El-Net mulls withholding fee to protest second license
In addition to threatening to take the Communications Ministry to court over a plan to issue a second fixed-line telephone concession in Warsaw, original tender winner Elektrim subsidiary El-Net is considering withholding part of its E245 million license fee, a source close to El-Net said last week. The source asked not to be identified.
El-Net officials refused to confirm that the company is mulling not paying its third tranche of E46.44 million due in June, although they acknowledged the firm was considering its options after the ministry decided last December to issue a second license for Warsaw. That decision opens the capital not only to two competitors El-Net and Telekomunikacja Polska (TPSA) as many industry observers originally thought, but to three contenders.
"We will definitely take certain steps," said Ewa Bojar, Elektrim's spokeswoman. "But it's still too early to say what shape the steps will take."
She also said that El-Net was frustrated with the ministry's behavior in the licensing process. When the ministry held the original tender in June 1998 for Warsaw, the country's largest calling market, ministry officials made no mention that they intended to later offer an additional license. El-Net bid an exorbitantly high price of E245 million for the Warsaw license on the understanding that it would be the only competitor to TPSA, Bojar said.
"It's like you paid for a Rolls-Royce and you get Maly Fiat instead," Bojar said. "We offered a concession fee convinced that we would be the only operator."
Jaroslaw Nowrotek, an adviser to Communications Minister Maciej Srebro, could not be reached for comment.
Elektrim maintains that the second tender is illegal and violates the terms of its original contract. Bojar said the company plans to sue the ministry in the Supreme Administrative Court (NSA) "to protect the rights granted to (it) under the provisions of the first tender." So far, however, the company has not filed any documents.
But Pawel Zach, an analyst at Citibank (Poland), said that El-Net is likely to be frustrated in any legal battle. "By issuing the second tender, (the Communications Ministry) didn't break any published regulation or telecom act or ordinance they issued," he said.
When El-Net won the tender, it agreed to pay the ministry E245 million in six installments through 2001. The ministry chose El-Net in the first tender mainly because the company offered such a high price.
A year after winning the concession, however, El-Net still did not have a single subscriber connected. The company's inactivity, combined with complaints from other bidders such as Netia, was part of the reason the ministry decided to issue a second tender.
Bojar said last week that El-Net still has no subscribers connected in Warsaw, but has plans to start connecting them by the end of the first quarter.
El-Net's assumption that the government would have only two competitors in Warsaw was not entirely out of line. Since 1995, the government has permitted duopolies one independent telecom company along with state-operator TPSA to offer telephone service in each of Poland's 19 regions. "So why now is the situation changing in Warsaw?" Bojar asked.
So far, El-Net has paid all its installments on time, Bojar said. She said the company was waiting for the second tender to take place before it made any concrete decisions about how to react.
But analysts say that despite its disagreement with the ministry, El-Net will continue making its payments.
"(El-Net) cannot stop payments because the license fee is in the contract," Citibank's Zach said.
They also said they doubted El-Net's outbursts would cause the ministry to cancel the second tender. "I don't expect the ministry would revoke this tender because ... the minister wants to create a real competitor of TPSA on the Warsaw market," said Piotr Wozniak, an analyst at CDM Pekao Securities.
Analysts also said that El-Net's archcompetitor in Poland, fellow independent telephone company Netia, is poised to win the second license. Wozniak said Netia is the "best prepared and (has) the background to implement and start offering telephone services in Warsaw."
He estimated that Netia's bid would be 30-40% less than the amount El-Net agreed to pay.
Similarly, Citibank's Zach said Netia was "the most experienced local telecoms operator," pointing out that the company already has more than 200,000 clients in the area. "From the standpoint of consumers, it would be the best choice because Netia would begin offering service very fast after (getting) the license," he said.
Likewise, Netia is confident that it will beat out Telefonia Lokalna in the tender offer. "We should be the winner because we are present here (in Warsaw)," said Jolanta Ciesielska, Netia's spokeswoman. "We invested in the Warsaw area, and we will invest in the city on the basis of a nationwide license for data transmission, internet and long-distance (service)."
She added that the company wants the local license so it can be involved in all forms of telecommunication services.
