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Chris Woolford has concluded a two-year stint as EU Pre-Accession Adviser to URTiP, the Office of Telecoms and Postal Regulation. Seconded to Poland from Oftel on a European Commission-funded project, Chris has acquired a rare insight into the way Poland’s regulatory framework is being prepared in readiness for accession.
Michael Dembinski, BPCC
“The aim of a telecoms regulator – in any country – is to get the best possible deal for the consumer. And the best way to get that, the European Commission believes, is through competition,” says Chris. “Markets must be opened up, barriers to entry must be removed – the result should be lower prices, new improved services, better quality and service”. The Polish telecoms regulator, URT (now URTiP), was set up in January 2001. In April this year, the regulator’s remit was broadened to cover postal regulation. The presence of a telecoms regulator has helped Poland move towards a more competitive market, although the bursting of the telecoms/IT bubble has left some competitors of former monopolist TPSA in a relatively weak position.
Liberalisation of the telecoms market has been a long time coming in Poland. In the early ‘90s, the idea of allowing TPSA one competitor in each of the 49 old voivodships led to many small operators springing up and starting to build their own local networks. However, some of these operators struggled to make a viable business and, after a period of consolidation only a few competitors, such as Netia and Elektrim, remained. Even so, TPSA is still dominant, retaining almost 95% of the fixed telecoms market.
More recently, the speed of telecoms deregulation has increased in Poland, but still the process can get caught up in excessive bureaucracy. “Deregulation is a requirement of EU membership and has to be completed quickly. Yet often legislation gets passed, but the detail has not been thought through, leading to muddle”. says Chris. “In some of the other accession countries, the regulators are more secure in the law and have the legal powers needed to carry out their duties. Here, URTiP is disadvantaged by the fact that of 50 Ordnances of the 2000 Telecoms Act, only about 15 have so far been passed. And important amendments to the Act which were requested by the European Commission over a year ago have only recently been submitted to the Sejm”.
Chris quotes the liberalisation of long-distance phone services as another example: “Three licences for long-distance call operators were issued in 2000 by the (then) Ministry of Post and Telecoms, but the Ministry had not worked out all the details, particularly relating to interconnection arrangements. This meant that all three operators were subject to serious delay before they could start offering service while they negotiated with TPSA. One of the three, NOM, faced a particularly major problem in that for nine months it was unable to invoice its customers and thus did not receive any money for the calls it carried. For a while, NOM’s market share shot up as customers thought that they might not be charged for the calls but now that the issue has been resolved and customers now need to sign a contract, NOM’s market share has fallen back considerably.
How does the former monopolist look in today’s post-bubble landscape? “TPSA is restructuring, efficiency is improving, but analysts believe that its still overstaffed. France Telecom (which owns 60% of TPSA) has problems of its own; the $4bn it paid for TPSA has to be put in context of the French company’s $24bn loss for the first half of 2002. However, until France Telecom is able to recoup its investment there probably isn’t much danger of it pulling out of Poland.
Progress in the field of mobile telephony has been much more rapid. Today there are more mobile subscribers (13m) than fixed line subscribers (12m). However, as Chris points out, per head Poland lags behind other accession countries; “Mobile penetration, in Czech Republic and Hungary is 60-70%, in Poland, it’s only 35%”.
Accession and telecoms
A key accession issue for Poland is the EU’s stipulation that member states must ensure the right of every citizen to have access to a telephone at an affordable price. “EU regulations were written by member states for member states, so in some cases may not quite fit the realities of accession countries. Universal telecoms service is an example. Traditionally, in EU Member States, this obligation falls on the incumbent – in Poland, TPSA. But TPSA is worried that it hasn’t the vast sums of money required to meet this obligation to provide telephone services to all households across Poland. TPSA further questions the demand for such a service suggesting that many on its waiting list – perhaps about one third – no longer want a fixed line, instead preferring to use a mobile. This leads to the question as to whether mobile can take on the universal service role in Poland. But if this is to happen, Chris believes the regulator will need to look at the price of calls to mobile. This has been an issue in many Member States and it is likely that the URTiP may need to intervene to force prices down if the mobile operators and TPSA do not do so themselves.
“I can see that per-minute prices for mobile will continue to be more expensive than fixed, so fixed also has a future. This is particularly so for big phone users – whether voice or data – who will stick with fixed wherever possible. Internet users will stay with fixed networks and will put pressure on TPSA and other fixed operators to start to introduce ‘unmetered Internet packages’ which should start becoming more commonplace. Broadband also offers huge potential for fixed operators and will become more viable as average Polish incomes rise”, says Chris.
