Internet merger talks mark further consolidation
Internet firm Optimus Pascal and internet service provider Polbox confirmed last week that they were in talks with possible strategic investors, marking the next wave of consolidation on the internet market.
"I think it's the end of the beginning," said Marek Borzestowski, president of internet company Wirtualna Polska.
Borzestowski said that many of the major deals in the internet industry have already taken place, with firms such as portal Wirtualna Polska taking on systems integrator Prokom as a strategic investor with 25%, and Internet Partners selling a 24.9% stake to GTS Global Telesystems Group. Portals Wirtualna Polska and Optimus Pascal and service providers Polbox and Internet Partners are some of the biggest firms in the internet business.
But industry executives last week said that not every internet company was likely to find a larger partner as many small, low-capitalized firms do not have the reach or breadth to attract international investors.
"I would rather believe some U.S. company would set up a business (in Poland)," Borzestowski said.
Wojciech Plutecki, a board member with Internet Ventures, also said that many of the owners of smaller service providers were unwilling to work out any sort of cooperation with their competitors. That prevents some of the smaller firms from merging to get big.
"The Polish mentality is that everybody wants to do it on their own," Plutecki said.
And many of the heads of the smaller ISPs are unwilling to team up with competitors as they disagree on strategy, he added.
But while the first wave of consolidation may have died with many of the major firms either already betrothed or in talks with potential partners, executives last week said that overall interest in the internet sector was still strong.
"E-com transactions will be more and more influential on the market," Plutecki said.
Despite ongoing discussions, many domestic firms have shied away from disclosing which international firms have made offers.
"If they are trying to buy, nobody will tell you," said Maciej Markowski, marketing manager with Andersen Consulting.
In the near future, finding a stronger partner will become integral to many of the companies' survival, industry executives said. The market for internet services, particularly connection, is largely tapped. More than 300 internet service providers are believed to operate on the Polish market, and that competition has forced many to now focus on providing niche services.
Service provider Super Media, for example, is currently searching for an investor to buy up to 25% of shares in the company. The company's owners are determined to maintain control, however, said Jaroslaw Grabowski, head of marketing and promotions at the company.
In the last year, a few large telecom or system integrators have been eagerly plucking up smaller internet companies. In addition to Prokom and banking software company Softbank, both of which have completed acquisitions, Telekomunikacja Polska (TPSA) subsidiary TP Internet is also looking to buy, Markowski said. For such companies, delving into the internet is relatively easy as they already have the technical teams and systems in place to support such services.
One area in which internet companies could prove valuable to investors is in telecommunications, industry figures said. For example, cellular phone provider Polska Telefonia Cyfrowa (Era GSM) has been providing its subscribers with international calling services through the internet at a cost slightly higher than a local call in Warsaw. The Communications Ministry has taken issue with that activity, however, and threatened to take action against Era for breaking TPSA's monopoly on international calls, which is valid until the end of 2001. (See related story, page 3.)
