Bresnan sale may prompt consolidation, threaten TPSA
The event that could prompt such changes was the announcement by industrial conglomerate Elektrim that it intended to purchase 100% of Bresnan International Partners Poland (BIP) for $325 million. BIP has telecom and data transfer operations and most importantly owns Aster City Cable, the country's second-largest cable provider and the dominant one in Warsaw.
Bresnan would become a key part of Elektrim's telecom aspirations because it would offer a lower-cost means for building out a Warsaw fixed-line network. Elektrim-controlled company Regionalne Sieci Telekomunikacyjne El-Net, which in December won a tender to compete with TPSA in the capital, would likely cooperate with Aster.
The Bresnan acquisition, which is still subject to certain regulatory approvals, could catapult Elektrim past Netia Telekom as the largest competitor to TPSA. That is certainly Elektrim's goal. "It is our intention long-term to become a viable competitor to TPSA," Elektrim CEO Barbara Lundberg said in a statement released last week. Lundberg became chief executive just last month. Previously she was vice president/ executive director at Enterprise Investors, which held a stake in Bresnan, along with Bresnan Communications, AT&T and Credit Suisse First Boston.
Analysts agreed that Elektrim could become the second giant on the Polish telecom stage.
"Elektrim is competing with Netia Telekom to become the second-largest operator in Poland after TPSA," said Michal Buczynski, a telecom analyst at COK Banku Handlowego brokerage house. He added that the price may seem steep for what Elektrim is getting, but the pieces Bresnan's assets add to Elektrim's telecom puzzle may justify the amount. "In the long run, it is certainly advantageous for Elektrim," Buczynski said. "And this means bad recommendations for TPSA, as well."
But it could also spell opportunity for others in the telcom industry, specifically those who may want to sell out if a bidding battle for assets gets underway.
One such company that had looked to build up a telecom arm, but may be willing to sell is copper giant KGHM Polska Miedz. "There is only room for two large operators on the market," Marian Krzeminski, the newly appointed president of KGHM, told the Business Journal last week. "We are going to continue our investments in the telecommunications sector, but we may consider an exit if certain conditions are met."
KGHM owns a 19% stake in Polkomtel (Plus GSM), one of the country's two GSM cellular phone operators. That stake could be worth $483 million, according to a Jan. 25 research report from Merrill Lynch.
Another company that sees a looming consolidation is paging company Polpager, which is owned by Jacek Szymonski. Two weeks ago the company announced with three others that it would be interested in taking part in a consolidation of the sector. "Our idea is to enter into capital structures of the main players," said Szymonski. "We will not act on our own, that would be too naive.
"There is room for two to three large operators," he added. "There are three natural centers: TPSA, Elektrim, while the third group can be formed around PSE (Polish Power Grid Company), which has stakes in Polkomtel and Telefonia Lokalna, as well as Tel-Energo."
But Elektrim's acquisition, if completed, does not sound a death knell for Netia, which is contesting El-Net's victory in the tender for the Warsaw license.
Far from it, according to Netia CEO Meir Srebernik, who vowed to fight to the end the decision to grant the license to El-Net.
"The very day El-Net receives the license, we will go to the (Supreme) Administrative Court," Srebernik said after the purchase announcement. "Without the Warsaw license, Elektrim cannot do anything," Srebernik said, adding that Elektrim's investment in a TV business, Aster, does not add to its profile as a telecommunications operator. "It cannot compensate for the telecommunications license," he said.
Elektrim recognized the importance of a decision on the license, which is expected from the Communications Ministry shortly. "Now we are waiting for the Communications Ministry for the license for El-Net," said Ewa Bojar, an Elektrim spokeswoman. "Only then we will prepare a general development plan for the telecommunications operations."
The El-Net license is key in another way. The company had entered into an agreement with Deutsche Telekom to take part in the Warsaw network, but that preliminary agreement expires at the end of this month. Still, Deutsche may want to join with Elektrim in building up a telecom powerhouse. The companies are both shareholders in cellular operator Polska Telefonia Cyfrowa (Era GSM), with Elektrim holding a 32.5% stake in Era and Deutsche having 22.5% ownership through its subsidiary DeTeMobil.
And by buying Aster, Elektrim may eliminate another opponent to El-Net receiving the license. Buczynski said it was likely that Aster, which was unsuccessful in the tender, will withdraw its protest of the tender outcome. If El-Net takes the license, Aster becomes key to keeping in check the cost of building out a fixed-line network. "A new owner may mean a new policy, but in the case of Elektrim the policy is already known," said Michal Duszak, a management board member of Aster. "It is building a telecommunications network based on a cable TV network, just as it has done in Bydgoszcz."
