Netbox is a user-friendly and client-driven internet service provider (ISP), holding an estimated 3 percent of the market and serving municipalities and schools. But one of its three shareholders was involved in one of the biggest Czech bank frauds in the last 10 years, the case of Metropolitni Sporitelni Druzstvo.

Netbox is the brand name of a company called SMART Comp. a.s. The company offers technical solutions for regional internet service providers, and has been steadily growing in the Internet business field.

The history of the company is turbulent.

It was founded in 1998 in Brno by two 20-year-old friends, Marek Bukal and Radek Musil, who launched SMART Comp. in a garage where they assembled personal computers. The company was registered at the home of Bukal, who today is chairman of the board and a shareholder.

The following year (1999), a credit union called Metropolitni Sporitelni Druszstvo (MSD) was founded. Like SMART Comp., MSD grew quickly, attracting new members by promising high interest rates. Several of MSD’s founding members joined Bukal as SMART Comp. shareholders: Daniel Tureček and Martin Čupera.

In 2000, SMART Comp. decided to hire Čupera as managing director, which turned out to be a mistake.

Čupera, who in 2004 joined the SMART Comp. board of directors, did some controversial things during his tenure with the company. In 2006 SMART Comp. signed contracts with a company called Power Media s.r.o. that were worth only US$ 25,000 but carried a huge penalty fee for late payment of US$ 640,000. That same year, Čupera used company money to buy a BMW 530d for his personal use.

The contract between SMART Comp. and Power Media was signed on Jan. 24, 2006. When Bukal found out about the deal (and about the BMW), he filed a criminal complaint alleging fraud in March 2006. Nevertheless, the court ruled the contract was valid five months later in July, and SMART Comp. was ordered to pay the full amount of US$ 640,000 PX6.

(Čupera left the company in 2006 and eventually founded his own company, the internet infrastructure provider Fiber System Group).

SMART Comp. did not have enough capital to cover the US$ 640,000 debt and went looking for help. Given SMART Comp.’s close ties to MSD, it sought a loan there and opened negotiations late in 2006 with Tureček, MSD’s co-founder and managing director and, as noted, later a SMART Comp. shareholder.

Tureček, as a member of the board of directors of MSD, was responsible for managing the credit union, which at that time was the country’s largest.

But the financial help offered to SMART Comp. was far from a normal loan. Instead, in March 2007, MSD sold SMART Comp.’s debt to a company named Therez Ltd. registered in the Seychelles offshore tax haven. It is not clear who actually owns Therez, but it received 99 percent of SMART Comp. in exchange for the debt.

A few months later, Therez forgave PART of the debt; Therez then sold almost half of SMART Comp. back to Bukal for an undisclosed sum while one third went to Tureček.

The convoluted transaction involving SMART Comp. was just one of many deals between MSD and Therez, which held shares in multiple companies which received millions of dollars in loans. Therez was also involved in buying up MSD’s own debts.

In April 2013, the Czech National Bank (CNB) launched an investigation into MSD and discovered the credit union had been granting loans of tens of millions of dollars to finance dodgy business plans. In a scathing report on MSD’s activities issued that December, CNB said: “MSD provided loans amounting to tens and hundreds of millions of crowns to finance vague, unreal and unproven business plans.”

“MSD failed to check the proper creditworthiness of loan applicants, the prerequisites for the proper and timely repayment of the loan. MSD also ignored possible connections of individual applicants’ loans and did not considered other potential risks associated with credit transactions.”

For example, one of the loans provided was a US$ 4 million for vaguely defined investment in start-up companies. The borrower? Tureček himself, a co-founder of the credit union and member of its board of directors. All together, between 2007-2012 he received three loans from MSD totaling US$ 6 million.

In 2013, the CNB examined about 40 percent of MSD’s loan portfolio and found that the credit union provided 33 loans totaling 4.4 billion crowns (about US$ 180 million) to 60 borrowers, or an average of 133 million crowns (approximately US$ 5.5 million) per loan. CNB noted that several companies, who borrowed a total of one billion crowns (US$ 40 million) were founded by a network of the same people.

The CNB investigation led to a joint operation with state prosecutors and Unite to Combat Financial Crime and Corruption (UOKFK), a police agency. Police discovered that the credit union had loaned billions of crowns to offshore shell companies with proxy directors.

The money passed through those companies into Hong Kong banking accounts. According to the CNB report, the procedure was simple: the proxy director (often a homeless person) applied for a loan for a company established only weeks before the application, and the loan would be approved the same day.

Miroslav Singer, the CNB governor, said the pattern investigators uncovered wasn’t a matter of a poorly managed institution making mistakes, but of deliberate criminal actions.

Since 2014, Tureček has been under prosecution for fraud. Czech media has described him as the mastermind behind the fraud and the offshore schemes. He still owns a third of SMART Comp.

By Pavla Holcova

When CT jacked up prices by 60 percent in the late 1990s, Czech do-it-yourselfers took matters into their own hands.

At the time, CT was the country’s sole provider of Internet via phone lines (ADSL) service and charged around a half of an average month’s salary for not-terribly-dazzling 256 kbps data transfer speed. While few could afford those rates, demand for internet was strong and growing stronger, prompting various entrepreneurs to begin offering wireless internet service at more affordable rates.

