Netia: the alternative player on the telecoms market
But in the case of the fixed line operations, which is currently dominated by TPSA, the picture is not so rosy. Mr Wojciech Madalski, the President and CEO of Netia S.A., Polands largest alternative fixed line operator, sat down and talked to us about Netias history on the Polish telecoms market and its hopes for the future which all aim to put Netia in the position of being a good alternative to the incumbent and the alternative market player.
Mr Madalski joined Netia in the summer of 2002, when the company was going through an ambitious financial and operational restructuring process. His job was a daunting one: to clean its heavily debt-burdened balance sheet and to lead the company into a completely new way of doing business. Until that point, Netia had been very focused on the engineering side of things, but the company needed someone who would introduce among many other things that ever-more-important aspect of business: customer service. Mr Madalski had the challenge of finding the balance between the technical and the personal.
His background made this a bit easier, fortunately. Born and raised in Poland, he left 25 years ago and lived in North America. Besides having an engineering education, he also has a strong background in customer service, gained from his decade-long experience in FMCG jobs, including five years with PepsiCo. Over the course of his life, his employment has taken him all through Canada, the US, the UK, Japan and then back to Poland. And 2002 was an interesting time for the telecommunications market in general, and in Poland especially, since the country was being inundated with mobile phone operators and Internet cybercafés were a firmly established feature on the streets of Warsaw.
Challenges to be met
This is not to say, however, that all was going smoothly in the field, and the choices that the government made when the telecoms market first opened up here still have an effect on companies like Netia. Mr Madalski says, My view is that unfortunately, Poland approached the liberalization of the telecoms market in the most difficult way possible. Normally, the first parts of the market to be liberalized are the most attractive ones, such as long-distance and international calls. In Poland, however, the decision was made to liberalize local calling first, which is the least attractive part.
Besides this weakness, Mr Madalski says that the Polish authorities have made things very difficult for alternative players. He explains that in the beginning, in each region, there would be only one additional player to the incumbent, TPSA. As a result of this, Netia had to create 25 different companies to apply in various regions and get operating licenses. Mr Madalski says this decision made it financially challenging for alternative players to develop, and also hampered the creation of the open market, although the presence of Polska Telefonia Cyfrowa (PTC), responsible for Heyah and the operator of Era; Centertel, the operator of Idea; and Polkomtel, the operator of Plus GSM are all highly visible on the telecoms mobile market.
Mr Madalski is quick to point out, though, that The mobile market is quite competitive, but remember that there was nobody in a monopolistic position. The mobile operators all started from the same place. But Netia came in and wanted to compete on the fixed line front against TPSA... its a whole different story.
On the one hand, Netia is now in a truly enviable position. There are horror stories daily about TPSA and its service, so the companys customer loyalty is low. As Mr Madalski says, Thats where we win. People are so frustrated with TPSA that they are actively seeking out alternatives.
Despite the fact that Netia provides a high-quality alternative, it has faced and continues to face a lack of open competition in the fixed line market. TPSA very successfully dragged its feet on opening the market to alternative players, and the regulator (URTiP) is effectively ignored. Mr Madalski gives an example: Netia approached TPSA about our 0-20 service, which allows any customer including TPSAs to use our 0-20 number to access the Internet. TPSA agreed, but wanted to keep 70 percent of what customers pay. Netia went to the regulator, asking for arbitration. The conclusion was that we should have been getting 70 percent; this was a binding decision and ruling and TPSA ignored it. The regulator slapped a hefty penalty on them which still hasnt been paid. In the end, TPSA lost their court appeal. Its been a year now, and TPSA continues to ignore the ruling. So, in my view, its not that the regulator and the courts dont do anything, its that TPSA just ignores what is being handed down. The rules to improve the competitiveness of the fixed line market just cant be enforced, and today, TPSA dominates with a 90 percent market share.
Successful restructuring: infrastructure, finances and operations
Despite these difficulties, Netias performance is extremely impressive. Prior to its financial restructuring, Netia was very successful in raising funds to create its infrastructure. It raised about USD1 billion and spent the money wisely (Netia owns 4,000 kilometers of state-of-the-art fiber optic infrastructure across Poland). Although the debt burden turned out to be too heavy, Netia managed to completely restructure its liabilities, and today it has a clean balance sheet.
