El-Net plans public offer for next year
The company will also issue convertible bonds and has reached an agreement with a banking consortium to provide financing for its planned $700 million build-out of a Warsaw fixed-phone network over the next five years, said Janusz Fijalkowski, the company's president.
El-Net beat out four other companies in a tender to provide phone service in Warsaw, the most lucrative telecommunications market in the country.
"We will use every possible means of financing available on the market," said Eugeniusz Gaca, vice president of El-Net. He added that this means selling shares on the Warsaw Stock Exchange (WSE) and convertible bonds.
"We have already signed a letter of intent with a banking consortium led by BRE (Bank Rozwoju Eksportu) to finance the project, as well as agreements with financial institutions that would help to raise the necessary amount of money," Fijalkowski said in an interview last week. "In general, the banks have accepted the assumption that our own capital will amount to about 20% of the leverage."
He added that El-Net expects its new Warsaw network to break even within six-seven years.
El-Net's shareholders - Elektrim (40%), Centrostal (33%), Bydgoska Fabryka Kabli (20%), Cekon (5%) and BRE (2%) - have already decided to raise the company's share capital from zl. 21 million ($6 million) to zl. 40 million ($11.4 million) in January 1999, Gaca said. But the company will have to undergo another share capital increase later in the year as its roll-out gets underway in Warsaw, he added.
In addition to the $700 million investment needed to build a network in the capital, El-Net will also have to pay the government a license fee of ECU 245 million. This was the amount El-Net bid for the license, beating out Aster City Cable, Netia Telekom, Telefonia Lokalna and Telefonia Poludnie POTEL.
The value of bids placed by other companies was not revealed. But some of the competitors said that the license fee proposed by El-Net was too high to make a Warsaw system profitable.
"This amount is totally inadequate to the value of the tender," said Joanna Ciesielska, a Netia spokeswoman. "There will be no way to make the operations in Warsaw profitable if such a large amount is really paid."
She added that Netia offered a lower fee in its bid, but considered its offer better technically. "It was all we could pay and still make the project profitable," Ciesielska said.
She added that Netia may protest the Communications Ministry's decision to award the tender to El-Net because it seemed that the license fee was the only criteria used. Netia has not made a final decision, however, on whether it will take action.
"We know this decision is unfavorable for customers," she said. "We would be able to connect 40,000 new phones in Warsaw in the next year alone."
Netia is building fixed-phone networks in other large cities such as Krakow, Poznan and Gdansk and has spent a combined $67 million on license fees.
Surprisingly, even Pawel Rzepka, president of TPSA, agreed that the license fees being paid by companies that are competing with his concern are too high and may cause problems for operators.
"I believe the ministry shouldn't allow for such high license fees," he said, adding that the money should be directed toward investment. "So there would not be a situation where a license holder cannot start operations for two years because it has no money to do that."
Rzepka added that the Communications Ministry's main criteria for granting licenses for telephone operations should be the operator's ability to build infrastructure, rather than the scope of services.
But El-Net didn't necessarily break the bank with its bid. Telefonia Lokalna had offered an even higher fee for the Warsaw license. Jacek Blaszczynski, the company's president, would not reveal the bid, but sources close to the tender said the fee proposal was close to $400 million.
"We were well prepared to finance this large project," Blaszczynski said, adding that his company was better armed financially than El-Net for such a large undertaking. "The scale of the investment in Warsaw is so great that El-Net does not have enough capital to fulfill the license obligations."
Fijalkowski defended his company's fee proposal, saying it reflected the importance of Warsaw's telecommunications market. He added that fees for six other cities where licenses were recently awarded were also high.
"The license fee for Skierniewice, which has only 10,000 subscribers, amounted to ECU 23 million," he said. Fijalkowski also pointed to the lodz license, which cost one third of the Warsaw license although that market has far less potential than the capital.
Warsaw generates about 40% of all local calling revenue in Poland, or about zl. 2 billion ($570 million) a year. The license for the city will cover an area with 2.4 million inhabitants (roughly the Warsaw region with the exception of some towns around the capital) and only 38 phone lines per 100 people. El-Net plans to connect 340,000 phones over the next five years in the Warsaw area.
The lodz license was awarded to Telefonia Lokalna, which is a subsidiary of copper giant KGHM Polska Miedz. Telefonia will pay ECU 82.4 million for the license and plans to connect 196,356 subscribers, or about 30% of the market, within five years. It plans to invest about $600 million.
In Warsaw, El-Net plans to keep investment costs in check by having more than 60% of its network use radio phones, which use radio waves to transmit calls.
In Bydgoszcz, El-Net has one of the largest radio-phone networks in Europe, connecting nearly 70% of its 18,000 subscribers in this manner.
The technology is not without its critics, though. "This technology does not allow for all kinds of services," Blaszczynski said.
But El-Net will also keep costs down by using existing networks, such as the power grid, tram lines, or cable television networks. "It is logical to use the existing infrastructure as this will lower the cost of investments," Fijalkowski said. "We have already signed agreements with (Polska Telefonia Cyfrowa) Era GSM, Telbank, and we have talked with PKP (Polish Railways)."
He added that El-Net also plans to speak with the power grid and Warsaw tram company, as well as leading cable providers Aster City Cable and Polska Telewizja Kablowa (PTK).
The Communications Ministry has granted six new licenses over the past two months, which means that TPSA has a competitor for local calls in every region of Poland. The total amount of license fees that the ministry will receive over the next five years from these new licenses will be ECU 460 million. The new operators will connect 800,000 new phones in these six areas.
