Telecoms in Focus: Switching overseas

The opening of Poland's international long-distance (ILD) calling services to competitors on Jan. 1, 2003, will theoretically mark the final step of the telecom market's liberalization. But independent operators will continue to meet resistance from the mighty national incumbent operator Telekomunikacja Polska (TPSA) as it tries to protect its market share, industry insiders said. "It's difficult to talk about the liberalization of the telecom market because the position of TPSA will be very strong," said Marcin Gruszka, spokesman for Niezależny Operator Miźdzystrefowy (NOM), a fixed-line operator that offers domestic long-distance (DLD) or intercity calling service. TPSA, the partially privatized national telecom company, will still retain its monopoly on a full-range of telecom services and continue to control more than 90% of fixed lines throughout the country after 2003, as do most incumbents in other fully liberalized European telecom markets. Poland's ILD market - the most expensive calling service segment - generated about zł. 744 million ($181 million) of TPSA's total zł. 8.5 billion ($2.1 billion) revenue for calling services last year. But while increased competition would bring lower prices for ILD service, alternative operators would likely smash into some of the same roadblocks with TPSA in trying to launch their services as they did when the DLD market was opened one year ago, industry insiders said. The three original DLD companies bought their licenses in January 2000 for a hefty €23 million each through a tender conducted by the Communications Ministry. The DLD market was opened to all operators, with or without licenses, on Jan. 1, 2001.

Busy signal Even with the license purchases in 2000, the three operators could not begin offering service until the summer and early autumn of 2001 due to lengthy and difficult negotiations with TPSA over interconnection agreements that set fees and terms for the operators to use the incumbent's infrastructure. NOM was the first to offer DLD service, but has had an ongoing row with TPSA over billing procedures for clients, arguing that the incumbent was legally obliged to send the invoices for NOM's service. The other two fixed-line DLD operators - Netia and Energis Polska - avoided this roadblock by signing contracts directly with their institutional clients, the predominant users of their services. Further setbacks arose when TPSA did not inform callers on a recorded phone message that they could select DLD services provided by the other operators by punching a four-digit prefix before dialing their numbers. Other disputes arose that TPSA did not give the alternative operators proper connections. "I don't expect TPSA to be more generous in the case of ILD," said Włodzimierz Giller, a telecoms analyst at Erste Securities in Warsaw. "I expect the same problems."

Legal jam TPSA said that the situation with opening the ILD market would be similar to the liberalization of DLD services but pointed the finger at imprecise and incomplete telecom regulations. "We must negotiate some issues (with operators) that should be regulated by law," said Witold Rataj, TPSA's spokesman, adding that he hoped new regulations would be enacted before December to avoid problems. Jacek Strzałkowski, the spokesman of the Telecommunications Regulatory Office (URT), said at least a dozen amendments to the telecommunications law of 2001 needed to be issued by the Infrastructure Ministry, which oversees telecom legislation. Neither Krzysztof Heller, the deputy minister for telecommunications at the Infrastructure Ministry, nor Paulina Jankowska, the ministry's spokeswoman, was available for comment.

Thinking it over The largest alternative fixed-line operators are mulling whether to offer ILD services next year. Operators would have to first obtain permission from the URT since license requirements were scrapped by the current telecom legislation, then enter interconnection talks with TPSA - an onerous process that could take months. NOM is considering ILD, but will not yet say if it will offer traditional voice service or voice over Internet protocol (VoIP) - calls that are transmitted via Internet lines. Other firms, such as Tele2 Polska, a subsidiary of alternative Swedish telecom Tele2, has skirted the issue by offering ILD through VoIP, due to a legal loophole in current legislation that allows international calls to pass through Internet lines, although such operators must use TPSA's lines for the service. Netia, the largest independent operator in Poland, which is facing financial uncertainties, doesn't know if it will offer ILD on its own, but is considering becoming part of the Polish government's new plan to create a new national telecom company that would combine the services offered by state-controlled and independent telecoms and serve as a rival to TPSA, according to Jolanta Ciesielska, Netia's spokeswoman. Such a solution might allow smaller companies like Netia, Telefonia Lokalna - the country's second largest fixed-line operator - and telecom and energy firm Elektrim's El-Net subsidiary the possibility to offer a full range of competitive telecom services, she said. Some industry professionals dismiss the idea of operators waiting for more concrete details about the new national telecom project before deciding on offering ILD services. "I don't see any connection between the two," said Flawiusz Pawluk, an equities analyst at CA IB in Warsaw. "To provide international services, they only need to have a backbone network," which most operators already possess. New outside telecom players, however, will not compete for ILD services in Poland, industry insiders said. Poland's interconnection fees - which are three or four times higher than in other Western European countries - would deter foreign telecoms from entering the costly arena, according to NOM's Gruszka.

Chipping away Nevertheless, despite TPSA's upcoming battle to retain customers in its lucrative monopoly on ILD service, analysts predict that the company's market share and revenue will erode. Pawluk said that ILD competitors would grab about 20% market share, an amount equal to the 20% slice that alternative operators now have of the DLD calling market, most of which belongs to NOM. Next year, TPSA's revenue should drop by 25%, according to Giller, who added that similar drops in revenue occurred with Western European telecom incumbents following full liberalization in their respective markets.