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Sweden's Tele2 calls on Croatia to reconsider hike in annual licence fee

ZAGREB (Reuters) - Swedish telecom operator Tele2 urged the Croatian government on Wednesday to reconsider its plan to triple the annual radio frequency licensing fees levied on mobile network operators, saying it could seriously harm business climate in the newest European Union member.

"We think the government's proposal was not well thought through and we hope that the government will reconsider it," said Malin Holmberg, chief executive of Tele2's Croatia unit.

Tele2 competes in Croatia, which joined the EU last July, with T-HT, majority owned by Deutsche Telekom, and Vipnet, owned by Telekom Austria.

It has a market share of around 20 percent and its goal is to raise it to some 25 percent and finally turn to profit, nine years after it started operating in Croatia.

In the first quarter of 2014 it posted a pre-tax loss of 3 million kuna ($551,000). Its full-year revenues in 2013 were up 7 percent at 1.2 billion kuna.

"We're behind our initial plans in terms of profitability and we're still not making money, but we're almost there. If this fee is implemented, it would delay our profitabilty plans for another several years," Holmberg told Reuters.

"Such a fee would make our business in Croatia very difficult," she added.

The fee increase, which Holmberg says is equivalent in size to almost doubling the corporate tax rate for the telecom sector, is expected to triple and bring in around 350 million kuna a year to the national budget.

Croatia is likely to suffer a sixth recession year in a row and the government has said one of its key aims is to attract foreign investment to boost growth. But Holmberg said raising the fee was sending the wrong signal.

"It would be very difficult to attract investments if you are harming the existing ones".

T-HT, the biggest operator in the Croatian market, said last month it would have to increase the prices of its mobile services if the government enforced the new frequency fees.

Tele2 in Croatia accounts for 4.7 percent of Tele 2 AB#s group sales revenue.

The government's move to raise the fee is part of its efforts to cut the budget deficit. The process is monitored by Brussels, which wants the gap to be reduced to below three percent of gross domestic product by the end of 2016.

In an effort to comply, the government has already twice modified the budget this year but analysts warn that it is focused too much on boosting revenues instead of cutting the costly and inefficient public administration.

(Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Greg Mahlich)

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