Telecom-hungry KGHM gobbles up Telefonia Lokalna
Telecom-hungry copper giant KGHM Polska Miedz has positioned itself to become the sole owner of fixed-line operator Telefonia Lokalna.
The state-owned KGHM announced Thursday it had reached an agreement with the Polish Power Grid (PSE) to purchase PSE's 50% stake in the country's fifth-largest fixed-line telephone provider. KGHM already holds the other half.
Telefonia Lokalna, whose nine licenses provide fixed-line phone service to 12.5% of the country, has 52,000 subscribers.
PSE and KGHM talked for several months before coming to an agreement, said Wojciech Marciniak, KGHM's investor relations director.
From the beginning, KGHM's stance was "either you buy (our 50%) from us or sell (your 50%) to us," Marciniak said.
Although PSE was unavailable for comment, analysts said PSE has already invested heavily in its own telecom subsidiary, Tel-Energo, and possibly doesn't have the funds needed to build out Telefonia Lokalna's infrastructure.
But a Telefonia Lokalna spokeswoman, Marta Pietranik, stressed the company has no financial difficulties, especially after recently receiving a o150 million loan from a syndicate of 13 banks. "So far we have money for infrastructure and for investment and for developing the network," Pietranik said.
Now that KGHM will likely find itself in the driver's seat the agreement is awaiting approval by PSE's supervisory board, the state treasury and state anti-monopoly office it will decide how the company will develop. Plans for Telefonia Lokalna's future, however, apparently still need some hammering out.
While Marciniak said KGHM has entered preliminary though unofficial talks with fixed-line operator Netia concerning a potential partnership or merger, Netia denied such speculation.
"It's not true," said Netia spokeswoman Jolanta Ciesielska after checking with the company's president, Meir Srebernik. "We haven't had any official meetings. We're not interested in (partnering with KGHM)." Ciesielska didn't deny that "unofficial" meetings might have taken place.
Marciniak said the possibilities for a KGHM/Netia partnership could include everything from simple share swaps to working closely together to joining forces.
"The consolidation of the sector will take place very soon," Marciniak said. "We think we need a strategic (partner) to operate the company."
Despite Telefonia Lokalna's nine licenses, the fixed-line operator has yet to develop a large customer base and would love to inherit Netia's almost 300,000 subscribers in 24 licensed zones. Combined licenses from both companies would cover approximately 60% of Poland, he said.
But winning over Netia may not be an easy task for KGHM. "Good luck to them," said Bob Creamer, a telecom analyst with Raiffeisen Capital & Investment Polska. "Fixed line is not what it seemed to be two or three years ago."
Mobile phones are quickly overtaking the fixed-line business and international long-distance calling rates will begin to shrink in Poland just as they have in the European Union once the Polish market is liberalized in 2002, Creamer said. Telekomunikacja Polska (TPSA) takes most of the revenue even while prices remain high, he added.
Also Netia has already made clear its plans to focus its efforts on penetrating the data transmission and Universal Mobile Telecommunications System (UMTS) markets, Creamer said. If it were interested in Telefonia Lokalna, he said, Netia would probably only want a few handpicked subsidiaries.
Creamer believes KGHM's main purpose behind the Telefonia Lokalna purchase is to sell it later for a profit.
Whatever KGHM ends up doing with Telefonia, the copper giant is in good financial shape and has plenty of options. KGHM reported last week it saw a net profit of zl. 298 million ($69 million) in the first half of 2000. That's in line with its plan for a zl. 512 million ($119 million) profit by year's end.
KGHM, which will see its ore deposits depleted by 2025, is investing in the telecom sector to prepare for an inevitable transition and to offset volatile global metals prices.
KGHM also owns a 20% stake in mobile operator Polkomtel (Plus GSM) and recently announced plans to invest zl. 500 million ($116 million) in the telecom sector this year.
Telefonia Lokalna, for its part, had earlier said it would invest zl. 700 million ($163 million) in the development of its fixed-line network and internet services.
