel to that, the telecommunications sector should be further liberalized and
BTC should be privatized.

2) In the following years the government should work on further elaborating the strategy for
ICT development. Its activities should be coordinated with the efforts of the donor community in
order to make sure that funding for private sector and civil society projects is allocated in the
most efficient way to serve the goals of the ICT strategy of the country. Public-private
partnership will deepen – private sector companies will follow this strategy in their individual
business decisions regarding ICT-related projects.

3) Around year 2005-2006 the joint effort of all partners in development will have produced
some significant initial results. Allocation of resources in the ICT sector will be much more
efficient The major players on the ICT market will have grown significantly: Bulgarian ICT
companies will have their strong presence among the largest enterprises in the country and they
will have significant international presence as most of their production will target foreign
markets. Bulgarian universities will have gained an international reputation, with students and
academic staff benefiting from international programmes. The consumers of ICT will have
matured too – for instance, the saturation of the economy and society with PCs will have ended
and practically all interested parties will have access to necessary ICT resources (for instance,
network access). At this point the tasks for the information society will shift toward finding
better applications for ICT in other spheres of life as it will have a significant presence almost
everywhere that it needs to be.

4) With regard to human capital it is realistic to expect that both positive and negative trends
will persist for the near future (the next 5 years). There will be a significant “brain drain” of IT
 32

specialists from the country but it will be compensated by the growing interest among young
Bulgarians in ICT-related jobs. Those who leave the country may very well serve as a bridge
between the national ICT industry and the ICT industry in leading countries, the result being the
better integration of the national ICT industry in the global ICT sector.

5) After 2005-2006 the Bulgarian ICT sector will be mature enough, no longer requiring active
state involvement in the formulation of the ICT strategy. Foreign donor involvement will be
minimal – bank credit and access to debt and equity capital markets will be available instead.
The government will still perform the function of regulator of the ICT industry – it will
introduce changes in the business environment, which will have an impact on the growth of ICT.
Nevertheless, direct involvement will be minimal, as it will be no longer needed.

6) If the government starts now with implementing a comprehensive ICT strategy it is realistic
to expect, that in the next 10 years, that the Bulgarian ICT industry will be well integrated into
the global ICT sector, with products and services of major players on the ICT market containing
important components produced in Bulgaria. Even if the national ICT industry is not one of the
leading ones in the world, there will be significant spill-overs and it will continue to have a
strong influence on other sectors in the a national economy which will have enjoyed the benefits
of comprehensive ICT support. The clear message is that by 2011 it is unlikely that there will be
no serious gap between the Bulgarian ICT sector and that of the OECD countries. The brain
drain will cease and young Bulgarians will prefer to remain at home, since working conditions
will have been greatly improved. IT experts from foreign countries will volunteer to work in
Bulgaria.
 33

ANNEX I

References

Bulgaria 2001. Programme of the Government of the Republic of Bulgaria, 1997 – 2001.

Bulgaria and the European Union: Towards an institutional Infrastructure. Center for the Study
of Democracy. Sofia, 1998.

The Bulgarian Case: Software Asset Management by the Bulgarian Government. Presentation
by H.E. Peter Jotev, Deputy Prime Minister and Minister of the Economy of the Republic of
Bulgaria at the Government Leaders Conference 2001, Seattle, March 26 - 28, 2001.

Bulgarian Industrial Business Association. White Paper On Foreign Investment In Bulgaria.

Sofia 2000.

George Sadowsky. Report on a Mission to Bulgaria. March 25, 2001, www.competitiveness.bg.

Human Development Report, 1999, UNDP.

IEEE Spectrum. March 2001.

Information Technology in Public Administration of Estonia. Yearbook 1998. Estonian

Informatics Center. Tallinn 1999.

Report on Information Society Development in the Republic of Bulgaria.

www.mtc.government.bg .

Strategy for Information Society Development in the Republic of Bulgaria. Resolution No. 679,
Council of Ministers, Republic of Bulgaria, 29 October 1999.

Vitosha Research. Current Situation, Tendencies and Problems of the Development of

Technologies and Services of the Information Society in Bulgaria. Sofia, 2000.

USAID Competitiveness Initiative. National Competitiveness Conference "Increasing the

Competitiveness of Our Economy" April 18 and 19, 2001, Hilton Hotel, Sofia.

