Netia president blasts Polish telecom fee policy
The president of the largest private telecommunications company in Poland, Netia, blasted government licensing policies last week, saying exorbitant fees sought from independent operators are meant to benefit state-owned telecom Telekomunikacja Polska (TPSA).
"The ministry should immediately stop protecting TPSA by forcing competitors to kill themselves with debt," said Meir Srebernik, president of Netia, which competes with the state-owned operator in 15 areas.
Srebernik added that fees being paid by private operators to compete with TPSA would prevent their operations from being profitable and make it impossible to compete with the former monopolist.
TPSA is in the midst of privatization. The Polish government has so far floated 15% of TPSA shares, while another 25%-35% is slated for sell-off to a strategic investor this year.
"These numbers simply can't work," Srebernik said of license fees being paid in recent tenders for telecom licenses that compete with TPSA.
Srebernik went down the list of companies recently awarded the right the compete with TPSA, calculating the amounts they have to pay TPSA in interconnect fees.
Privately-owned El-Net, for example, has a potential of 610,000 lines. The total amount of interconnect fees El-Net has to pay is $351 million, which puts the cost of one line at $579. El-Net beat out four other companies in a tender to provide phone service in Warsaw, the most lucrative telecommunications market in the country.
"The real record is $691 for a line in the case of Potel," Srebernik said.
Telefonia Poludnie Potel, an operator that has a license for Zakopane and Czestochowa, will also get hit hard by interconnect fees. "This $60 million for Czestochowa is too much," Srebernik said. "TPSA will kill them in a second."
Slawomir Dybczak, Potel's vice president, did not want to comment on Srebernik's calculations nor give any details of the company's plans.
Other local operators are doomed too, according to Srebernik, even if they have a license to operate in one or two of the largest cities, where there is a concentration of potential business customers.
"Telefonia Lokalna paid $257 million, and got lodz and Wroclaw," he said. "True, lodz is the second-largest city in Poland, but its business potential is quite low." According to his calculations, the cost of a line for Telefonia Lokalna is $468. The company, which belongs to the KGHM Polska Miedz group, paid $97 million for the lodz license. It plans to connect 196,356 subscribers in five years, which is about 30% of the market. Investments will amount to $600 million.
Telefonia Lokalna is also operating in Walbrzych, Elblag, Bielsko-Biala - in total, an area containing 5.5 million people.
Telefonia Polska Zachod, a company owned by Bresnan International, has recently unsuccessfully competed for a number of licenses. "It has Szczecin and Gorzow, which are not bad places," said Srebernik. The cost per line that TP Zachod has to pay in license fees is just $97. "It may survive," added Srebernik.
"I agree that the recent license fees were exaggerated," said Janusz Arciszewski, president of TP Zachod. He said the company did not win licenses recently because it did not want to participate in a race to pay more. "We did our math - the question is whether any operator can make a profit if the costs of a line run to $2,500 and the monthly subscriber fee is just $10," he said. "We got our licenses when the fees were still reasonable."
The total license fees TP Zachod has to pay amount to about $14.6 million.
Poland Telecom Operators, a company that controls six operators, has only a "marginal if any business potential," according to Srebernik. They have a potential for building 810,000 lines but paid $107.6 million in license fees, or $132 per line.
In the case of Netia, which operates in an area populated by 13.3 million people, the fee for a potential single line is only $70.
But not everyone agrees that operators are overpaying for lines. Some telecom analysts believe the value depends on potential revenue generation per line.
"It is just numbers crunching," said Christopher Monteleone, who follows telecommunications issues at PricewaterhouseCoopers. "No one really knows, for example, the real potential of Warsaw. The value of the market could be much higher than the license fee."
But potential is tough to gauge. "The case of Warsaw may be special, as there is a large concentration of businesses," Arciszewski said. "But on the other hand, most of them already have phones, and the telephone penetration in Warsaw is relatively high."
Mobile phone operators have also griped about license fees. Leszek Kaminski, a spokesman for mobile operator Polkomtel (Plus GSM), sent a letter to the Communications Ministry saying that European Union directives are clear on the issue of licensing telecommunications services. "The fees should cover only the cost of the tender and administrative costs," he wrote.
But license fees aren't the only knife to the throat of local operators. Inter-connection fees are also a threat, Srebernik said.
"We pay 40% of our revenue for connecting our subscribers to the long-distance network," he said, adding that Netia will fight this. "We must protect our profit."
But TPSA defends the level of inter-connect fees, saying many factors come into play such as the need to fund development of the country's telecom infrastructure.
"It is natural for a new operator that it would prefer to pay low or no license fees and low fees on inter-connection," said Tomasz Tywonek, vice president of TPSA. "The license fees are present in every country, and it is the choice of operators how much they wish to pay."
He added that the numbers presented by Mr. Srebernik do not tell everything, as the real revenue potential may be higher in some cities. He did not agree either with the statement that TPSA has a privileged position among operators. "On the contrary, local operators can offer all kinds of discounts, but if we tried that, we would have been accused of dumping prices," he said.
"TPSA is operating on all levels of connections and this is difficult from the point of view of technology as well as legislation," said Tywonek. "The operators want the fees to be based on the 'best practice' fees used in the EU, but this is an illusion."
