Bogusław Kułakowski
"There will be no changes in our strategy because we are not changing shareholders."
Mobile phone companies worldwide are gearing up for the launch of third-generation (3G), or UMTS services. While delays with the launch of UMTS are expected, Polska Telefonia Cyfrowa (PTC), the largest mobile telecom in Central and Eastern Europe, said it will be ready to provide 3G services to customers by 2004 - when Poland's three cellular operators are obliged by the terms of their UMTS licenses to begin service. Meanwhile, PTC, which operates the Era GSM network, remains focused on fortifying its customer base to remain ahead of its competitors. Overseeing these initiatives is Bogusław Kułakowski, PTC's 37-year-old chairman and chief executive officer, who has worked for the company since its start five years ago. He recently spoke with the Business Journal's Roseanne Gerin about the company's plans for UMTS and its strategy for the GSM market. The following is an edited version of their conversation.
Q: PTC said in August that it planned to invest about zł. 5 billion ($1.21 billion) in the development and expansion of its 3G network by 2008. How will the money be used?
A: It's hard to give you a precise line by line plan of how we're going to utilize this money, first of all because it's one of the strategic secrets. But certainly the situation for now is that we have an obligation - all three UMTS license holders - to launch our 3G services in 2004. However, we have a possibility to do it in 2003 as well. Part of this money will be invested in new infrastructure - base stations and transceivers. Our business plan, regarding not only GSM services but also UMTS, was approved by our banks and financial investors and prior to that by our shareholders. By having experienced shareholders, Elektrim Telekomunikacja (ET) - which is a venture of Elektrim and Vivendi and the second largest shareholder Deutsche Telekom - we have enough expertise to approve such plans because they have some other ventures across Europe and (elsewhere). Our UMTS plans are comparable to some (of these) other plans.
Q: Have you already raised most of this money through bond issues, or will more have to be raised in the future?
A: That's also not a simple answer because everything depends on the market. If the market accepts 3G we have to perhaps raise more money or have some other resources. Some of the money will be available from our operations, so if we're talking just about a certain amount of money - zł. 5 billion - we'll have to go to the market soon to raise some additional funds. But why I cannot confirm this is because even the price level is not available yet. UMTS standards are not closed yet, so there are some flexibilities and uncertainties around the infrastructure terminals and the technical part of the project. There are no precise prices for handsets and transceivers, so that's why it's hard to say we are going to spend zł. 100 million ($23.8 million) for this and something for that.
Q: Does PTC intend to share the costs of constructing the UMTS network with Polkomtel and PTK Centertel?
A: In terms of the concept of infrastructure sharing, it's not a new concept. We shared some of the towers - and a tower is just part of the infrastructure - since the beginning. Sometimes there are difficult (typographical) conditions such as mountains, so we share some of the towers. We're talking (to see) if we can share something more, and on what basis. I'm afraid that we cannot build one homogenous network. That's obvious. And we can't build it even now because we have different suppliers and different business plans, and at the end of the day we have to differentiate ourselves. The best proof of this way of thinking is the current situation with GSM (where) we have 20% more base stations than our next competitor. That gives us much better quality and much higher capacity, and customers can easily recognize this. So we (will) apply the same rules for 3G. We actually understand the philosophy of our competitors, and we have to make certain proposals to (them) and to our shareholders because that's a new concept of sharing part of the infrastructure.
Q: UMTS service in Poland must start between 2003 and 2004. Is this a realistic time period for PTC to offer UMTS service?
A: Our company is ready. We made the first UMTS presentation two months ago. We have a full UMTS trial system that was presented during the telecom fair in Bydgoszcz during the middle of September. That was the first presentation of UMTS in Poland. What we proved is that even now we have such a good network that we can sum up the future products as of now. Talking about UMTS from a technological point of view, we have the technology. We proved this. (With content for UMTS), we are proving that we have some other services in the pipeline.
Q: With rolling out service to customers, do you expect the same delay with UMTS due to a lack of handsets as happened with the general packet radio system (GPRS)?