Final Report of the Digital Opportunities Initiative Creating a Development Dynamic UNDP,
the Markle Foundation and Accenture, July 2001

Human Development Report, Making New Technologies Work for Human Development, United
Nations Development Programme, July 2001

World Development Report 1998/1999, Knowledge for Development

http://www.worldbank.org/wdr/previous.html
 34

ANNEX II

List of the Task Force Members

1. Antonio Vigilante, UNDP, e-mail: avigilante@undp.bg

2. Betina Moreira, e-mail: betina@ced.bg
3. Constantino Longares, UNDP, e-mail: clongares@undp.bg
4. Dinka Dinkova, e-mail: dinka.dinkova@online.bg
5. Edward T.La Farge, USAID, e-mail: elafarge@usaid.gov
6. George Mihaylov, CED, e-mail: gmihaylov@ced.bg
7. Georgi Kourtev – World Bank, e-mail: Gkourtev@worldbank.org
8. Joe Lowther, MSI, e-mail: joe@msi.bg
9. Krasen Stanchev, IME, e-mail: stanchev@ime.bg
10. Krassimir Benevski, UNDP, e-mail: kbenevski@undp.bg
11. Maria Pavlova - GTZ, office Sofia; e-mail: pavlova@astratec.net
12. Massimo Marra, EC Delegation, e-mail: massimo.marra@delbgr.cec.eu.int
13. Nevelina Veleva - GTZ, office Sofia; e-mail: veleva@astratec.net
14. Nevena Alexieva - World Bank; e-mail: nalexieva@worldbank.org
15. Nora Ovcharova, USAID, e-mail: novcharova@usaid.gov
16. Ognian Shentov, CSD, e-mail: ognian.shentov@online.bg
17. Orlin Kuzov - Internet BG Foundation; e-mail: president@galaxite.net
18. Peter Ivanov, Cisco Systems, e-mail: pivanov@cisco.com
19. Sasha Bezuhanova, Hewlett-Packard, e-mail: sasha_bezuhanova@hp.com
20. Slavcho Manolov, BIA, e-mail: s.manolov@bia-bg.com
21. Stoyan Boev – BAIT; e-mail: ICB@icb.bg
22. Teodor Milev, Microsoft, e-mail: teodorm@microsoft.com
23. Tom Higgins, BAEF, e-mail: thiggins@baefinvest.com
24. Trine Lund-Jensen, UNDP, e-mail: lund-jensen@undp.bg
25. Velizar Sokolov, BSA, arsis@internet-bg.net
26. Yavor Dimov, CED, e-mail: yavor@ced.bg
27. Ulrich Boes, URSIT Ltd., ursit@spnet.net - Lead Consultant
28. Boyan Belev, CSD, boyan.belev@online.bg - Consultant
 35

ANNEX III

List of Interviews

1. Peter Ivanov, Cisco Systems

2. Teodor Milev, Microsoft
3. Hristo Traykov, Ministry of Finance
4. Orlin Kuzov, Ministry of Education
5. Stoyan Boev, BAIT
6. George Mihaylov, CED
7. Ivailo Gueorguiev, CED
8. Peter Rendov, Ministry of Transport and Communications
9. Aleko Konstantinov, Ministry of Transport and Communications
10. Alexander Ognianov, Ministry of Transport and communications
11. Veni Markovski, Internet Society
12. Massimo Marra, EC Delegation
13. Tatiana Hinova, IDG Bulgaria
 36

ANNEX IV

Legislative and Regulatory Framework for the Information Society in Bulgaria

Fundamentally, regulation of the Information Society in Bulgaria is derived from the

Constitution as well as certain basic laws, namely the "Law on the Access to Public
Information" and the "Law of the Protection of Private Information"; another important law –
that on the Restricted Information – is currently in the making. Specific sectors of the
Information Society have their own regulation. The "Law on the Long-Distance
Communications", for instance, covers the issues of transfer, emission and reception of codes,
signals, written text, images, sound and any other kind of information through cable, wireless,
optical or any other electromagnetic medium. This law defines which of the activities within the
sector should be subject to licensing as well as which bodies (respectively the Minister of
Transportation and Communications, the State Commission on Long Distance Communication,
etc.) should have specific responsibilities and controlling functions. An important, though
controversial, provision of the law is the state monopoly on local, long-distance and
international telephone calls and the lease of phone lines.

The "Law on Radio and Television" is at the core of the regulatory framework for the operation
of electronic media in Bulgaria and covers radio- and TV-programmes as well as other
information broadcast through ground wireless, cable, satellite or other means that are designed
for reception by an unlimited number of people. Radio- and TV-stations (private or state-owned
corporations) are required to have a license for nation-wide or local operations from the National
Council on Radio and Television, which is supposed to exercise independent control.

Given the lack of a comprehensive regulatory framework for the services related to the
Information Society in general, future regulations should be developed in accordance with
existing EU directives, namely Directive 98/34/EC of the European Parliament and the Council
of June 22, 1998 laying down a provision of information in the field of technical standards and
regulations and of rules on information society services (amended with Directive 98/48/EC of
July 20, 1998), and Directive 2000/31/EC of the European Parliament and the Council of June 8,
2000 on certain legal aspects of Information Society services, in particular electronic commerce,
in the internal market. These documents define the scope of Information Society services and
include all services rendered from a distance by electronic means and in response to
individualized demand of consumers, namely, professional services offered through
telecommunications' channels, interactive forms of entertainment, access to electronic libraries
and collections of periodicals, services for distance learning, etc.