Based on this success, Netia has big hopes for the future. Mr Mandalski says, We plan to double our size over the next five years, and have taken quite strong steps recently to achieve this goal. Netia legally consolidated most of its 25 companies together last year, and two months ago, it bought El-Net, which is one of the largest alternative fixed-line telecommunications operators in Poland, providing services to over 61,000 customers, including 17,000 business customers. El-Nets product portfolio includes fixed-line telephony, ISDN, Internet access, leased lines and cable TV services. Approximately 59 percent of El-Nets voice service revenues are from business customers.
In this way, the Netia/El-Net consolidation is a perfect match, as Netia is extremely focused on corporate clients, with more than 2/3 of its revenues coming from businesspeople, banks, administrative institutions and the public sector. In order to attract such clients, Netia offers very sophisticated telephone solutions and restructured its operations in order to generate positive results for its customers. Impressively, the El-Net acquisition is not Netias first, as it follows TDC Internet Polska, acquired a year ago.
Mr Madalski says, I believe that there is a hunger in Poland now for good customer service. Weve responded to it by investing part of our money that built up our infrastructure in state-of-the-art Customer Relationship Management systems. Were currently the only telecoms operator in Poland that has a fully functional CRM system; everyone else is playing catch-up. We have this initiative called once and done, where the customer calls us once with a question or problem and then its resolved for good. This is only possible because our CRM system allows us access to our customers history, meaning that we can be more efficient, and this benefits our customers immensely. Investment in that sort of system is absolutely invaluable. After all, a company that cares about its customers must think about what the customer will want even before the customer knows what they want.
Optimistic about the future
When asked about Polands accession, Mr Madalski is very positive: I think that it will provide more discipline in the telecoms field in Poland. Brussels can undertake infringement proceedings, and they have very severe and heavy penalties. They take anti-monopoly laws and fair competition seriously.
Beyond that, he sees the consolidation trend in the market continuing, and adds that Netia will approach more substantial targets. Netias first few acquisitions were relatively small, but the company is hoping for a merger with Dialog, which is a zł.400 million venture, and would be a source of substantial growth if it were acquired. Mr Madalski explains that Netia is in a very unique position, because our restructuring process was so successful. Many other companies are having cash-flow troubles and have been affected by the economic slump, but we have a successful business model that is generating very positive results. As a result, we have a healthy cash position, state-of-the-art infrastructure and systems and a strong commitment to customer service.
This combination is such that Netia is in a very good place to pursue its central objective: to be the alternative player for fixed line services on the Polish market within two to five years. With the gains that Netia has made over the past two years under Mr Madalski, there is no doubt that within the improving regulatory environment, TPSA is going to have to give up a part of its market share to its more-than-worthy competitor.
Mr Madalski joined Netia in the summer of 2002, when the company was going through an ambitious financial and operational restructuring process. His job was a daunting one: to clean its heavily debt-burdened balance sheet and to lead the company into a completely new way of doing business. Until that point, Netia had been very focused on the engineering side of things, but the company needed someone who would introduce among many other things that ever-more-important aspect of business: customer service. Mr Madalski had the challenge of finding the balance between the technical and the personal.
His background made this a bit easier, fortunately. Born and raised in Poland, he left 25 years ago and lived in North America. Besides having an engineering education, he also has a strong background in customer service, gained from his decade-long experience in FMCG jobs, including five years with PepsiCo. Over the course of his life, his employment has taken him all through Canada, the US, the UK, Japan and then back to Poland. And 2002 was an interesting time for the telecommunications market in general, and in Poland especially, since the country was being inundated with mobile phone operators and Internet cybercafés were a firmly established feature on the streets of Warsaw.
Challenges to be met
This is not to say, however, that all was going smoothly in the field, and the choices that the government made when the telecoms market first opened up here still have an effect on companies like Netia. Mr Madalski says, My view is that unfortunately, Poland approached the liberalization of the telecoms market in the most difficult way possible. Normally, the first parts of the market to be liberalized are the most attractive ones, such as long-distance and international calls. In Poland, however, the decision was made to liberalize local calling first, which is the least attractive part.
Besides this weakness, Mr Madalski says that the Polish authorities have made things very difficult for alternative players. He explains that in the beginning, in each region, there would be only one additional player to the incumbent, TPSA. As a result of this, Netia had to create 25 different companies to apply in various regions and get operating licenses. Mr Madalski says this decision made it financially challenging for alternative players to develop, and also hampered the creation of the open market, although the presence of Polska Telefonia Cyfrowa (PTC), responsible for Heyah and the operator of Era; Centertel, the operator of Idea; and Polkomtel, the operator of Plus GSM are all highly visible on the telecoms mobile market.
