Decision regarding investments in further network development

28 Dec 2015

When analyzing cost models of further development of the network and services for the customers, Polkomtel (a company belonging to Cyfrowy Polsat Capital Group) decided that it would be more profitable and effective, while at the same time ensuring the highest quality of services, to roll out the network on other frequencies than 800 MHz band.

Since the beginning of 2014, Polkomtel has promoted a concept of one common network for all the operators as the only rational and profitable option for the utilization of 800 MHz spectrum. Polkomtel has taken the view that one common network, ensuring the best quality and highest data transfer, would be the best solution for Poland and Poles. Two networks with the maximum of legally permissible 15 MHz (2x15 MHz) were supposed to be a transition phase toward one network of 1x30 MHz. In this context, however, it was surprising when Orange and T-Mobile, which cooperate with each other and share their radio frequencies, bid for 10 MHz each (20 MHz in total).

Polkomtel withdrew from the active bidding for 800 MHz blocks in March 2015 at the level of approximately PLN 360m per one frequency block. Polkomtel announced that this way it had created an opportunity for other participants to quickly finalize the auction at the rational pricing levels from the business point of view and that the company was interested in cooperating with them in order to accomplish the above mentioned goal.

Analyses prepared by the Office for Electronic Communications (UKE), State Treasury and analysts of the telecommunication market, including stock exchange analysts, valued the cost of one block at ca. PLN 300 - 500m. The State Treasury expected the proceeds at the level of ca. PLN 1.8bn. This shows the actual value of 800 MHz frequency band.

As a result of the auction, the price per one block reached PLN 1.5 - 2.1bn, that is more than the expected proceeds from the entire auction for all the blocks. These are the highest prices in Europe. It is worth mentioning that there is a significant difference between prices per one block – NetNet or T-Mobile has to pay nearly 40% more per block than Orange or Play. The resulting prices are a few hundred percent higher than planned.

Resolution of the 800 MHz auction in the current situation does not ensure a possibility of creating one or two networks. The frequency band has become fragmented – contrary to the opinions and analyses of experts, who emphasized that one common 800 MHz network would be the best solution for maximizing the benefits for customers and for effective utilization of the frequency band.

After the end of the auction, Polkomtel has carried out analyses which show that the cooperation with the entities who have won 800 MHz blocks at such a high pricing level (the highest levels in Europe) would be financially inviable and irrational, both for the company and its customers, if one takes into account:

  • the actual value 800 MHz frequency band estimated by the State Treasury and market analysts
  • the calculations made by the Company, according to which it is much more profitable for Polkomtel to invest into network rollout on other frequencies currently owned and utilized by the Company.

In particular, 800 MHz network may be replaced by the new, planned within the next 2- 3 years, investments into 1800 MHz network rollout relaying on ODU-IDU technology which allows for achieving the network coverage similar to that of 800 MHz frequency band. Refarming of 900 MHz and 2100 MHz spectrum will be another important solution. As a result, we expect better quality of Internet access services than in the case of 800 MHz network and with much lower capital expenditures required. Finally, this may translate into more attractive services and prices for customers than in the case of network rollout on 800 MHz frequency band.

In view of the above, Polkomtel is developing a network rollout model based on 900 MHz, 1800 MHz, 2100 MHz and 2600 MHz frequency bands. Details regarding the investment plan, including final coverage, used technologies, time limits and planned capital expenditures, will be presented by the Cyfrowy Polsat Capital Group at a later date. 

Last updated 12/28/2015