Third license could tarnsih El-Net victory
Elektrim CEO Barbara Lundberg said last week that her company would sue if the ministry goes ahead with plans to create a third, fixed-line phone license for Warsaw. After a six-month wait, Elektrim subsidiary Regionalne Sieci Telekomunikacyjne El-Net last week was awarded what it thought would be the only license in Warsaw allowing for competition with Telekomunikacja Polska (TPSA).
"Should another license be granted, we would question this decision in court," Lundberg said. "We believe, and that was confirmed by the ministry, that the tender was for one license only. If another tender was called for another license, this would be a complete change of policy."
Despite Elektrim's anger, Communications Minister Maciej Srebro maintained last week that a third Warsaw license would be granted.
"The situation on the market is so dynamic that there is room for another operator," Srebro said. "There is no document which guarantees that there will not be another license granted."
If the possibility of a ministry-Elektrim clash wasn't enough of a cloud over El-Net's license victory, private telecom operator Netia Holdings further roiled matters by saying it planned to appeal the license decision to the Supreme Administrative Court (NSA) within the next two weeks, which is when the license comes into force.
"We are going to question the whole process of licensing procedures," said Jolanta Ciesielska, a Netia spokeswoman. "We will point out very serious merit-based and legal flaws in the tender documentation."
Netia claims to have found 36 such flaws and presented its arguments to the ministry on June 2. Srebro, however, granted the license the same day. "The minister could not have analyzed all these points within just a few hours," Ciesielska said.
Elektrim is far less worried by the Netia challenge, though, than it is by the prospect of another tender.
Lundberg dismissed Netia's claims out of hand, saying, "It's all bullshit."
"If anyone wants that badly, they can find whatever they want, the important thing is that the minister decided to grant the license," added Janusz Fijalkowski, El-Net's president.
Elektrim said that even if Netia appeals it will begin building a Warsaw network as it will not be precluded from operating under the license if an appeal is in the works.
At the same time, Lundberg tried to warn the ministry against giving Netia another chance through a third license tender, saying such a move would be dangerous for the government's privatization plans.
"It would lower Telekomunikacja Polska's (TPSA) value during its privatization," Lundberg said.
The government plans to sell up to 35% of TPSA to a strategic investor later this year.
Analysts agreed that a third license could make TPSA less attractive, but they noted that Lundberg's comments weren't altruistic. El-Net would be the big loser in such a scenario.
"A third operator on the market will lower the valuation of both El-Net and TPSA," said Michal Buczynski, an analyst at COK Banku Handlowego brokerage. "However, in the longer run, Netia will have a much worse position in Warsaw than El-Net even if it gets that license."
Srebro said he was not worried for TPSA's sale, however, and said the market hadn't sent a clear signal that this would be crippling to the former monopolist. "Analysts do not agree whether the existence of more operators is advantageous for TPSA or not," he said.
Srebro added that he planned to give out another Warsaw license by the end of this year. He said, however, that if another tender is called, it would take at least six months before a license is granted.
"And there is no guarantee that another license will be actually granted within that time," Srebro said. "This is a time bonus for El-Net."
Elektrim won't only have to worry about Srebro's third license plan, however. It may also find itself at odds with the minister over payment conditions connected to its ECU 245 million ($260 million) license fee. Srebro said last week that the license fee will have to be paid in five installments, but in less than five years. El-Net had originally expected that it would have five years to make the full payment to the government.
Srebro would not reveal further details of the payment conditions before El-Net receives a letter from the ministry and the company accepts the terms.
"We have accepted the offer of El-Net, as far as the amount of the license fee is concerned," he said. "The first condition of the license is, however, that the company pays the initial fee, which is a small percentage of the whole amount."
He added that the possibility of installments is in fact a case of "an administrative favor." Srebro added that Lundberg "will not be surprised when she sees the conditions of the license."
Lundberg would not comment on this wrinkle, saying only, "We do not know the conditions of the license yet. It is in the mail."
Fijalkowski said that he expected the license conditions to be similar to those for other areas. "It cannot be that there are special conditions for Warsaw as compared with licenses for other areas," he said.
