Global Insight Perspective | |
Significance | Poland's telecom regulator, the UKE, intends to create more competition by introducing a set of new regulations aimed at incumbent TP. |
Implications | The UKE is taking a hard line on enforcement of its new market rules, in efforts to swiftly open up the telecoms market. |
Outlook | Fixed-line incumbent TP, which is still the dominant player, has to brace itself against stronger competition. As alternative telcos will now have faster and easier access to TP's network, they will be able to offer much more competitive products, thereby eating into the incumbent’s market share. |
According to the UKE, the planned regulatory changes could shed some 1.8-2.7 billion zloty (US$564.5-846.5 million) over the next five years, or 1.0-1.5% per annum, from TP's top-line revenue. The competition is also likely to hit its EBITDA (earnings before interest, tax, depreciation and amortisation) margin, which currently stands at 45%, against the industry average of 15-20%. The regulatory pressures on TP arise from the UKE's efforts to curb its market dominance. Following last week's cut in wholesale broadband internet and fixed-line interconnection fees, the UKE plans to proceed with a 30% reduction in mobile interconnection fees by the end of the month (see Poland: 5 July 2006: Polish Government Adopts Telecoms Market Strategy for 2006-07).
Outlook and Implications
Further Market Liberalisation: The regulator last week established the terms and conditions for new fixed-line interconnection charges with the incumbent, cutting them by about 35% (see Poland: 6 July 2006: Polish Regulator Cuts Fixed-Line Interconnection Fees by 35%). In addition, the UKE reduced wholesale line rental (WLR) prices by 47%, following calls from alternative telco Tele2, which will also apply to other telecoms operators such as Netia and Energis. The regulatory changes will create more competition, enabling alternative telcos to undercut TP's subscription fees, resulting in lower subscription fees or the inclusion of free minutes in a subscription. Effectively, telcos are expected to poach existing and new fixed-line subscribers from the incumbent. The UKE estimates that a decrease in fixed-line interconnection charges will result in a 2-4 billion-zloty reduction in the cost of telecoms services over the next three years.
More Competition in the Broadband Market: The WLR cut will enable alternative telcos to purchase, at wholesale prices, not only telephone services from TP, but also internet products and resell them to their customers under their own brand names. The regulator also demanded last week that TP separate its current fixed-line and internet products; the incumbent currently links the sale of of its broadband offer, Neostrada, with fixed-line subscriptions. The move will enable rivals telcos to sell broadband internet products to TP's voice customers, breaking the incumbent's hold in the ADSL market. Further progress is especially desirable in the area of local-loop unbundling (LLU). The UKE has already demanded that TP alter the conditions under which rival operators are allowed access to its unbundled local loop, emphasising the cost-base method of calculating fees. Despite the introduction of LLU in the Telecommunications Act of July 2000, and its enforcement in October 2003, there has been little progress; the incumbent has still a virtual monopoly over the last mile. The LLU legislation is currently with the government and the regulator is awaiting TP's proposals. The UKE intends to make a final decision on LLU in August this year (see Poland: 4 July 2006:TP Reduces Prices for Broadband Offer and 26 June 2006:TP Targets 2.5 mil. ADSL Customers by End-2007).
Changes in Mobile Market Landscape: The planned cut in mobile interconnection fees is likely to hit Poland's three existing mobile operators - PTC, Orange, and Polkomtel. Easier and cheaper access to mobile networks in practice translates into the arrival of MVNOs and more affordable mobile services for consumers. The companies that have so far announced MVNO plans include the country's fourth mobile operator, P4, leading commercial TV channel Polsat, alternative telco NOM, and carrier pre-selection (CPS) operator MediaTel (see Poland: 9 June 2006: Polkomtel, PTC Sign MVNO Deals, Polsat Set to Enter Mobile Market). One previous regulatory change affecting the mobile operators is the cut in TP's wholesale line rental, which will also enable mobile players to enter the fixed-line market by using TP's wholesale access and combining fixed-line and mobile services. So far, number-three cellco Polkomtel has announced plans to enter the fixed-line market (see Poland: 23 November 2004: Polkomtel to Enter Fixed Telephony Reselling Market).