Equipment market set to boom as new operators build networks

That boom is expected to kick in this year though and could cause the market to expand by as much as 50%, equipment makers said.
Alternative telephone companies such as Netia, El-Net, Szeptel and Telefonia Lokalna in the last two years have received regional licenses to provide local telephone services. Every major license has been issued, in fact, except Warsaw. El-Net won that tender at the end of December, but has not received the actual license yet.
All of these companies need to lay cables and install switches to reach their customers. At the same time, monopolist Telekomunikacja Polska (TPSA) has also been busy laying new lines. The company's subscriber base has grown 12% annually for the last few years, meaning that it will gain about 1 million new users this year. Estimates put the telecom equipment market at $1 billion for 1999.
"Demonopolization of the market means it is going to grow much faster than it is now," said Andrzej Piotrowski, president of market researcher Fundacja Telefonia Polska. "Some estimates say about 40-50% growth."
According to Piotrowski, two sectors of telecommunications are growing the fastest: equipment used for transmitting data and switching calls. So far, much of that has come from TPSA, which has three sole providers for switching equipment under a previously negotiated government agreement: Alcatel, Lucent Technologies and Siemens. The government gave those three companies exclusive rights to provide TPSA in exchange for the companies investing in Polish firms.
But the alternative companies are expected to be the big clients in 1999.
"(The recent developments) will certainly have an effect on the market for telecom producers, but so far the influence has not been big," said Jacek Hryniewiecki, president of Inventel, a producer of subscriber access systems. "All new operators have contacted us and use our products, but I do not know if we will become their permanent supplier."
So far, he said, the company's largest customer has been TPSA.
"Our largest revenue comes from the sales of switchboards," said Dorota Niemczynowicz, public relations manager of Lucent Technologies. "Right now we sell them mainly to TPSA, but we are trying to cooperate with all new operators."
Niemczynowicz said she expects Lucent, one of the three largest telecom equipment providers in Poland, to benefit from the new operators' build-out plans this year.
"It is difficult to estimate the value of the switchboard market," Niemczynowicz said. "The prices depend on many factors, such as configuration or the size of orders."
While producers had difficulty putting an exact figure on the value of the telecom equipment market, Piotrowski estimated that it could be worth as much as $1 billion next year. That estimate assumes that 1 million new subscribers will be connected this year, and the cost of each averages about $1,000.
But others downplayed the effect the new operators will have. Tadeusz Woronowicz, business systems manager of Panasonic Polska, said that the relatively low number of subscribers the newcomers have will limit their build-out plans.
"The new operators have a total of below 100,000 subscribers, which is a small fraction of TPSA's 8 million customers," he said. "However, TPSA is feeling the breath of the competition on its neck, and it may have to do something."
To fend off that competition, Woronowicz said he expects TPSA to delve more into ISDN digital connections which allow for fast data transmission. Those connections are primarily used by companies that want quicker access to the internet.
"Last year, we noticed a significant growth of sales in digital exchanges beginning last April," he said. "The annual growth was 131%."
Internet providers are helping to fuel the telecom equipment market, as are many other developments in the industry, such as radio systems used to quickly connect subscribers to existing land-based networks. For example, one of Lucent Technologies' customers is El-Net, which plans to use radio systems to help cover Warsaw.
Zdzislaw Urban, president of Telefonica, a maker of public pay phones for TPSA, said that his company still relies on the monopolist and has seen virtually no new business from the alternative providers. "The effects are not obvious yet," he said.
Urban said he thinks, however, that Netia may begin to show some interest in Telefonica's pay phones eventually. Netia's spokeswoman Joanna Ciesielska said that the company has already installed 420 pay phones in its regions.
But before Telefonica sells more pay phones, the company must solve the problem of billing between providers.
"We are going to propose such a system," Urban said. "The segment of pay phones is one of the most profitable ones, so I expect some more interest."