To make matters possibly worse, though, Srebro said that El-Net should not expect to re-negotiate the fee if a third operator receives a Warsaw license.
Analysts said that a faster-than-expected payment plan should not present headaches for either Elektrim or El-Net, though.
"The company will be able to pay the whole license even if it is spread over a shorter time period than five years," Buczynski said. "El-Net's business plan calls for spending of zl. 1.3 billion ($334 million), which would be too much just for building its network. It must include the license fee."
Elektrim expects investments to build up the local fixed-line network of its telecoms unit, which should have 774,000 subscribers by the end of 2005, to total zl. 5 billion ($1.26 billion).
At the same time, Elektrim has agreed to pay $325 million to acquire Bresnan International Partners, which controls Warsaw's largest cable television operator Aster City Cable. In addition, Elektrim is increasing its stake in mobile operator Polska Telefonia Cyfrowa (Era GSM) to 51% from 35%, which will cost about $680 million.
Lundberg maintained that Elektrim had sufficient financing for its investment plans, which could involve even more purchases. Elektrim has a market capitalization of $989.1 million.
"We expect to have all the money we need to complete our plans," she said. However, she added that the company is no longer interested in buying Polish Telecom Operators, a consortium of local telecom operators, with which it had a preliminary purchase agreement that has now expired.
Lundberg added that Elektrim's convertible bond issue of up to ECU 500 million is likely to take place in late June or early July. The bulk of the issue is earmarked for Spanish services company Acciona and retailer Eastbridge, with each agreeing to take $150 million. Elektrim will cooperate with Acciona in the cable, telecommunications, and power sectors and with Eastbridge, a retail holding company, on internet and commerce business. Eastbridge controls Empik, Poland's leading retailer of books, and Domy Towarowe Centrum, the largest nationwide network of department stores.
Additional funding will come from France's second largest telecom company, Vivendi, which will take a 30% stake in Elektrim Telekomunikacja. Lundberg declined to reveal exactly how much Vivendi would pay for the stake, saying only that the price would be based on Elektrim Telekomunikacja's "fair market value," which Elektrim assesses at $2.5 billion. Vivendi will not participate in the bond issue, but probably will acquire shares issued by Elektrim Telekomunikacja.
"Should another license be granted, we would question this decision in court," Lundberg said. "We believe, and that was confirmed by the ministry, that the tender was for one license only. If another tender was called for another license, this would be a complete change of policy."
Despite Elektrim's anger, Communications Minister Maciej Srebro maintained last week that a third Warsaw license would be granted.
"The situation on the market is so dynamic that there is room for another operator," Srebro said. "There is no document which guarantees that there will not be another license granted."
If the possibility of a ministry-Elektrim clash wasn't enough of a cloud over El-Net's license victory, private telecom operator Netia Holdings further roiled matters by saying it planned to appeal the license decision to the Supreme Administrative Court (NSA) within the next two weeks, which is when the license comes into force.
"We are going to question the whole process of licensing procedures," said Jolanta Ciesielska, a Netia spokeswoman. "We will point out very serious merit-based and legal flaws in the tender documentation."
Netia claims to have found 36 such flaws and presented its arguments to the ministry on June 2. Srebro, however, granted the license the same day. "The minister could not have analyzed all these points within just a few hours," Ciesielska said.
Elektrim is far less worried by the Netia challenge, though, than it is by the prospect of another tender.
Lundberg dismissed Netia's claims out of hand, saying, "It's all bullshit."
"If anyone wants that badly, they can find whatever they want, the important thing is that the minister decided to grant the license," added Janusz Fijalkowski, El-Net's president.
Elektrim said that even if Netia appeals it will begin building a Warsaw network as it will not be precluded from operating under the license if an appeal is in the works.
At the same time, Lundberg tried to warn the ministry against giving Netia another chance through a third license tender, saying such a move would be dangerous for the government's privatization plans.
"It would lower Telekomunikacja Polska's (TPSA) value during its privatization," Lundberg said.
The government plans to sell up to 35% of TPSA to a strategic investor later this year.
