Era stays in red in 1999; 2000 outlook is much brighter
According to initial financial information, mobile operator Polska Telefonia Cyfrowa (Era GSM) is in the red for the second year in a row. The company's net loss for 1999 reached about zl. 200 million ($48.7 million), sources close to the company told the Business Journal last week.
That result would be almost six times more than the zl. 27.8 million ($7.94 million) net loss Era recorded in 1998.
Robert Niczewski, head of public relations for Era GSM, said it is too early to determine whether the company reported a profit or loss for 1999. He said that the company's consolidated results or those including all of its operations still have not been compiled.
"We hope we will be financially positive this year," he said.
But analysts said they wouldn't be surprised if the company lost close to zl. 200 million. Era reported bad third-quarter and nine-month results, primarily from losses incurred on foreign exchange, said Rafal Gebicki, head of research with Raiffeisen Capital & Investment Polska.
Era's large debt load has exacerbated those foreign exchange losses. According to Zbigniew Lapinski, a telecom analyst with Deutsche Bank Research, Era's total liabilities came to zl. 2.7 billion ($692 million) at the end of the third quarter in 1999. Although the company issued bonds worth approximately $300 million in December, this did not much help because of the cost of the GSM1800 license, which was acquired in August.
In comparison, competitor Polkomtel (Plus GSM) sold equity stakes in the company to raise cash. That approach kept the company's debt load down and helped it report a profit of about zl. 200 million at the end of 1999, Gebicki said.
Heavy promotions in an attempt to lure additional subscribers also eroded Era's bottom line, analysts said. "They seem to have focused more than their competitors on driving up the penetration," said Jan Sudol, a telecom analyst with Donaldson, Lufkin & Jenrette.
During the promotions, the company has to subsidize new customers by paying for phones and other charges. Niczewski said that the company does not see any profit from those customers until four to six months after they've signed on.
"The company must pay from its cash flow for the outstanding amount," Gebicki said.
Era currently enjoys the dominant position on Poland's cellular market with some 2 million subscribers, an increase of approximately 75% from the beginning of 1999, according to Gebicki. In comparison, Polkomtel has 1.22 million subscribers, while Centertel brings up the rear with approximately 607,000 subscribers.
And Era plans to continue using aggressive promotions to attract new customers this year, Niczewski said.
Adrzej Nowaczek, an analyst with Credit Suisse First Boston, said Era is pushing hard for new subscribers to solidify its position before Centertel in March introduces service on its GSM 900 frequency. That would make the company, which previously only offered NMT450 service in one part of its service, increase its competition to Era and Plus.
"They (Era) will make losses on new subscribers," Nowaczek said. However, he also noted that the increased subscriber base will also help the company expand its revenue. At the same time, subscription promotions launched last year will have run their course and cease to be unprofitable, he said.
Despite losses from 1999, Gebicki predicted that Era would be profitable in 2000. "I expect the company (Era GSM) to finish with zl. 300 million ($73 million in profit) by the end of this year."
