Lack of regulatory, market clarity led to low long-distance interest
Interest in long-distance telephone licenses was low because of unresolved issues about revenue sharing, timing of further telecom liberalization and financing difficulties, according to a recent report by ING Barings.
The report, dated Nov. 30, says the "poor response" to the long-distance license tender by investors can be traced to concerns about how long it will be before they can compete under a fully liberalized system, the time advantage conferred by the licenses, and the current macroeconomic environment, which makes raising funds more expensive.
"Value in the domestic long-distance business, albeit marginal, is there," concludes the report, arguing that low investor interest is due to these other factors.
Only three consortia bid for the licenses, although 14 had bought tender documents. The Communications Ministry is due to award the three licenses this week. The bidders were three consortia led by Netia, Polish State Railways (PKP) and Polskie Sieci Elektroenergetyczne (PSE), the national power grid.
ING Barings estimates that the current value of the domestic long-distance market is $760 million, and estimates that this will grow to just over $2 billion by 2005. The three new entrants will capture 50% of that market five years from now, leaving the current monopolist, Telekomunikacja Polska (TPSA), with the rest, according to the report. It also assumes that telephone penetration rates will reach 40% by 2005.
While agreeing roughly with the penetration forecast, Michal Buczynski of Centrum Operacji Kapitalowych Banku Handlowego sees the domestic long-distance market stagnating over the same period, reaching only $1 billion. "Our estimates are more conservative," said Buczynski, a telecom analyst. He gives three reasons why he thinks the domestic long-distance market will not grow as fast as the report estimates.
"First they will have to compete with the mobile companies," Buczynski said. Mobile lines will exceed the number of fixed lines by 2003, and will have a 44% penetration by 2005, according to Buczynski's estimates. At the same time, fixed-line penetration will only grow to 37.4%, from 26% this year, Buczynski said. "Secondly, we expect prices will decrease," he added.
But the ING report also includes an assumption of falling prices, saying that by 2005 the premium for domestic long-distance calls over local calls "will have dwindled to the single-digit level or less." The third reason the domestic long-distance market won't reach $2 billion by 2005 is data traffic is replacing voice, Buczynski said.
The report's estimate of a 50% market share grab by the three new players is also questioned by a recent Morgan Stanley Dean Witter report, dated Nov. 3, which estimates new entrants will succeed in capturing only 35% of TPSA's business. This slower advance is based on several advantages held by TPSA, including its continued monopoly on international voice traffic, which makes it difficult for new entrants to offer an integrated service, and the fact that the system will favor local access providers with significant (greater than 20%) investment in rural telephony, the report said.
