Fixed-line operators anticipate consolidation this year

By Aleksander Nowacki

This year will see a consolidation process on the beleaguered market of alternative fixed-line operators. Although there is still a long way to go before the market reaches the level of development comparable to that found in western European countries, some experts believe that it is nearing its saturation point. With just 30 phone lines per 100 inhabitants, as compared to more than 50 across the western border, the current economic situation does not allow for the heavy investment necessary to connect a significant number of new customers.

"Until the economy turns the corner, I do not expect a major improvement," said Witold Graboś, president of the Office of Telecommunications and Post Regulation (URTiP).

The alternative operators, facing double competition from the powerful monopolist TPSA and the expanding mobile phone market, can hardly expect a respite in the near future. The four independent players, who control just over 7 percent of the market between them, see consolidation as a possible way to improve their market position.

Although work on the National Telecommunications Operator (KOT), which would be created after a merger of all of TPSA's competitors, has come to a halt, there is no doubt that the number of firms on the market will shrink to three by the end of the year.

Irrespective of whether the consortium of creditors of El-Net, the third-largest alternative operator, decides to approve the firm's plan to restructure its debt later this month, it is certain that El-Net will be part of a merger in the latter part of the year.

Eugeniusz Gaca, the company's deputy president, is convinced that El-Net is quite capable of regaining its feet. Under the restructuring plan, a part of the debt would be converted to stocks, while the rest would be subject either to remission or repaid in installments over a period of several years.

The burden of debts, which may yet sink the company, was accumulated in the late 1990s when the general optimism and predictions of dynamic market development led the company to take out an excessive amount of loans to finance its dynamic infrastructure development program.

Last year El-Net recorded an operational gain and the same is predicted for this year. It is nevertheless possible that the BRE Bank-led consortium will refuse to approve the plan to restructure the zł. 160-million (€36.2-million) debt. According to unofficial sources inside the firm, the company may be forced into bankruptcy due to "an inexplicable game" played over its future.

Netia, the country's largest alternative operator, has already gone public about its intention to acquire its beleaguered competitor, after the supervisory board approved a plan to do so.

The merger is certain to happen, the only question being whether it will be under the auspices of a receiver or the current management board. A bankruptcy notion has already been filed against El-Net by Blue Aries Capital, one of the company's founders. However, should BRE Bank approve the restructuring plan, the notion will be withdrawn.