Analysts agreed that a third license could make TPSA less attractive, but they noted that Lundberg's comments weren't altruistic. El-Net would be the big loser in such a scenario.
"A third operator on the market will lower the valuation of both El-Net and TPSA," said Michal Buczynski, an analyst at COK Banku Handlowego brokerage. "However, in the longer run, Netia will have a much worse position in Warsaw than El-Net even if it gets that license."
Srebro said he was not worried for TPSA's sale, however, and said the market hadn't sent a clear signal that this would be crippling to the former monopolist. "Analysts do not agree whether the existence of more operators is advantageous for TPSA or not," he said.
Srebro added that he planned to give out another Warsaw license by the end of this year. He said, however, that if another tender is called, it would take at least six months before a license is granted.
"And there is no guarantee that another license will be actually granted within that time," Srebro said. "This is a time bonus for El-Net."
Elektrim won't only have to worry about Srebro's third license plan, however. It may also find itself at odds with the minister over payment conditions connected to its ECU 245 million ($260 million) license fee. Srebro said last week that the license fee will have to be paid in five installments, but in less than five years. El-Net had originally expected that it would have five years to make the full payment to the government.
Srebro would not reveal further details of the payment conditions before El-Net receives a letter from the ministry and the company accepts the terms.
"We have accepted the offer of El-Net, as far as the amount of the license fee is concerned," he said. "The first condition of the license is, however, that the company pays the initial fee, which is a small percentage of the whole amount."
He added that the possibility of installments is in fact a case of "an administrative favor." Srebro added that Lundberg "will not be surprised when she sees the conditions of the license."
Lundberg would not comment on this wrinkle, saying only, "We do not know the conditions of the license yet. It is in the mail."
Fijalkowski said that he expected the license conditions to be similar to those for other areas. "It cannot be that there are special conditions for Warsaw as compared with licenses for other areas," he said.
To make matters possibly worse, though, Srebro said that El-Net should not expect to re-negotiate the fee if a third operator receives a Warsaw license.
Analysts said that a faster-than-expected payment plan should not present headaches for either Elektrim or El-Net, though.
"The company will be able to pay the whole license even if it is spread over a shorter time period than five years," Buczynski said. "El-Net's business plan calls for spending of zl. 1.3 billion ($334 million), which would be too much just for building its network. It must include the license fee."
Elektrim expects investments to build up the local fixed-line network of its telecoms unit, which should have 774,000 subscribers by the end of 2005, to total zl. 5 billion ($1.26 billion).
At the same time, Elektrim has agreed to pay $325 million to acquire Bresnan International Partners, which controls Warsaw's largest cable television operator Aster City Cable. In addition, Elektrim is increasing its stake in mobile operator Polska Telefonia Cyfrowa (Era GSM) to 51% from 35%, which will cost about $680 million.
Lundberg maintained that Elektrim had sufficient financing for its investment plans, which could involve even more purchases. Elektrim has a market capitalization of $989.1 million.
"We expect to have all the money we need to complete our plans," she said. However, she added that the company is no longer interested in buying Polish Telecom Operators, a consortium of local telecom operators, with which it had a preliminary purchase agreement that has now expired.
Lundberg added that Elektrim's convertible bond issue of up to ECU 500 million is likely to take place in late June or early July. The bulk of the issue is earmarked for Spanish services company Acciona and retailer Eastbridge, with each agreeing to take $150 million. Elektrim will cooperate with Acciona in the cable, telecommunications, and power sectors and with Eastbridge, a retail holding company, on internet and commerce business. Eastbridge controls Empik, Poland's leading retailer of books, and Domy Towarowe Centrum, the largest nationwide network of department stores.
Additional funding will come from France's second largest telecom company, Vivendi, which will take a 30% stake in Elektrim Telekomunikacja. Lundberg declined to reveal exactly how much Vivendi would pay for the stake, saying only that the price would be based on Elektrim Telekomunikacja's "fair market value," which Elektrim assesses at $2.5 billion. Vivendi will not participate in the bond issue, but probably will acquire shares issued by Elektrim Telekomunikacja.