Tywonek said TPSA needs some time to do away with the large differences in fees. "In the Czech Republic and Hungary it took six to eight years," he said. "The fast pace of liberalization also means high increases in local call prices, and we want to protect the customers."
"The ministry should immediately stop protecting TPSA by forcing competitors to kill themselves with debt," said Meir Srebernik, president of Netia, which competes with the state-owned operator in 15 areas.
Srebernik added that fees being paid by private operators to compete with TPSA would prevent their operations from being profitable and make it impossible to compete with the former monopolist.
TPSA is in the midst of privatization. The Polish government has so far floated 15% of TPSA shares, while another 25%-35% is slated for sell-off to a strategic investor this year.
"These numbers simply can't work," Srebernik said of license fees being paid in recent tenders for telecom licenses that compete with TPSA.
Srebernik went down the list of companies recently awarded the right the compete with TPSA, calculating the amounts they have to pay TPSA in interconnect fees.
Privately-owned El-Net, for example, has a potential of 610,000 lines. The total amount of interconnect fees El-Net has to pay is $351 million, which puts the cost of one line at $579. El-Net beat out four other companies in a tender to provide phone service in Warsaw, the most lucrative telecommunications market in the country.
"The real record is $691 for a line in the case of Potel," Srebernik said.
Telefonia Poludnie Potel, an operator that has a license for Zakopane and Czestochowa, will also get hit hard by interconnect fees. "This $60 million for Czestochowa is too much," Srebernik said. "TPSA will kill them in a second."
Slawomir Dybczak, Potel's vice president, did not want to comment on Srebernik's calculations nor give any details of the company's plans.
Other local operators are doomed too, according to Srebernik, even if they have a license to operate in one or two of the largest cities, where there is a concentration of potential business customers.
"Telefonia Lokalna paid $257 million, and got lodz and Wroclaw," he said. "True, lodz is the second-largest city in Poland, but its business potential is quite low." According to his calculations, the cost of a line for Telefonia Lokalna is $468. The company, which belongs to the KGHM Polska Miedz group, paid $97 million for the lodz license. It plans to connect 196,356 subscribers in five years, which is about 30% of the market. Investments will amount to $600 million.
Telefonia Lokalna is also operating in Walbrzych, Elblag, Bielsko-Biala - in total, an area containing 5.5 million people.
Telefonia Polska Zachod, a company owned by Bresnan International, has recently unsuccessfully competed for a number of licenses. "It has Szczecin and Gorzow, which are not bad places," said Srebernik. The cost per line that TP Zachod has to pay in license fees is just $97. "It may survive," added Srebernik.
"I agree that the recent license fees were exaggerated," said Janusz Arciszewski, president of TP Zachod. He said the company did not win licenses recently because it did not want to participate in a race to pay more. "We did our math - the question is whether any operator can make a profit if the costs of a line run to $2,500 and the monthly subscriber fee is just $10," he said. "We got our licenses when the fees were still reasonable."
The total license fees TP Zachod has to pay amount to about $14.6 million.
Poland Telecom Operators, a company that controls six operators, has only a "marginal if any business potential," according to Srebernik. They have a potential for building 810,000 lines but paid $107.6 million in license fees, or $132 per line.
In the case of Netia, which operates in an area populated by 13.3 million people, the fee for a potential single line is only $70.
But not everyone agrees that operators are overpaying for lines. Some telecom analysts believe the value depends on potential revenue generation per line.
"It is just numbers crunching," said Christopher Monteleone, who follows telecommunications issues at PricewaterhouseCoopers. "No one really knows, for example, the real potential of Warsaw. The value of the market could be much higher than the license fee."
But potential is tough to gauge. "The case of Warsaw may be special, as there is a large concentration of businesses," Arciszewski said. "But on the other hand, most of them already have phones, and the telephone penetration in Warsaw is relatively high."
Mobile phone operators have also griped about license fees. Leszek Kaminski, a spokesman for mobile operator Polkomtel (Plus GSM), sent a letter to the Communications Ministry saying that European Union directives are clear on the issue of licensing telecommunications services. "The fees should cover only the cost of the tender and administrative costs," he wrote.
But license fees aren't the only knife to the throat of local operators. Inter-connection fees are also a threat, Srebernik said.
"We pay 40% of our revenue for connecting our subscribers to the long-distance network," he said, adding that Netia will fight this. "We must protect our profit."
But TPSA defends the level of inter-connect fees, saying many factors come into play such as the need to fund development of the country's telecom infrastructure.
"It is natural for a new operator that it would prefer to pay low or no license fees and low fees on inter-connection," said Tomasz Tywonek, vice president of TPSA. "The license fees are present in every country, and it is the choice of operators how much they wish to pay."
He added that the numbers presented by Mr. Srebernik do not tell everything, as the real revenue potential may be higher in some cities. He did not agree either with the statement that TPSA has a privileged position among operators. "On the contrary, local operators can offer all kinds of discounts, but if we tried that, we would have been accused of dumping prices," he said.
"TPSA is operating on all levels of connections and this is difficult from the point of view of technology as well as legislation," said Tywonek. "The operators want the fees to be based on the 'best practice' fees used in the EU, but this is an illusion."
Tywonek said TPSA needs some time to do away with the large differences in fees. "In the Czech Republic and Hungary it took six to eight years," he said. "The fast pace of liberalization also means high increases in local call prices, and we want to protect the customers."