The cable provider, which has about 360,000 customers across the country, serves about 290,000 subscribers throughout Warsaw. Its cables pass approximately 540,000 of the city's 630,000 households.
"This gives us 85-90% of the city's households, and this is a huge potential," said Joanna Pasynkiewicz, marketing director at Aster. Altogether the company passes through some 700,000 households across the country. It also has a minority stake in Krakow-based cable network Autocom with some 50,000 households subscribed in the city.
"The main reason for buying Bresnan was Aster City," acknowledged Elektrim's Bojar. She added that Elektrim will control 98% of Aster through Bresnan, which was limited to a 49% stake in Aster through laws restricting foreign ownership of media outlets, but had controlling interests in the company's other owners.
Analysts said it was difficult to estimate the value Elektrim was placing on Aster's subscriber base because Bresnan also has local telecom and data transmission operations. Elektrim would not explain how it was valuing the company and Bresnan would not disclose revenue or profit breakdowns for its operations.
"It's a combination of current value of our businesses and future potential of telephone, data transmission and cable businesses," Roger Wilson, BIP's CEO, said of the price. He added that he expected to stay with the company after the acquisition.
In addition to Aster, Bresnan also owns a 96% stake in local telecom provider, Telefonia Polska-Zachod (TPZ), which has local licenses for the northern cities of Gorzow and Szczecin.
When the company started operations in 1994, it said it would invest $200 million and connect about 100,000 subscribers by the end of 2000. Currently the company only has 10,000 subscribers and should have 14,000-15,000 by the end of the year.
TPZ also provides local data transmission services in a few areas in Warsaw. While the company would not reveal the number of clients it has so far, Aster said it had already passed about 50,000 houses with its interactive cable and 1,600 kilometers of HFC (Hybrid Fiber Coaxial) cable capable of carrying voice, video and high-speed data traffic.
Such cable could allow for the introduction of internet access and value-added services such as pay-per-view television, said Aster's Pasynkiewicz.
As a result of these developments, this fall the company plans to begin offering some Warsaw residents fixed lines that will offer 24-hour, high-speed internet access for a fixed monthly subscription fee, she added.
However, all of Aster's plans require capital, which prompted the Bresnan sale.
"We believe that only large-scale investments make sense in this industry, which has been consolidating for a while," Pasynkiewicz said. "We have applied for 12 local telecom licenses and did not get any of those. That is one of the reasons why Bresnan decided to sell its stakes in its Polish businesses."
Bresnan would become a key part of Elektrim's telecom aspirations because it would offer a lower-cost means for building out a Warsaw fixed-line network. Elektrim-controlled company Regionalne Sieci Telekomunikacyjne El-Net, which in December won a tender to compete with TPSA in the capital, would likely cooperate with Aster.
The Bresnan acquisition, which is still subject to certain regulatory approvals, could catapult Elektrim past Netia Telekom as the largest competitor to TPSA. That is certainly Elektrim's goal. "It is our intention long-term to become a viable competitor to TPSA," Elektrim CEO Barbara Lundberg said in a statement released last week. Lundberg became chief executive just last month. Previously she was vice president/ executive director at Enterprise Investors, which held a stake in Bresnan, along with Bresnan Communications, AT&T and Credit Suisse First Boston.
Analysts agreed that Elektrim could become the second giant on the Polish telecom stage.
"Elektrim is competing with Netia Telekom to become the second-largest operator in Poland after TPSA," said Michal Buczynski, a telecom analyst at COK Banku Handlowego brokerage house. He added that the price may seem steep for what Elektrim is getting, but the pieces Bresnan's assets add to Elektrim's telecom puzzle may justify the amount. "In the long run, it is certainly advantageous for Elektrim," Buczynski said. "And this means bad recommendations for TPSA, as well."
But it could also spell opportunity for others in the telcom industry, specifically those who may want to sell out if a bidding battle for assets gets underway.
One such company that had looked to build up a telecom arm, but may be willing to sell is copper giant KGHM Polska Miedz. "There is only room for two large operators on the market," Marian Krzeminski, the newly appointed president of KGHM, told the Business Journal last week. "We are going to continue our investments in the telecommunications sector, but we may consider an exit if certain conditions are met."
KGHM owns a 19% stake in Polkomtel (Plus GSM), one of the country's two GSM cellular phone operators. That stake could be worth $483 million, according to a Jan. 25 research report from Merrill Lynch.
Another company that sees a looming consolidation is paging company Polpager, which is owned by Jacek Szymonski. Two weeks ago the company announced with three others that it would be interested in taking part in a consolidation of the sector. "Our idea is to enter into capital structures of the main players," said Szymonski. "We will not act on our own, that would be too naive.
