A shake-up of Poland's telecom market

By bne IntelliNews August 11, 2010

Jaroslaw Adamowski in Warsaw -

The upcoming sale of Poland's second-largest mobile operator Polkomtel might not only shake up the country's telecommunications market, but it could also boost the company's expansion efforts. Eyeing acquisition opportunities in the Polish telecom market, Polkomtel plans to issue eurobonds worth PLN4bn (€1bn).

Polkomtel, operator of Poland's Plus GSM mobile network brand with 13.7m subscribers, is jointly owned by the country's refining giant PKN Orlen, power company PGE, copper miner KGHM, coalminer Weglokoks and the UK's Vodafone mobile network. The four Polish co-owners hold a combined 75.61% share of Polkomtel, while Vodafone has a 24.39% stake of the operator. But now all shareholders want to withdraw from Polkomtel. According to PKN Orlen CEO Jacek Krawiec, the four Polish companies and Vodafone are likely to sell 100% of their shares. "We are aiming to launch the sale of Polkomtel by this year's end, so that the transaction could be finalised as soon as in the first quarter of 2011," Krawiec told the Polish radio Pin, adding that the operator could be worth up to PLN16bn (€4bn).

According to various media reports, three private equity funds, the US' TPG and Blackstone Group, and the UK's Apax Partners, are said to be interested in purchasing Polkomtel. Egypt's Orascom Telecom Holding, the leading mobile telephony operator in the Middle East, is reportedly another potential bidder for the operator.

Opening a Dialog

In the meantime, the Polish mobile operator continues its expansion efforts, as outlined in its recently published growth strategy. First on its list is Dialog, a fixed-line operator owned by KGHM, one of Polkomtel's shareholders. According to Magda Borowik, a telecommunications analyst at IDC Poland, as the race for clients in Poland's telecom market heats up, purchasing the fixed-line operator could help cement Polkomtel's place in the market. "Merging Dialog into Polkomtel would create a very advantageous synergy effect for this mobile network," says Borowik. "A price war has been brewing between the three dominating operators and P4, the newcomer, which translates into an unprecedented fall in profits for all major players. For Polkomtel, converging two separate services could be another way of safeguarding its position in the market," she says. The acquisition's estimated cost could reach up to PLN500m (€125m).

Prior to 2007, Poland's mobile telephony market was carved up between Polkomtel, Deutsche Telekom's Polska Telefonia Cyfrowa (PTC) and Centertel, operating under the brands of Plus GSM, Era GSM and Orange, respectively. The arrival of a fourth player P4, operator of the mobile network Play, has boosted competition. While the "Big Three" have between 13.3m (PTC) and 14m (Centertel) registered subscribers each, P4 has recently passed the threshold of 4m active SIM cards, and its reach is rising at a fast pace. In the first half of 2010, the three major operators lost a total of 218,000 subscribers, while P4 increased its number by 205,000. Polkomtel alone saw 58,000 of its clients shift to rival mobile networks, industry news site Telepolis.pl reported. P4 is a joint venture between the Cyprus-based Tollerton Investments and the Icelandic investment fund Novator.

But while P4's Play has grown, Poland's mobile market as a whole contracted by 2.5% last year, according to data released by Audytel, a telecom consultancy based in Warsaw. The outlook looks a little brighter, though. "This year, we expect the market to rebound and profits to start rising again," says Emil Konarzewski, a partner at Audytel. In 2010, the consultancy projects all Polish operators' combined revenues to hit PLN43.07bn (€10.8bn), up 2.8% from the previous year.

Despite last year's downturn, Polkomtel's results in the first quarter of 2010 were solid. The company's quarterly net profit stood at PLN288.67m (€72.38m), an increase of 35.5% from the same period a year earlier. Even though profits for 2009 totalled PLN980m (€245.73m), the company's general meeting decided in June to spend only 60% of profits on dividend payments and to set aside the remaining funds. It seems that such caution was dictated by Polkomtel's projected expansion, and the plans are certainly ambitious. Besides the fixed-line operator Dialog, the company's next purchase could be P4 itself. Konarzewski reckons all four mobile operators have an equal chance of purchasing Play, but Polkomtel is in pole position because it's "already delivering wholesale services to P4."

"At this stage, it seems that Poland's mobile telephony market is gradually reaching saturation," says Borowik. "However, it still isn't a matured one, and if Play's entry could easily upset the status quo, its eventual acquisition may bring the same now."

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