El-Net beat out four other companies in a tender to provide phone service in Warsaw, the most lucrative telecommunications market in the country.
"We will use every possible means of financing available on the market," said Eugeniusz Gaca, vice president of El-Net. He added that this means selling shares on the Warsaw Stock Exchange (WSE) and convertible bonds.
"We have already signed a letter of intent with a banking consortium led by BRE (Bank Rozwoju Eksportu) to finance the project, as well as agreements with financial institutions that would help to raise the necessary amount of money," Fijalkowski said in an interview last week. "In general, the banks have accepted the assumption that our own capital will amount to about 20% of the leverage."
He added that El-Net expects its new Warsaw network to break even within six-seven years.
El-Net's shareholders - Elektrim (40%), Centrostal (33%), Bydgoska Fabryka Kabli (20%), Cekon (5%) and BRE (2%) - have already decided to raise the company's share capital from zl. 21 million ($6 million) to zl. 40 million ($11.4 million) in January 1999, Gaca said. But the company will have to undergo another share capital increase later in the year as its roll-out gets underway in Warsaw, he added.
In addition to the $700 million investment needed to build a network in the capital, El-Net will also have to pay the government a license fee of ECU 245 million. This was the amount El-Net bid for the license, beating out Aster City Cable, Netia Telekom, Telefonia Lokalna and Telefonia Poludnie POTEL.
The value of bids placed by other companies was not revealed. But some of the competitors said that the license fee proposed by El-Net was too high to make a Warsaw system profitable.
"This amount is totally inadequate to the value of the tender," said Joanna Ciesielska, a Netia spokeswoman. "There will be no way to make the operations in Warsaw profitable if such a large amount is really paid."
She added that Netia offered a lower fee in its bid, but considered its offer better technically. "It was all we could pay and still make the project profitable," Ciesielska said.
She added that Netia may protest the Communications Ministry's decision to award the tender to El-Net because it seemed that the license fee was the only criteria used. Netia has not made a final decision, however, on whether it will take action.
"We know this decision is unfavorable for customers," she said. "We would be able to connect 40,000 new phones in Warsaw in the next year alone."
Netia is building fixed-phone networks in other large cities such as Krakow, Poznan and Gdansk and has spent a combined $67 million on license fees.
Surprisingly, even Pawel Rzepka, president of TPSA, agreed that the license fees being paid by companies that are competing with his concern are too high and may cause problems for operators.
"I believe the ministry shouldn't allow for such high license fees," he said, adding that the money should be directed toward investment. "So there would not be a situation where a license holder cannot start operations for two years because it has no money to do that."
Rzepka added that the Communications Ministry's main criteria for granting licenses for telephone operations should be the operator's ability to build infrastructure, rather than the scope of services.
But El-Net didn't necessarily break the bank with its bid. Telefonia Lokalna had offered an even higher fee for the Warsaw license. Jacek Blaszczynski, the company's president, would not reveal the bid, but sources close to the tender said the fee proposal was close to $400 million.
"We were well prepared to finance this large project," Blaszczynski said, adding that his company was better armed financially than El-Net for such a large undertaking. "The scale of the investment in Warsaw is so great that El-Net does not have enough capital to fulfill the license obligations."
Fijalkowski defended his company's fee proposal, saying it reflected the importance of Warsaw's telecommunications market. He added that fees for six other cities where licenses were recently awarded were also high.
"The license fee for Skierniewice, which has only 10,000 subscribers, amounted to ECU 23 million," he said. Fijalkowski also pointed to the lodz license, which cost one third of the Warsaw license although that market has far less potential than the capital.
Warsaw generates about 40% of all local calling revenue in Poland, or about zl. 2 billion ($570 million) a year. The license for the city will cover an area with 2.4 million inhabitants (roughly the Warsaw region with the exception of some towns around the capital) and only 38 phone lines per 100 people. El-Net plans to connect 340,000 phones over the next five years in the Warsaw area.
The lodz license was awarded to Telefonia Lokalna, which is a subsidiary of copper giant KGHM Polska Miedz. Telefonia will pay ECU 82.4 million for the license and plans to connect 196,356 subscribers, or about 30% of the market, within five years. It plans to invest about $600 million.
In Warsaw, El-Net plans to keep investment costs in check by having more than 60% of its network use radio phones, which use radio waves to transmit calls.
In Bydgoszcz, El-Net has one of the largest radio-phone networks in Europe, connecting nearly 70% of its 18,000 subscribers in this manner.
The technology is not without its critics, though. "This technology does not allow for all kinds of services," Blaszczynski said.
But El-Net will also keep costs down by using existing networks, such as the power grid, tram lines, or cable television networks. "It is logical to use the existing infrastructure as this will lower the cost of investments," Fijalkowski said. "We have already signed agreements with (Polska Telefonia Cyfrowa) Era GSM, Telbank, and we have talked with PKP (Polish Railways)."
He added that El-Net also plans to speak with the power grid and Warsaw tram company, as well as leading cable providers Aster City Cable and Polska Telewizja Kablowa (PTK).
The Communications Ministry has granted six new licenses over the past two months, which means that TPSA has a competitor for local calls in every region of Poland. The total amount of license fees that the ministry will receive over the next five years from these new licenses will be ECU 460 million. The new operators will connect 800,000 new phones in these six areas.
