Poland: Competition cuts call costs

One-upmanship in the telecoms sector drives down the cost of calls, says Business Eastern Europe

Long-suffering Polish telephone users are finally beginning to see the benefits of competition in the telecoms sector, as dominant fixed-line and leading mobile operator TPSA, part-owned by France Telecom, comes under pressure from rival fixed-line and mobile providers.

TPSA has already lost one-fifth of its local and international long-distance fixed-line market. Tele2 (Sweden), for example, has taken 6.4% of the local long-distance market and 11% of the international calls market. It offers the lowest prices: Zl 0.81 (US$0.21) per minute on connections to the EU and the US for business clients, and Zl 1 for individuals. In May TPSA responded, cutting its own prices for business clients to Zl 1.1.

Meanwhile, local Netia and Energis (UK) have taken 4.6% each of the local long-distance calls. Netia acquired a smaller rival, El-Net, and is looking to buy a stake in similarly sized local rival Telefonia Dialog, which has over 400,000 active lines, or 3.3% market share. Netia focuses on the business segment of the market, which accounts for 67% of its revenue. In response, TPSA introduced a new tariff, TP biznes, which calculates connection costs per second, and halved the call connection charge to Zl 0.1. Now, both Netia and TPSA offer the same price, Zl 0.24, for a minute-long phone call during business hours. TPSA’s offer to businesses that have around 25 phone lines is the most expensive of all operators (averaging Zl 345 per line per month). But per line costs drop to about Zl 320 for business clients with over 50 lines. Netia subscribers, by contrast, pay about Zl 310 per line.

Meanwhile, in summer, Energis will start offering subscribers new connections with their own numbers, with costs calculated at a per second rate and with no additional fees, all for Zl 0.2, lower than the TPSA tariff. Energis will also match TPSA’s business hour tariff of Zl 0.1 per minute. And there’s worse to come for TPSA. Its fixed-line tariffs are also coming under direct attack from mobile operators: PTC, for example, has introduced a tariff plan under its Era network, offering the same price as a standard TPSA fixed-line tariff, plus 80 free minutes.

Mobile response
Fortunately for TPSA, it also has a mobile arm, Centertel, which is driving TPSA’s revenue growth in Poland’s US$15bn mobile market. Centertel’s market share increased from 18% to 24% year-on-year, in the first quarter of 2004. Average revenue per user in the prepaid sector rose by 20% over the same period. However, according to Michal Marczak, an analyst at DI BRE Bank, it will be virtually impossible to maintain that growth rate simply because of the competition. For example, in mid-March PTC launched a new pre-paid brand, Heyah, which offers low prices rather than subsidising handsets. A minute call with Heyah costs Zl 0.98, with intra-network connection costs of just Zl 0.68. Call costs are calculated on a per second basis from the outset, unlike those in Centertel.

The cheapest Heyah card is Zl 20, compared with Centertel’s Zl 25. Heyah also offers 40 free SMS business cards so that new subscribers can inform their friends about their new phone number. The ploy has been effective: within two weeks Heyah had attracted 200,000 new users. Brand recognition soared. According to marekt research group ARC Rynek i Opinia, Heyah achieved brand awareness among Polish youth of 82%, helped by its trendy graffiti font, stylised red hand logo and music sponsorship. Heyah is aiming for 1m users by year-end, and to break even in two years.

The competition has been quick to respond. Polkomtel brought in Simplus Team 2 and Centertel introduced Zrob to Sam and a prepaid service POP. Polkomtel’s new tariff is 30% lower than before, and is calculated on a per second basis after the first minute. Centertel also reduced its rates by a similar amount, to Zl 0.60 per minute, but only on its Idea network. Calls to other networks cost Zl 1. Before Heyah’s launch, the average one minute pre-paid call cost Zl 3.66; now it is Zl 1.5.

Meanwhile, TPSA president Marek Jozefiak believes that the company can still deliver its promised 3-5% revenue growth this year, but admits that it will tough. TPSA has fine-tuned its services, such as offering free weekends in exchange for a higher subscription fee, and has begun to address shortcomings in its much-criticised “Blue Line” help-line, and has even changed its logo. TPSA clearly faces more pain--to the customers’ gain.

Source: Business Eastern Europe.