"There is room for two to three large operators," he added. "There are three natural centers: TPSA, Elektrim, while the third group can be formed around PSE (Polish Power Grid Company), which has stakes in Polkomtel and Telefonia Lokalna, as well as Tel-Energo."
But Elektrim's acquisition, if completed, does not sound a death knell for Netia, which is contesting El-Net's victory in the tender for the Warsaw license.
Far from it, according to Netia CEO Meir Srebernik, who vowed to fight to the end the decision to grant the license to El-Net.
"The very day El-Net receives the license, we will go to the (Supreme) Administrative Court," Srebernik said after the purchase announcement. "Without the Warsaw license, Elektrim cannot do anything," Srebernik said, adding that Elektrim's investment in a TV business, Aster, does not add to its profile as a telecommunications operator. "It cannot compensate for the telecommunications license," he said.
Elektrim recognized the importance of a decision on the license, which is expected from the Communications Ministry shortly. "Now we are waiting for the Communications Ministry for the license for El-Net," said Ewa Bojar, an Elektrim spokeswoman. "Only then we will prepare a general development plan for the telecommunications operations."
The El-Net license is key in another way. The company had entered into an agreement with Deutsche Telekom to take part in the Warsaw network, but that preliminary agreement expires at the end of this month. Still, Deutsche may want to join with Elektrim in building up a telecom powerhouse. The companies are both shareholders in cellular operator Polska Telefonia Cyfrowa (Era GSM), with Elektrim holding a 32.5% stake in Era and Deutsche having 22.5% ownership through its subsidiary DeTeMobil.
And by buying Aster, Elektrim may eliminate another opponent to El-Net receiving the license. Buczynski said it was likely that Aster, which was unsuccessful in the tender, will withdraw its protest of the tender outcome. If El-Net takes the license, Aster becomes key to keeping in check the cost of building out a fixed-line network. "A new owner may mean a new policy, but in the case of Elektrim the policy is already known," said Michal Duszak, a management board member of Aster. "It is building a telecommunications network based on a cable TV network, just as it has done in Bydgoszcz."
The cable provider, which has about 360,000 customers across the country, serves about 290,000 subscribers throughout Warsaw. Its cables pass approximately 540,000 of the city's 630,000 households.
"This gives us 85-90% of the city's households, and this is a huge potential," said Joanna Pasynkiewicz, marketing director at Aster. Altogether the company passes through some 700,000 households across the country. It also has a minority stake in Krakow-based cable network Autocom with some 50,000 households subscribed in the city.
"The main reason for buying Bresnan was Aster City," acknowledged Elektrim's Bojar. She added that Elektrim will control 98% of Aster through Bresnan, which was limited to a 49% stake in Aster through laws restricting foreign ownership of media outlets, but had controlling interests in the company's other owners.
Analysts said it was difficult to estimate the value Elektrim was placing on Aster's subscriber base because Bresnan also has local telecom and data transmission operations. Elektrim would not explain how it was valuing the company and Bresnan would not disclose revenue or profit breakdowns for its operations.
"It's a combination of current value of our businesses and future potential of telephone, data transmission and cable businesses," Roger Wilson, BIP's CEO, said of the price. He added that he expected to stay with the company after the acquisition.
In addition to Aster, Bresnan also owns a 96% stake in local telecom provider, Telefonia Polska-Zachod (TPZ), which has local licenses for the northern cities of Gorzow and Szczecin.
When the company started operations in 1994, it said it would invest $200 million and connect about 100,000 subscribers by the end of 2000. Currently the company only has 10,000 subscribers and should have 14,000-15,000 by the end of the year.
TPZ also provides local data transmission services in a few areas in Warsaw. While the company would not reveal the number of clients it has so far, Aster said it had already passed about 50,000 houses with its interactive cable and 1,600 kilometers of HFC (Hybrid Fiber Coaxial) cable capable of carrying voice, video and high-speed data traffic.
Such cable could allow for the introduction of internet access and value-added services such as pay-per-view television, said Aster's Pasynkiewicz.
As a result of these developments, this fall the company plans to begin offering some Warsaw residents fixed lines that will offer 24-hour, high-speed internet access for a fixed monthly subscription fee, she added.
However, all of Aster's plans require capital, which prompted the Bresnan sale.
"We believe that only large-scale investments make sense in this industry, which has been consolidating for a while," Pasynkiewicz said. "We have applied for 12 local telecom licenses and did not get any of those. That is one of the reasons why Bresnan decided to sell its stakes in its Polish businesses."