Mr Madalski is quick to point out, though, that The mobile market is quite competitive, but remember that there was nobody in a monopolistic position. The mobile operators all started from the same place. But Netia came in and wanted to compete on the fixed line front against TPSA... its a whole different story.
On the one hand, Netia is now in a truly enviable position. There are horror stories daily about TPSA and its service, so the companys customer loyalty is low. As Mr Madalski says, Thats where we win. People are so frustrated with TPSA that they are actively seeking out alternatives.
Despite the fact that Netia provides a high-quality alternative, it has faced and continues to face a lack of open competition in the fixed line market. TPSA very successfully dragged its feet on opening the market to alternative players, and the regulator (URTiP) is effectively ignored. Mr Madalski gives an example: Netia approached TPSA about our 0-20 service, which allows any customer including TPSAs to use our 0-20 number to access the Internet. TPSA agreed, but wanted to keep 70 percent of what customers pay. Netia went to the regulator, asking for arbitration. The conclusion was that we should have been getting 70 percent; this was a binding decision and ruling and TPSA ignored it. The regulator slapped a hefty penalty on them which still hasnt been paid. In the end, TPSA lost their court appeal. Its been a year now, and TPSA continues to ignore the ruling. So, in my view, its not that the regulator and the courts dont do anything, its that TPSA just ignores what is being handed down. The rules to improve the competitiveness of the fixed line market just cant be enforced, and today, TPSA dominates with a 90 percent market share.
Successful restructuring: infrastructure, finances and operations
Despite these difficulties, Netias performance is extremely impressive. Prior to its financial restructuring, Netia was very successful in raising funds to create its infrastructure. It raised about USD1 billion and spent the money wisely (Netia owns 4,000 kilometers of state-of-the-art fiber optic infrastructure across Poland). Although the debt burden turned out to be too heavy, Netia managed to completely restructure its liabilities, and today it has a clean balance sheet.
Based on this success, Netia has big hopes for the future. Mr Mandalski says, We plan to double our size over the next five years, and have taken quite strong steps recently to achieve this goal. Netia legally consolidated most of its 25 companies together last year, and two months ago, it bought El-Net, which is one of the largest alternative fixed-line telecommunications operators in Poland, providing services to over 61,000 customers, including 17,000 business customers. El-Nets product portfolio includes fixed-line telephony, ISDN, Internet access, leased lines and cable TV services. Approximately 59 percent of El-Nets voice service revenues are from business customers.
In this way, the Netia/El-Net consolidation is a perfect match, as Netia is extremely focused on corporate clients, with more than 2/3 of its revenues coming from businesspeople, banks, administrative institutions and the public sector. In order to attract such clients, Netia offers very sophisticated telephone solutions and restructured its operations in order to generate positive results for its customers. Impressively, the El-Net acquisition is not Netias first, as it follows TDC Internet Polska, acquired a year ago.
Mr Madalski says, I believe that there is a hunger in Poland now for good customer service. Weve responded to it by investing part of our money that built up our infrastructure in state-of-the-art Customer Relationship Management systems. Were currently the only telecoms operator in Poland that has a fully functional CRM system; everyone else is playing catch-up. We have this initiative called once and done, where the customer calls us once with a question or problem and then its resolved for good. This is only possible because our CRM system allows us access to our customers history, meaning that we can be more efficient, and this benefits our customers immensely. Investment in that sort of system is absolutely invaluable. After all, a company that cares about its customers must think about what the customer will want even before the customer knows what they want.
Optimistic about the future
When asked about Polands accession, Mr Madalski is very positive: I think that it will provide more discipline in the telecoms field in Poland. Brussels can undertake infringement proceedings, and they have very severe and heavy penalties. They take anti-monopoly laws and fair competition seriously.
Beyond that, he sees the consolidation trend in the market continuing, and adds that Netia will approach more substantial targets. Netias first few acquisitions were relatively small, but the company is hoping for a merger with Dialog, which is a zł.400 million venture, and would be a source of substantial growth if it were acquired. Mr Madalski explains that Netia is in a very unique position, because our restructuring process was so successful. Many other companies are having cash-flow troubles and have been affected by the economic slump, but we have a successful business model that is generating very positive results. As a result, we have a healthy cash position, state-of-the-art infrastructure and systems and a strong commitment to customer service.
This combination is such that Netia is in a very good place to pursue its central objective: to be the alternative player for fixed line services on the Polish market within two to five years. With the gains that Netia has made over the past two years under Mr Madalski, there is no doubt that within the improving regulatory environment, TPSA is going to have to give up a part of its market share to its more-than-worthy competitor.
