Netia not out of the woods yet

Netia finalized a deal last week that will keep the fixed-line provider from slipping into immediate bankruptcy, but analysts said it either needs a clearer development strategy to survive or to join forces with a competitor to bolster its position. "In the short term Netia will survive," said Włodzimierz Giller, telecoms analyst at Erste Securities Polska. "But if it can't find ideas on how to change its business, bankruptcy is just postponed." Netia, the nation's second-largest operator behind Telekomunikacja Polska (TPSA), reached a deal last week between bondholders and shareholders in a debt-for-equity swap. Under the agreement, Netia's $850 million in debts will be converted into about 317 million shares and new bonds totaling €50 million. Netia also agreed to issue another 83.2 million shares to its current shareholders, among them Sweden's Telia and Warburg Pincus, Netia's U.S.-based employee fund. Analysts said the deal - while strengthening Netia's balance sheet, which has been crippled by debts from its 20-month drive to dent TPSA's market share - is likely to sink the company's price in the short term. Through April 3, Netia shares have lost some 97% of their value since opening on the Warsaw Stock Exchange (WSE) in June 2000. "The problem now for equity holders could be a dramatic fall in the value of their shares," said Anna Bossong, head of Eastern Europe telecom research at CA IB, the investment banking arm of Bank Austria Group in the U.K. "But even if the debt-swap is successful, there are still underlying issues with the business, which is why we're concerned."

Subscriptions for Netia's fixed-line service plunged last year resulting in net losses of zł. 1.15 billion ($280 million) on top of 2000's net loss of zł. 362 million ($88.2 million). The company, according to figures from CA IB, added roughly 200 new subscribers in the fourth quarter, compared to 13,900 during the same period in 2000. Analysts attribute the falloff in residential customers to Poland's economic woes and the continued boom of cheaper, more accessible mobile technologies. "Yes, we're facing change so our strategy is to focus on business customers and high-end residential users," said Avi Hochman, Netia's chief financial officer and vice president of finance. Pressure should continue to mount on Netia, with TPSA still commanding roughly 93% of the fixed-line market and declining revenue across the sector, analysts said. Despite restructuring, the company probably won't have enough cash to pose a significant threat to the one-time monopolist, said Erste's Giller. "In the longer term, fixed-line businesses will face even stronger competition from the mobile segment, and Netia would likely suffer even more than TPSA," Giller said. Instead, several analysts said Netia might have to consider joining forces with other fixed-line providers. The Treasury Ministry has already said it would support a competitor to TPSA. Netia's 2001 financial report mentions the possibility of merging with, or acquiring, domestic competitors. "There's nothing specific at this point," Hochman said. "Everyone is speaking with everyone, and we'll see where it leads."