Today the Czech Republic has the most Wi-Fi subscribers in the European Union, with more than 2,000 registered wireless internet service providers (ISPs) in a country of 10 million people or one for every 5000 people. Wi-Fi is the country’s first choice for internet and the number of subscribers continues to grow.

A mobile application called Wifič (Get Out) even provides passwords to more than 4,000 Wi-Fi hot-spots in the Czech Republic and Slovakia.

Czech Free Net, An Internet Utopia

Adam Golecký of NIX, the largest Czech internet exchange point (IXP), says that Czechs have a unique, community-based Internet thanks to “a big community of people who are working to make the Czech Internet network accessible, almost for free. They don’t make any profit providing the Internet to members

The phenomenon, he says, “is unique. People from the US are coming to study it.”

The community of do-it-yourself small Internet networks is called the Czech Free Net and it was built from scratch using essentially duct tape and wire. Today it has been professionalized and links together more than 60,000 households.

The main concept is to charge only enough to cover network development, without anyone making a profit.  The Czech Free Net’s founders also provided information about how people could build personal internet links out of readily available materials, avoiding ISPs altogether.

Once built, the link, called a Ronja (for Reasonable Optical Near Joint Access) could provide free Internet with no need for an ISP or possible interference from a government entity.

The tough part was getting it built, which required a high level of technical skill. Tomáš Bělonožník, an early adopter, recounts his struggles.

“I was a member of Czech Free Net for four years,” he says. “Sometimes, it was nerve-wracking. As there is no one supervising the network, there is also no one responsible and no one to fix your problems.”

The technology was vulnerable to certain types of weather, including heavy rain and fog. “So once, after a heavy rainstorm, we lost the Internet connection for one month. Rain put the antenna out of order and there was no one who could fix it,” he says.

But “after one month of sunny weather, the antenna dried out and we got back the Internet.”

Over time, the network developed support capabilities through online forums, and some of the regional networks developed into professional providers with 24/7 support through call centers. To date, however, there are no shareholders and earnings are invested back into infrastructure improvements.

Optic Fiber Infrastructure

Along with its Wi-Fi network, the Czech Republic is rich in optical fiber cables. The exact position of those cables is considered a trade secret, but in some cases the answers are obvious.

The lines generally utilize existing infrastructure: UPC uses oil and petrol pipes, Dial Telecom the gas pipelines and CD Telematica is using railroad structures. “It makes perfect sense. By using engineering infrastructure, you can avoid having to ask every single property owner if he wouldn’t mind having the cable in his backyard,” explains Golecký.

O2, the show stopper

The company that grew out of Czech Telecom has built on its significant advantage as the inheritor of the telephone landline network. Today O2 is a key player in information communications technology (ICT), combining mobile phones, landlines, Internet and cable TV. O2 cooperates with the recently formed CETIN (Czech Telecommunication Infrastructure); both companies are a part of the PPF group, and while O2 takes care of the internet connection services, CETIN handles the vast cable network.

The infrastructure has been modernized, but it continues to benefit from its monopoly on some services. An analysis of electronic communications made by the Czech telecommunication Office/ČTÚ says O2 is considered to be blocking an effective competitive market.

According to Czech media and ICT experts, O2 (with the support of two mobile phone network operators) is behind the recent proposal by the Czech Ministry of Industry and Trade to charge for the use of unlicensed frequencies, such as those for Wi-Fi or 10 GHz band (the study: http://www.mpo.cz/assets/cz/e-komunikace-a-posta/Internet/2015/4/Analyza_freebands_20150417_upd.pdf).

Patrick Zandl, an ICT expert, says, “I think the charges idea was initiated by O2 management,” including owner Petr Kellner, to recoup money invested. If approved, the Czech Republic would be the first country in the world to charge for those frequencies, which would probably radically slow the development of Internet connectivity.

Handling heavy traffic

The Czech Republic routes significant internet traffic through two internet exchange points (IXPs): NIX.cz and Peering.cz. These are services that allow ISPs and web pages to exchange large amounts of data quickly and easily.

NIX.cz is the older and bigger of the two, with peak capacity of 360 gigabits per second (Gbps); it is one of the ten largest IXPs in Europe. NIX.cz also created a project called FENIX in response to intense denial-of-service (DoS) attacks in March 2013 that targeted Czech Internet services, media, banks and operators.

Peering.cz gained popularity thanks to its website Uloz.to, one of the biggest Czech file-sharing server where users can download movies and upload large files. Their data peak is 180 Gbps and, like NIX.cz, they are expanding their services to Slovakia.

Super-secret Data Cables

At the top of the technological heap are the fiber-optic cables connecting the Czech Republic to the rest of the Internet world. “There are an undisclosed number of entry points located in undisclosed places,” is the most common answer to the question of where, exactly, the country’s international data cables are located.

The information on cross-border entry points and even who owns those cables is considered to be a strategic secret and is classified, so that even experts on Czech state cyber-security or some telecommunication officials don’t know it.

“I am not sure why this information is kept so hush-hush,” said NIX’s Golecký. “Terrorist attacks would be much more efficient by attacking some of Prague’s vital services, such as poisoning water sources or cutting-off electricity.”

By Pavla Holcova