Four years ago Estonia's phone system was part of the massive, and massively inefficient, Soviet network. Today, thanks to a $330m investment and a management partnership with Swedish and Finnish businesses, it is being completely overhauled, using state-of-the-art equipment. Its experiment with radio technology for rural areas provides an example that may be followed by developing countries around the world.

Tallinn, Estonia's capital, has a phone system that is now generally efficient, and much of it uses digital exchanges and fibre-optic cables. Around a third of the 1.5 million population lives in Tallinn, and the city is responsible for half of Estonia's phone traffic. International calls represent a large proportion of this, and provide a strong income for the national telecommunications corporation, Eesti Telefon. This income helped to take the company into profit after only four years of partnership with Telecom Finland and Tella of Sweden.

Eesti Telefon has initially concentrated on improving Tallinn's phone system, and takes a long-term view on modernisation elsewhere. Away from the capital and a few industrial towns, Estonia remains a peasant economy, where bicycles and horse and cart are the normal means of transport. It has been considered uneconomic to introduce new cabling across the country, which is why other solutions are proposed for the rural areas.

"We are testing radio-based equipment in rural areas," says Guy Sundqvist, director general of Eesti Telecom. "Development costs are coming down, and we think we will use radio in the future, and wait for the prices to fall further. South Africa is facing the same problem of rural areas, and within a couple of years radio technology will solve these rural problems."

In outlying areas Estonia's telecommunications can still be unreliable, with dialling codes that confuse Estonians and visitors alike. But the speed of Estonia's integration with the West - it is one of the fastest- growing Eastern European economies - means that within two years the company expects to be able to finance its ambitious investment programme out of cash flow.

The most likely challenge to Eesti Telecom's continued growth in profits comes from the expanding market in mobile phones. Wherever you go in Tallinn you are likely to trip over someone using a mobile phone - though many users are Finnish (Tallinn is at risk of becoming for Finland what Sun City has been for South Africa). There are now 22,000 Estonians who have mobile phones, with user numbers growing exponentially.