KGT to target corporate clients

By Karol Chlipalski

The National Telecommunications Group (KGT) will not compete with TPSA for residential customers in the fixed-line telephony market, but will instead focus on gaining more lucrative business clients for its services, people connected with the project said.

The government last year devised a plan for creating KGT in order to place all its scattered telecoms assets under one roof and to serve as a rival to dominant operator TPSA so that smaller cash-strapped telecoms would have a chance to survive on the market. It was also hoped that some privately owned firms, such as Netia and El-Net, would join. As of yet, however, it is still unknown when KGT will come into existence.

While nothing new has emerged about KGT recently, Marcin Gruszka, spokesman of state-controlled telecom operators NOM and Tel-Energo, said that KGT's strategy would center on creating a niche for providing services to business customers. NOM and Tel-Energo, which merged their operations last year though they remain separate companies, are leading the efforts to develop KGT.

Meanwhile, NOM and Tel-Energo are providing mainly corporate clients with data transmission service, Internet access and domestic long-distance (DLD) and international connections via Tel-Energo's fiber-optic network, the second largest in the country.

The companies will continue to focus on corporate customers once KGT gets off the ground. Revenue growth from services for residential customers is very limited because of astronomical costs for covering the "last mile" of telecom lines - the wires that link residential clients to the local fiber-optic phone network, which are owned and leased by TPSA. Telecom companies have to pay an average of about $1,000 per line to connect each residential customer, a sum that makes it unprofitable for operators to provide service to individuals.

Cash-flow problems at NOM and Tel-Energo have thus far prevented further steps towards the actual creation of KGT. NOM had to wait many months to obtain payments from its clients for DLD service after TPSA was supposed to include separate bills for NOM's service in its own invoices and then transfer the payments to NOM. Subsequently, NOM had to stop offering open DLD service, and was forced to ask its clients to sign individual contracts for the service - a move that decreased its customer base from 25% of the DLD market to 1%, Gruszka said.

Nevertheless, Tel-Energo and NOM are not giving up the idea of sector consolidation. Late last year Tel-Energo purchased Telbank, a company that provides IT services to major banks. Talks to bring in other companies are underway as well.

"From the market point of view, small operators have no other possibility than to consolidate," said Krzysztof Heller, deputy minister of infrastructure, who is responsible for the telecommunications sector. He believes that if KGT were to become the second largest player on the telecom market and gained a 15 % market share, it would immediately bring about an increase in the quality of services and a decrease in prices.

But KGT also has its critics. Andrzej Kasperek, a telecoms analyst at Bank Handlowy, is skeptical about the national telecom operator competing with TPSA in any field.

"Who would finance that undertaking?" he asked, emphasizing that huge investments would be needed to prop up KGT. He is convinced that after the Internet boom and bust, investors are still very cautious and prefer to put their money into undertakings that promise quick returns on investment.

Gruszka insisted, however, that Tel-Energo would not back down from the idea of creating a rival to TPSA, despite the fact that the near monopolist continues to maintain its stranglehold on the market by using all legal measures at hand to deter other operators.