Global Insight Perspective | |
Significance | Poland's telecoms market regulator, UKE, has approved the 11th alternative operator bitstream access (BSA) agreement with TP. It also continues to lower TP's fixed-to-mobile rates and fine the incumbent for any irregularities and delays in implementing the measures. |
Implications | The regulatory obligations imposed on TP by the regulator have already started to affect negatively the group's market share and revenues. |
Outlook | The steps taken by the regulator to liberalise the telecoms market further by enabling alternative telcos access to TP's infrastructure will continue to threaten growth at TP. |
Poland's incumbent group, TP, has not yet estimated the exact effect the current tightening regulatory environment will have on its financial and operational performance this year. According to its previous estimates, the group expects a 1% year-on-year (y/y) decline in its full-year revenues, by approximately 186 million zloty (US$62.2 million). However, Global Insight anticipates that the de facto losses are likely to by far exceed TP's estimates. The incumbent saw its revenue decrease by about 160 million zloty, or 2.7% y/y, to 4.44 billion zloty, in the first quarter of this year as a result of the regulatory changes (see Poland: 25 April 2007: Tougher Competition Pushes TP Into 2.7% Q1 Revenue Decline). The UKE continues to force TP to open its network to rivals on the basis of wholesale line rental (WLR), bitstream access (BSA), and full LLU. The new regulatory measures introduced at the end of last year have already led to lower prices for broadband internet services, and resulted in around 50,000 TP customers migrating to alternative providers (see Poland: 17 July 2007: UKE Reports on Broadband Competition in Poland). In anticipation of continued revenue decline, TP is planning to reduce its cost base to 12–13% of revenues in 2008, compared with the 16% expected in 2007. This will be part of TP's new medium-term strategy to be announced by the end of July (see Poland: 27 June 2007: TP Plans to Cut Cost Base).
Earlier this month, the regulator introduced a ban on fixed-to-mobile interconnection rates, with a ceiling of 0.54 zloty per minute on calls from fixed-line numbers to PTK Centertel, Polkomtel, and PTC and 0.85 zloty for calls to new mobile network Play. TP has already submitted its proposal for new fixed-to-mobile tariffs and is now awaiting approval by the UKE. If factored in, lower fixed-to-mobile tariffs will significantly decrease TP's revenues from calls to mobile numbers that originate on its fixed-line network, which account for an increasing share of the incumbent's fixed-line revenue. According to the UKE, the fixed-to-mobile market has been growing dynamically thanks to a high level of fixed-to-mobile substitution. In 2006, the fixed-to-mobile segment represented 35.55% of Poland's 14.3-billion-zloty fixed-line market, while TP's market share in the fixed-line market stood at 79.2% last year.
In addition, fines that the UKE has imposed on TP for failing to meet its obligations will have contributed to the slower-than-expected revenue growth. So far, the UKE has fined TP 475 million zloty in total. TP has not yet established any reserves to pay the fines as it hopes its appeals will be successful. Most recently, the UKE fined TP's mobile unit, PTK Centertel, 800,000 zloty for utilising NMT 450 frequencies without the necessary concessions. PTK Centertel, which operates under the Orange brand, failed to submit 200 concessions for NMT 450 base stations. The operator still uses the NMT 450 technology to provide services in areas underserved by the fixed-line network.
Outlook and Implications
Wholesale Line Rental: Earlier this week the regulator approved the WLR access to TP's network for Multimedia Polska, enabling the 11th alternative operator to resell TP's line rental. The 10 other operators that have signed WLR deals with TP are Tele2 Polska, GTS Energis, Telefonia Dialog, Premium Internet, Polkomtel, eTel Polska, Exatel, PTC, E-Telko, and MNI. The UKE has obliged TP to sell line rental at a 46.99% wholesale discount on the reference price of 55 zloty for each analogue line. According to WLR agreements, TP is responsible for operating the line, while alternative telcos can offer the service under their own brand and control customer services.
Local Loop Unbundling: So far TP has finalised LLU agreements with the alternative telcos Netia and GTS Energis, which enable the rivals to provide voice and broadband internet services based on TP's infrastructure. Global Insight anticipates that more full LLU deals will follow in the course of this year. Other telcos can provide broadband services using BSA to TP's infrastructure. TP signed its first BSA deals with rivals at the end of last year, enabling Netia and GTS Energis to start offering ADSL services to TP's customers in early 2007. So far, 10 alternative telcos have signed BSA deals with TP—Telefonia Dialog, Netia, GTS Energis, e-Tel, E-TELKO, ETOP, Dlugie Rozmowy, Tele2, Intertele, and Exatel. The latest offer of free broadband access launched by Netia earlier this month signals that TP's rivals are ready to shed some of their margins in efforts to boost their broadband market shares (see Poland: 10 July 2007: Netia Launches Promotional Free Broadband Offer, Poland: 13 July 2007: Polish Regulator Approves Dialog's Bitstream Access Agreement with TP and Poland: 29 June 2007: GTS Energis Launches ADSL Service Over TP Lines). The market regulator has recently obliged TP to prepare a draft of a new BSA framework deal, specifying terms of access to its local loophole for the needs of broadband data transmission. This is likely to lower the costs of BSA for alternative operators, while causing TP to lose more revenue.