El-Net files suit on news of two more Warsaw telephone licenses
In response to the Communications Ministry's unexpected announcement last week that it would award two local fixed-line telephone licenses for Warsaw, original concession winner El-Net filed a lawsuit alleging the ministry breached its agreement to issue only one license for the area.
The management board of El-Net filed a petition in the Central Administrative Court (NSA) against the Communications Ministry "to withhold the licensing procedure due to a flagrant breach of law," according to a prepared statement issued by Ewa Bojar, the spokeswoman for Elektrim, El-Net's parent company. Bojar said compensation for losses would also be claimed.
Elektrim charges that the ministry agreed to issue only one local operating license to an independent player during the first tender. El-Net won the tender in December 1998 after it bid a steep price of E245 million based on the understanding that it would be the sole competitor to national monopolist Telekomunikacja Polska (TPSA) in the profitable Warsaw market.
Despite that "understanding," the Communications Ministry last week awarded local fixed-line licenses for Warsaw to two operators, Netia and Telefonia Lokalna.
Bojar stated that El-Net has an official statement from the Communications Minister regarding the number of operators conducting business in one licensed area. The ministry had previously said there were no documents or declarations on this issue.
Marek Rusin, an undersecretary of state in the Communications Ministry, was not available for comment.
Despite being awarded the license in December 1998, El-Net has failed to connect any subscribers in Warsaw. The company said it would start providing service in April.
The granting of the new licenses will intensify competition in the area. While Netia already operates in the Warsaw suburbs, the new license would enable the company to compete with El-Net and TPSA in servicing all residents. Telefonia Lokalna, which provides local calling service in eight regions across the country, would be able to offer service in the Warsaw suburbs with the new license, thereby competing with Netia and TPSA.
While El-Net's lawsuit may delay the actual granting of the licenses to Netia and Telefonia Lokalna, it won't derail the two companies' plans for connecting Warsaw-area residents, analysts said. They also indicated that El-Net's license fee could be reduced as a result of the legal action.
"If (El-Net) wins, the court could rule the license fee could be lowered," said Pawel Zach, senior analyst at Citibank (Poland).
Any in-court or out-of-court decision might be complicated by further issues. If El-Net negotiates with the Communications Ministry for a lower license fee, there is a possibility that operators who lost out to El-Net during the first tender may argue they lost on a lower bid and contest the government's decision to lower El-Net's license fee, said Jan Sudol, a telecom analyst at Donaldson, Lufkin & Jenrette in London. "It's not a simple matter to resolve," he said.
During the next few months there will be no rush to start connecting new customers, Zach said. El-Net has some time to implement its service in Warsaw and pursue its legal case before Netia and Telefonia Lokalna actually receive their licenses and begin offering service.
