Fixed-line falloff has big players switching strategies

Telecommunications equipment manufacturers are downsizing production of fixed-line system components and focusing on mobile technologies as major telephone operators, led by Telekomunikacja Polska (TPSA), cut back investment in expanding their networks. In the past 12 years, the number of fixed lines in Poland has grown rapidly, from 3.4 million subscribers in 1990 to around 11 million today - nearly 29% of the population. This growth in fixed-line services attracted the world's largest manufacturers of telecommunications equipment, including Germany's Siemens, France's Alcatel and Lucent Technologies of the U.S., which invested in the domestic production of digital telephone exchanges and switching systems, predominantly for TPSA, the country's biggest operator. "There has been a significant reduction in the number of new fixed-line telephones and demand for fixed-line telephony components has fallen by a third," said Tomasz Kulisiewicz, consultant for the Polish Chamber of IT and Telecommunications (PIIT). "For the past five years TPSA installed about a million new lines a year, while last year this was below half a million and … they will probably only complete about 300,000 by the end of this year."

The expansion days of fixed-line telephony are over and operators are cutting back on network investment so the number of mobile subscribers could catch up with the number of fixed-line subscribers by the end of the year, Kulisiewicz said. TPSA has reduced its investment budget from zł. 4.8 billion ($1.17 billion) in 2001 to zł. 4.3 billion ($1.04 billion) this year, while analysts expect a steady decline in the firm's fixed-line sales, from an estimated zł. 14.3 billion ($3.4 billion) this year to zł. 11.1 billion ($2.7 billion) by 2004, according to a report by Austria's Raiffeisen Zentralbank. This has led to a sharp decline in demand for products of manufacturers such as Siemens, which produces digital switching systems providing fixed lines for some 3.7 million Poles, as well as broadband Internet access systems and transmission systems for TPSA. The telecom giant has drastically cut its fixed-line investment, according to Harald Eggers, Siemens' vice president in Poland. "There has been a significant reduction since last year," he said. This has resulted partly from a new strategy to reduce costs by maximizing the number of new fixed-line subscribers in cities rather than rural areas. According to Eggers, TPSA's investment plans will largely affect the sales of Siemens' switching systems, leading to a 25% fall in the company's revenue in the fixed-line telecommunications industry and cost more than 100 jobs. "There are also the problems that the new investment plan for this fiscal year has not yet been signed by TPSA and its restructuring (by majority owner France Telecom) means that many of our discussion partners and decision makers are changing, which causes additional delays in investments," Eggers said. "The expectation is that once an investment plan has been signed, investment will slightly increase."

Alcatel, which supplies TPSA with commutation and transmission systems by outsourcing its production to U.S.-based manufacturing firm Kimball Electronics Poland is facing the lowest demand for its fixed-line products in 10 years, said Krystyna Dzieduszycka, spokeswoman for Alcatel Poland. "In the past 10 years we saw significant growth in demand for telecommunications equipment in Poland, connected to the introduction of digital technology by TPSA, growing numbers of fixed-line and mobile subscribers and the emergence of independent operators," Dzieduszycka said. "Today we are seeing a significant reduction in investment from all operators, and this is linked to the general condition of the market - not only in Poland." Dzieduszycka was tight-lipped about the impact of fixed-line investment cuts on Alcatel's revenue but said the company would try to minimize job losses. "We are adjusting the size of our workforce to meet the needs of the market and will try to retain as many employees as possible," she said.

TPSA's current lack of investment direction has also had an impact on domestic producers such as Radomska Wytwórnia Telefonów-Telefony Polskie (RWTTP), which produces telephones and home Internet solution (HIS) broadband Internet access systems. With TPSA as the firm's biggest client and shareholder, RWTTP should be benefiting from the current demand for HIS technology, said Paweł Kubicki, commercial and marketing manager. "Demand for HIS from subscribers is very high but for some reason TPSA is restricting access … " Kubicki said. He added that the firm sold around 70,000 HIS units in the first six months of 2001 and could have sold twice as many. "We have the production capacity and our warehouses are full but they aren't buying the quantities expected by us or the customers. How do we explain the fact that we have the stock but customers have to wait two to three months to receive it?" Kubicki hopes a kinder fate will meet RWTTP's new device, which went into production in February and provides Internet and telephone services for TPSA clients in remote areas using the analog network owned by TPSA's mobile operator Centertel.