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However, some Internet users in rural areas are not covered by the fixed network. Special consideration will need to be given to such users and government, regulator and industry will need to work together to ensure their needs are met in the most efficient way without placing an unfair burden on anyone. Alternative technologies, such as radio fixed access and UMTS in the future may offer solutions. Provision of broadband access (512 + kbps) has been slow. “Outside of Warsaw, the market isn’t there yet. Demand seems to be inelastic; TPSA drops its prices, but relatively few customers sign up resulting in a net fall in the operator’s revenues. Long term, TPSA would love to invest in Warsaw but need to be mindful of its obligation to provide rural areas with basic telecoms infrastructure”. Chris believes that before pushing broadband, TPSA needs to address basic quality issues – allowing all fixed line users decent, if not high-speed, access to the Internet.
Politics and business
Looking at Poland from inside the machinery of the state, Chris can see problems but is pragmatic. “I can honestly say I’ve not seen any evidence of corruption in the regulator’s office”. Nor does Chris see a particularly cosy relationship between the TPSA, the ministry and the regulator, despite the fact that TPSA, the ministry and the regulator all employ senior managers from the SLD. “TPSA has taken virtually every one of the regulator’s decisions to appeal”. he says. The real issue is lack of continuity in Poland’s administration. “Over the past two years virtually all the senior management has changed – there are only two Directors left from when I started”. Ostensibly in April 2002, when URT became URTiP (the postal sector came within the scope of the telecoms regulator), the office should have expanded by another 20 staff. “But what we actually saw was a massive change in personnel, particularly at management levels, resulting in a huge loss of continuity and expertise. Such extensive changes don’t send the right signals to the market and worry potential investors who seek stability through a clear regulatory framework. They also resulted in some commentators asking questions about the political independence of the regulator.
Transparency and consultation
A regulator should be open and sometimes needs to be willing to stick its neck out. In the UK, Oftel regularly publishes consultation papers setting out its intended course of action or simply asking for views on a particular area of policy. “Some ideas can be very unpopular with some groups and are criticised publicly, but at least the process is transparent and everyone has an opportunity to input their views. Here, the culture seems more about covering ones’ backside than about openness. Consultation is crucial,” stresses Chris. “The EU insists that all stakeholders, including consumers, be consulted on all major decisions concerning telecoms regulations. “But this is not the Polish way and consumer representation is not yet well developed in Poland. There’s also a lack of information about the market; potential investors can’t find out basic information – what’s the average spend per business line, for example. This adds to the climate of uncertainty. The regulatory framework needs to be clearer, too. Investors currently need to weigh up early-mover advantage with the prospect of perhaps being stuck in lengthy negotiations before being able to get the business off the ground”.
Opportunities
Chris sees opportunities for UK investors arising from the liberalisation of the international calls market on 1 January 2003. “Prices are relatively high – there is huge potential for new entrants to undercut TPSA and still make healthy profits”. As in the UK, where new operators have exploited surplus long-distance capacity to offer indirect access, Chris believes that there’s money to be made here. He warns, however, that the Polish obsession for demanding signed contracts for even small-value services may act against the loosening up of TPSA’s hold on the international market. “In the UK, you can use your credit card number over the phone, or buy a card at a newsagent with a unique number allowing you to make cheap overseas calls. Unless consumers are given similarly convenient ways of paying, they are not likely to be bothered to go to a customer service centre to sign a contract giving them cheaper international calls.” There may also be opportunities for undercutting TPSA on fixed-to-mobile calls, another area where charges are high enough to allow a competitor to grab another chunk of the market from TPSA. Polish telecoms demand is growing by 5% a year, so the opportunities are there. The market has changed massively over the past 20 months. The regulator has made it easier for new competition to enter the market.”.
Perspectives for telecoms
“It is important to look at things from the consumer’s perspective,” says Chris. “The market will be fully liberalised as from 1 January 2003. This should provide plenty of scope for new operators to enter the market. The regulatory framework permitting, many of these new entrants will become more established over the next couple of years and will start offering new innovative services (as well as established services) at lower prices. Thus, within the next couple of years, I would hope to see Polish consumers starting to see real improvements in their telecoms service in terms of new services, lower prices and higher quality”. |
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