Accords snarl El-Net's local telephone push - Agreements with TPSA stall build-out of independent operator's Warsaw telephone serv
Technical hurdles and established agreements with Telekomunikacja Polska (TPSA) are playing havoc with the launch of independent operator El-Net's local telephone service in Warsaw and could up the company's build-out costs by more than $200 million, the Business Journal has learned.
When El-Net won the local license last December, it had intended to provide service to at least 290,000 Warsaw subscribers via cable lines owned by a sister company, Aster City Cable. Conglomerate Elektrim owns both firms. El-Net, though, has been stalled recently in that buildout because many of the lines are owned by TPSA, and agreements with the telephone company prevent using those cables for a competitive service.
Another key problem the company faces is that the capacity of many of those lines is inadequate for telephone service. Those two obstacles will make it difficult, if not impossible, for El-Net to meet its own deadline of providing local-telephone service by the end of this year.
El-Net officials last week said that the company is in discussions with TPSA about altering the agreements, but that no deal had been reached. "We hope that TPSA will behave in a reasonable way," said Piotr Czarnowski, a public relations director for Elektrim Telekomunikacja.
The result of the difficulties, however, is that a year after El-Net won the hotly contested Warsaw license, the company has not provided service to one single subscriber. The company's efforts were stalled this spring when competitor Netia contested the tender, which meant that El-Net was not secure in its license until June. The last four months, however, also have not seen any buildout activity.
If El-Net cannot change its agreements with TPSA, the company could be forced to lay completely new cables. Czarnowski said that the cost of building a new line would be about $1,600 per home. For the 290,000 Aster City Cable subscribers alone, that would translate into a cost of $464 million.
"But if we can use the existing cable TV line, the cost would be reduced by half," Czarnowski said.
The company would have had to spend about $500 a line anyway, analysts said, because the cables currently connecting cable subscribers are not of a high-enough megahertz to handle local telephone service. Most of those lines operate at 450 megahertz, and El-Net needs at least 850 megahertz, sources said.
"We realize that and we need to upgrade the lines," Czarnowski said, but he refused to comment on the costs of such investment.
Regardless of the hurdles, Czarnowski said that El-Net is convinced that it will be able to provide service to its first Warsaw subscribers either by the end of this year or early 2000. According to the license agreement, El-Net is required to have 300,000 workable lines in place by 2002.
Przemyslaw Szmyt, president of Wizja TV, which also provides some of its service via cable lines, said it is common practice for TPSA to riddle agreements for the use of its lines with clauses that prevent the customer from eventually providing telephone service over the cables.
"The best way of solving the problem is to bring it to the anti-monopoly court," Szmyt said. "That would settle the issue for good."
TPSA refused to comment on the contents of its agreements with cable TV operators.
Another potential problem for El-Net, analysts said, is how the company is going to pay not only for this extra cost, but for the whole operation. The total investment the company needed to build a local telephone service in Warsaw was originally estimated to be $150 million. That is on top of the ECU 245 million El-Net agreed to pay for the license.
Much of that money was expected to come from the $615 million payment from France's Vivendi for a 49% stake in Elektrim's telecommunications division. That investment, however, was contingent upon Elektrim being able to transfer its ownership in mobile telephone operators Polska Telefonia Cyfrowa (Era GSM) to the new division, Elektrim Telekomunikacja. However, a dispute between Elektrim and Deutsche Telekom, another major shareholder in Era, had suspended the release of the financing.