A major element of these services is e-commerce. A novelty for Bulgaria in this respect is the
Law on the E-Signature which provides a technologically neutral and a moderately liberal
pattern of regulation, close enough to the few existing similar laws in other countries and
compliant with the general principles and requirements of Directive 1999/93/EC of the
European Parliament and of the Council of December 13, 1999 on a Community framework for
electronic signatures. The law introduces such concepts as “e-statement” and “e-document”
which play an important role in the regulation of transfer of information by electronic means; it
sets rules for author’s and addressee’s identification as well as the source, the time and place of
delivery and the risks of errors in transmission.

Protection of consumers’ rights is extremely important in e-commerce. The provisions of the

"Law on Consumers’ Protection and on the Rules of Commerce", which include consumers’
 37

right to information, labeling of goods, display of prices, product safety, issues of libel and
warranty, etc. should facilitate all transactions in e-commerce; this law also contains special
provisions on contracts signed from a distance which are particularly relevant for participants in
virtual exchange of information and electronic transactions.

Handling intellectual property rights is of special importance for innovation as progress has
made it easy to digitally reproduce copyrighted material and publish it through telecom
channels. Intellectual property regulation in Bulgaria is done by the "General Law on Copyright
and Related Rights"; it contains provisions on the use of wireless, cable or other means of
individualized access to works of art or science which are supposed to guarantee that only
authorized material should be available for distribution. The law gives a relatively detailed
treatment of the development, use and distribution of computer software, which is subject to
additional restrictions; penalties for violations of such provisions are substantial.

An important unintended consequence of the progress in ICT is the proliferation of computer

crime and crime in electronic media (for instance, illegal access to information, corruption and
deletion of records, unauthorized use of services as well as money laundering. pornography, use
of the internet for dissemination of ideas of hatred, racism, etc.). Some of the crimes relevant to
the Information Society are explicitly targeted by the Penal Code in Bulgaria, including
unauthorized dissemination of information by electronic means in cases in which this
dissemination by itself represents a crime, slander and offence, distribution of pornography,
promotion of racial, ethnic or religious intolerance, etc. Privacy has special legal protection in
the Information Society – unauthorized access to private information through the use of special
technical means of communication is regarded as criminal. The provisions of the Penal Code
are fully applicable in cases of fraud done through electronic means, which, together with
intellectual property violation, is one of the two most common Internet crimes.

The progress in ICT is likely to offer a wider space for proliferation of specific high-tech crime,
which can hardly be fought by conventional means (for instance, the creation of computer
viruses, unauthorized access and destruction of information stored in an electronic format). As
there are no special texts for all possible kinds of e-crimes their prevention and prosecution is
likely to remain a challenge for most of the participants in the Information Society.

The currently existing tax legislation has a practically equal treatment of all business activities in
the country regardless of the sector in which value added is produced. This is a cornerstone of
the government’s economic policy since 1997. In the absence of any special tax treatment all the
businesses in the ICT industry are required to pay taxes.

The major problem of the legal and regulatory environment of ICT in Bulgaria doesn’t seem to
be the laws and regulations per se but their enforcement and implementation. As it was pointed
out by a representative of a major IT company there are very few checks on the use of illegal
software; practically no one has been prosecuted so far for such a crime. The reasons for this can
be sought in two aspects – first, the incompleteness of the regulatory framework which creates
opportunities to comply with the rules selectively, and second, the lack of capacity of the
enforcing bodies to exercise control and monitor the observance of the laws.
 38

ANNEX V

Indicators on the Information Society in Bulgaria

Indicator Value Source

1. Economic Indicators
1.1 Basic socio-economic indicators
Area 110,993,6 êì2 Statistical Yearbook, 1999
Population 7,974 thousand NSI, census 2001
people
Gross domestic product (2000) 25,454 National Statistical
million levaInstitute
GDP growth (2000 compared to 1999) 5.8 percent National Statistical
Institute
GDP per capita (2000) 3,100 leva National Statistical
Institute
Gross value added by sectors of the economy (2000)
Share of agriculture, % 14.5 Statistical Reference Book
2001
Share of industry, % 27.8 Statistical Reference Book
2001
Share of services, % 57.7 Statistical Reference Book
2001
1.2. Size of the telecom market
Market share of
- PSTN services operators 525 million Annual report of BTC,
leva. (72% îf 1999
sales)
- ISDN services operators* 3 million leva. Estimate based on the data
available in the Annual
report of BTC, 1999
Total income for BTC 730 580 304 Annual report of BTC,
leva 1999
Operators offering value added services
Mobile operators
Radiotelecommunications company 147 million leva Estimate of Bulgaria
for 2000 Online based on published
quarterly reports
Mobiltel AD 197 million leva Estimate of Bulgaria
for 2000 Online based on published
quarterly reports
Satellite operators ~ $3 600 Estimate based on
* $300 thousand per month ± 10% due to small thousand interviews with satellite
operators variations annually operators
Cable operators 115 million leva Marketing research,
annually September 2000
Market of mobile communications equipment /million 50 million leva Estimate based on market
leva/
 39

