Era threatens legal suit to keep renegade long-distance service
State officials are likely to dig in their heels in a new row brewing in the telecom sector over long-distance phone service, lucrative turf for their crown jewel Telekomunikacja Polska (TPSA), analysts said.
Under Polish law, telecom operators are obliged to use TPSA's interconnections for foreign telephone calls. However, Polska Telefonia Cyfrowa's (Era GSM) network recently started to bypass this by transferring connections via the internet.
That sparked the Communications Ministry in early January to order Era to stop its activities. Era, however, has countered that it is transferring data, not voice, over the net, and subsequently is not breaking any rules. Era is now vowing to take the state to court and appeal the regulator's order using legal precedents set in the Czech Republic and Hungary.
The stakes are high. In the balance of a possible court battle is a hefty portion of $3.5 billion the state treasury is eyeing from the strategic sale of 25-35% of TPSA. If Era wins the battle over the right to transfer long-distance calls over the internet, other phone operators are sure to follow and undermine TPSA's stronghold on long-distance calls, and thus its sale price tag.
"The Communications Ministry is very aware of the bad impact this will have on TPSA's valuation," said Andrzej Kasperek, an analyst at Centrum Operacji Kapitalowych Banku Handlowego. "I expect them to defend TPSA's monopoly."
At press time, Era had yet to announce any court filing. Analysts, however, were speculating that the Communications Ministry would in the meantime do its utmost to pressure Era to back off, countering Era's court threat with penalties ranging from minor fines to revocation of the mobile phone operator's license.
"I'd expect (Era) to drop this one rather than sacrifice everything else," Kasperek said.
The ministry's willingness to go that far would reflect how important the state is taking its strategic sale of TPSA and its importance to state coffers. Sources close to the sale said earlier that the government wanted more than zl. 30 per share for TPSA, which alone would bring up to $3.5 billion in revenue. While analysts had said that the sale of TPSA is set to provide the budget with almost 50% of its revenue this year, this figure makes up 70% of an estimated $5 billion forecast to come rolling into government coffers from the sale of state assets.
Given a worst-case scenario for the government, the negative impact of Era's case could drive TPSA's price down to zl. 23-zl. 25 per share, an $820 million bite out of the $3.5 billion price tag. Given that TPSA's monopoly is due to end in two years' time, the company is overvalued, he said.
"If there were no TPSA privatization, (Era) might be allowed to render this service, or the Communications Ministry might be softer, but at the moment this is impossible," Kasperek said.
Recent court cases in the Czech Republic and Hungary ruled in favor of operators running voice over internet transfers. Era likely will follow similar arguments in those cases citing jurisdiction of the International Telecommunications Union (ITU), because Poland's telecom market is expected to follow international regulations, said Piotr Wozniak, an analyst at CDM Pekao Securities.
Beyond political and fiscal considerations, Polish courts face gray areas stemming from outdated telecom laws, which when established did not foresee so many technological developments as have occurred in recent years. But Kaminski said that the Communications Ministry was due to discuss new regulations concerning the internet with potential partners and he was positive about the outcome. "I think we will reach some solutions very soon," he said. "Perhaps new solutions will arrive earlier (than expected) to correct the current law."
And while the legal process is expected to be long and drawn out, as well as very costly to Era, "compared to the Czech Republic and Hungary, independent courts should give a positive opinion for (Era)," Kasperek said.
And should this happen, analysts said other mobile telecom operators, such as Polkomtel (Plus GSM) and Netia, will jump on the bandwagon.
"They're prepared to carry the same service but they're waiting for the result," Wozniak said. "They don't want to repeat the trouble Era has now, but they want to do it the same way."
In the Czech Republic, after several months of quarreling between former Czech telecom monopolist SPT and mobile operator Ceske Radiokomunikace, other mobile operators started to offer voice over internet transfers at lower prices, Wozniak said.
For its part, Polkomtel is watching closely to see what happens. "Technically we are prepared," said Leszek Kaminski, the firm's spokesman. "We are studying possible legal solutions and watching it very carefully, but at current stages we are not entitled to do it."
Netia, however, would not comment on its plans. "We don't want to be involved in this problem," said Jolanta Ciesielska, Netia's spokeswoman.