A: Perhaps, yes. The GPRS standard was closed - accepted - over six years ago for handsets. The UMTS standard is not fully closed yet. Suppliers couldn't deliver GPRS phones for six years, (and) the real GPRS phones are coming now. The same, perhaps, will happen with UMTS. It's hard to believe we'll be having UMTS phones from day one. The shift or transition between 2.5G and 3G should be almost invisible for our average customer. (In) wireless telecommunications history, all those shifts we thought would be rapid changes didn't happen except for the shift between analog and digital, (which) was quite visible with smaller handsets - better quality and faster data. But it's hard to believe a shift between those two worlds. It seems to me that it will be just a transition (where) GSM phones will have a third frequency. Some of the phones already available on the market have color screen displays so those phones are quite similar to those we used for the UMTS show in Bydgoszcz.
Q: Do you have a time expectation for such a delay?
A: No, obviously suppliers don't want to mention any delays. However, even if I use some UMTS phones the battery was only powerful enough to support a 20-minute talk, so there's room for improvement. We cannot say it will be 12 or 13 months because whatever we say it will not be true as some of the suppliers will add one more frequency to talk. Some suppliers will be ambitious enough to add a screen with video capabilities. Some of them will be ambitious enough to add a camera inside. So whatever I say it will be misunderstood.
Q: Now that Vivendi has beaten Deutsche Telekom for control of Elektrim and PTC, will there be a noticeable change in PTC's strategy?
A: There will be no changes in our strategy because we are not changing shareholders. We have two major shareholders - Elektrim Telekomunikacja and Deutsche Telekom. We have been working with Vivendi since 1999; ET was organized as a venture of Elektrim and Vivendi. PTC still has the same two shareholders, so I have to confirm there will be no changes in our strategy.
Q: There are forecasts that Poland will have 10 million mobile phone users by the end of the year. How many subscribers will PTC have?
A: I can't say. Ten million seems a bit high. I can't predict because I'm not allowed to, and because the market this year changed. The first half of this year we had 3.3 million customers and slightly over 40% market share; and we had about 44% of the post-paid market, so that's the strategy also. That also differentiates us from our competitors.
Q: Will PTC's customer growth continue to come from its corporate, post-paid clients?
A: That's a difficult question. I can't provide a full answer. We always pay more attention to the post-paid market, which is important because it gives us higher average revenue per user. Also, post-paid customers are more loyal. We were the first company in Poland - not only mobile - to launch a loyalty program. Also, we can take a lesson from what's been happening in Western Europe in some networks (where) the number of pre-paid customers have far exceeded the number of post-paid customers. What we have tried to do this year ... (is) blend the right proportion between the first and second segments. We are going to be more or less maintaining our strategy of gaining post-paid customers (since) the revenue (they) generate is much higher.
Q: Poland's international long-distance (ILD) market will be fully liberalized on Jan. 1, 2003. Does PTC have a plan for capturing market share in this segment with its voice-over Internet protocol (VoIP) service?
A: Yes, but (VoIP) is not the same as a regular connection. VoIP is Internet-related technology and, as we always emphasize, a kind of substitute. Certainly in the future it will offer a choice, but we'll be interested in international (service) for our own benefits because we have to carry our international traffic through Telekomunikacja Polska (TPSA). The first problem that exists is that TPSA's international switches are not always working properly, so that's why we always have a lot of complaints from our customers. Second, we want to do it by ourselves to make sure that we are fully in control of our quality. Until June of this year we had nothing for incoming (international) traffic, so (although) we had 3.3 million customers at this time we got zero interconnection for incoming international traffic, which was unfair. The situation changed when the chairman of the Telecommunications Regulatory Office (URT) made a certain decision, and now we are getting money. But I want to have all of it, not just a portion. I don't want to share my own customers' traffic. I don't want to share the revenue. Talking about our own business, the situation will change.
Q: Where do you see PTC in five years?
A: In terms of the country, we have pretty ambitious goals to compete with TPSA (and) with our current competitors. But I'm going to see PTC as the best Polish telecom - full stop - not only among the mobile (operators) but also all the telecom companies in this country. Also, we have some ambitions in terms of this part of Europe and (others). We have very solid fundamentals for this because we have all the licenses (except) analog, which is no longer important. We have wonderful technology - much better than our competitors - so it all depends on demand.
Q: Will PTC be listed on a stock exchange?
A: It's not a question for me, but for the shareholders. So far, we haven't any plans.
Roseanne Gerin