leva/ prices, customer base

growth and sales data

Stationary communications equipment market /million 50 million leva Estimate based on the
leva/ annual reports of the 10
leading companies in the
country
Total telecom market /million leva/ 1 272 780 304
leva.
1.3 PC Market
Services market $23.1 million 1999 IDG
Hardware market $ 109.1 million 1999 IDG
Software market $ 20.7 million 1999 IDG
Note: 80% of the software use in Bulgaria is not licensed /Nora Kirilov, Association of Software
Developers – Standard Daily, 09.10.2000.
Total PC market $153 million 1999 IDG
2. Degree of liberalization of the telecommunications market
Regulatory bodies: Committee on Postal Service and Long Distance Communications, Ministry
of Transport and Communications, State Commission on Long Distance Communications, Council on
the National Radio Frequency Spectrum
Major long-distance operator: Bulgarian Telecommunications Company
There are no regional operators
Mobile operators: Ìîbicom, Ìîbiltel, Globul
Paging operators: Ìîbipage, Link Paging,Scortel, Varna Page
Market share of paging operators
Mobipage – 83%*
Link Paging - 14%
Scortel – 2%
Varna Page – 1%
Source: Annual report of the Radiotelecommunications company Mobicom, 1999
* The number of Mobipage subscribers in December 1999 was 32 000.

3. Bodies coordinating the activities regarding the information society

Coordination Council on the Information Society
Permanent Working Group on the Strategy for Development of the Information Society
Working Group at the Permanent Working Group on the Strategy for Development of the
Information Society
4. Basic indicators
4.1. Telephone lines
Subscriber telephone lines
Residential lines 2 382 000 BTC 1999
Office lines 123 000 BTC 1999
TOTAL subscribers 2 505 000 BTC 1999
Mobile telephone lines
Mobifon (number of subscribers) 180 000 Web site of RTK
Mobicom, June 2000
Mobiltel AD (number of subscribers) >700 000 Mobiltel AD, June 2000
4.2 Telecommunications equipment
Density of telecom equipment of BTC (per 100 people) 34.32 BTC 2000
 40

Telephones
Residential 2 345 000 BTC 2000
Office 438 000 BTC 2000
Public phones
Mobica phones (Saphire) 5 106 Annual report of
Mobicom, 1999
BTC phones 19 037 BTC 2000
BTC phones for long distance calls 11 191 BTC 2000
Fax machines
Fax machines at home 118 000 Vitosha Research, 2000
Density (per 1000 people) 10
Pagers
Total 105 000 Vitosha Research, 2000
Density (per 1000 people) 16
4.3. Personal computers
Home PCs 90 000 Vitosha Research
estimate
5,4% of the
Question: Do you have access to a PC at home? population Vitosha Research,
or 372 000 October 2000
Number of computers used in business /public 210 000 1999 IDG
administration, education and healthcare not included/

Number of computers in business 300 000 Vitosha Research

estimate
Total number of PCs Vitosha Research
390 000 estimate, October 2000
4.4. Internet
Internet users 6,8 % of the Vitosha Research,
population September 2000.
(about 445 000)
Internet users at home 2,4 % of the Vitosha Research
population estimate, October 2000
(about 165 000)
Internet users in the office 3,0 % of the Vitosha Research
population estimate, October 2000
(about 207 000)
Internet usage in business
Small and medium-size enterprises
Companies with individual PCs 23% Report on SMEs, 1996-
1999, Agency for SMEs,
Sofia 2000
Companies with LANs 5,7% Report on SMEs, 1996-
1999, Agency for SMEs,
Sofia 2000
Companies with internet access and e-mail 9,4% Report on SMEs, 1996-
1999, Agency for SMEs,
Sofia 2000
Number of hosts with DNS domains in zone .bg 1076 Web site of Digital
 41

Systems EOOD, October

2000
Internet service providers /January 2000/ ~200 BTC
5.Number of employees with IT jobs
In 97 out of 100 largest IT companies in Bulgaria ~ 30 045 Vitosha Research
(total) estimate
Number of employees in IT companies (total 2 319) 5 117 1999, NSI