Telecom showtime
By Timothy Sifert
With zł.400 million cash in the bank, a surprisingly debt-free balance sheet and a hunger for acquisitions, telecom operator Netia is a prime candidate to orchestrate the almost inevitable consolidation of the country's fixed-line market. On that front, the company has bid for El-Net and Tel-Energo, the two telecoms currently on the auction blocks, and expects to be included in the tender to purchase Telefonia Dialog from KGHM.
In many ways, Netia's jockeying for control of the country's telecom assets is illustrative of the market as a whole - both mobile and fixed line.
There's a race to cobble together the assets of this trio in order to round up a substantial market share and form a fixed line competitor to Telekomunikacja Polska SA (TPSA). During the next year in Poland's telecom sector there's much at stake, whether it's the government's vaunted privatization strategy or just company's labored business strategies.
For fixed line at least, Zbigniew Łapiński, Netia's chief financial officer, expects his company to be central to this consolidation. "In both cases we are quite advanced," he says of Netia's bids for Tel-Energo and El-Net.
Łapiński's outlook appears to be slightly in opposition to many press reports on the two deals. Last week, anonymous sources in the press were quoted as saying that The National Grid (PSE) was unhappy with Netia's bid for Tel-Energo and that the company's offer of less than zł.300 million for half the company was too small. "We placed a bid for Tel-Energo and contrary to some press reports, we don't have any response," Łapiński says. He denies, also, other rumors that the entire deal has been called off because Netia was the sole bidder for the asset.
Also, roughly two weeks ago, the potential for a positive outcome of Netia's bid to buy El-Net from Elektrim Telekomunikacja was also called into question. Raiffeisen Investment put forth a much-ballyhooed bid to buy the asset, and analysts were speculating on what designs the firm - a financial rather than strategic investor - has for El-Net, especially as RI board member Martin Schwedler promoted his intentions for consolidation.
Here, Łapiński is also more sanguine than the press speculations: "And with El-Net we don't have any response - yet," he says. "We've made the proposal and that's it. It's very hard to comment because we haven't heard anything."
But while he didn't delve into the specific offer's terms, he did comment on why Netia would be a better partner for El-Net than Raiffeisen.
"El-Net would not be better off with a financial investor, rather than with Netia," Łapiński says.
He comments also that Netia's not necessarily worried about Raiffeisen's bid, since Netia brings more to the table: "This is a bank that has no knowledge about telecom."
Raiffeisen has declined to comment on the deal until the tender has been awarded. Łapiński says that if Raiffeisen were to the win the deal, he would expect the firm to eventually sell it off because it's a financial investor. And eventually, he suggests, Netia would be able to buy it from Raiffeisen.
And that takes away any sense of immediacy for Netia, because Łapiński says his sole goal is to increase shareholder value, rather than buy as many assets as quickly as possible.
"We're looking at deals," he says. "We are not desperate to buy any asset." But he says Netia executives are still searching even beyond Tel-Energo and El-Net.
Telefonia Dialog is the next on the wish list.
"We have been told by KGHM that we would be able to participate in a sale," he says.
However, he is not sure when the deal will begin because KGHM has not made any official announcements. Should all three deals come to market at the same time, it's unlikely that Netia would look to buy all three. He says, depending on the price tags, it would likely have enough to buy Telefonia Dialog plus either El-Net or Tel-Energo. At present he says that with the company's cash and balance sheet, it would have easy access to zł600-700 million to fund the acquisitions.
But for now Łapiński says he's taking the wait-and-see approach to the deals, as the company has yet to receive responses to its offers.
"It's not in our hands," he says.
Outside of Netia's concerns, activity on the mobile market is also heating up. Inernational investors appear to be gearing up to take control of the National Grid's (PSE) Polkomtel, which operates Plus GSM, and Polska Telefonia Cyfrowa (PTC), which operates Era.
Henning Dyremose, president of Danish telecom TDC, says that the company would team up with the UK's Vodafone to take control of Polkomtel. Separately, KGHM, PKN Orlen, TDC and Vodafone each own 19.61 percent stakes in Polkomtel. PSE owns 16.05 percent.
The operator's Polish shareholders recently sent signals that they would look to sell the asset, which maintains more than five million subscribers, but the details of any potential deal have not been forthcoming.
People watching the market expect that both TDC and especially Vodafone, would look to gain control of Polkomtel within a year's time, because it makes scant business sense for strategic investors to hold minority stakes in companies outside their home countries.
"It's only a matter of time," says a banker familiar with the companies.
At the same time, foreign investors are eying PTC, the nation's largest mobile company. Prevailing market wisdom says that PTC will eventually become a part of Deutsche Telekom, which at present owns 49 percent in the operator. Elektrim Telekomunikacja (which is 49 percent owned by Elektrim) and Vivendi own a 51 percent stake in PTC. But this protracted deal has been stalled owing to disagreement over actual value of the asset, especially on the part of Elektrim, for which the deal is a key component of its debt-reduction strategy.
Nonetheless, within the next year or so, analysts expect Deutsche Telekom to finally wrest control of PTC. And they provide a similar time frame for Polkomtel, as well as, in the fixed-line realm, Tel-Energo, El-Net and Telefonia Dialog.
Whether it's domestically in the form of Netia or internationally in the form of TDC, elements of change are at work that will significantly change the shape of Polish telecom.
