Poland: Room for Internet growth

FROM ECONOMIST INTELLIGENCE UNIT

Poland is ranked in the middle of the world in terms of how conducive the market is to Internet-based opportunities. It came in at 34th out of the 68 largest economies, according to our e-readiness ratings for 2006. Regionally Poland was rated in 5th place, behind Estonia, Slovenia, the Czech Republic and Hungary.

Poland is the largest communications market in central Europe in terms of total service revenue. There is fierce competition in the mobile sector and penetration has increased rapidly, helped in many areas by the inadequacies of the fixed-line network. By 2002 the mobile operators had more customers than there were fixed-line connections, and mobile penetration continued to grow rapidly in 2004 and 2005. Growth in the telecoms sector has been held back by the lack of effective competition in the fixed-line sector. The former state monopoly, TPSA (now privatised), enjoyed a monopoly on international calls until the 2003, and has so far faced only fragmented competition. Poland’s fixed-line penetration is still lower than others in the region. In 2004 Poland had an estimated 31.8 main lines per 100 people. Although improving, the poor provision in rural areas is still a problem.

Demand

As in other countries, mobile telephone use is increasing rapidly. However, in Poland, inadequacies in the fixed-line network have been an additional spur to the growth of the mobile market. The number of mobile telephone users overtook the number of fixed lines in 2002 and has continued to grow rapidly. By mid-2005 it is estimated that there were around 25.6m mobile telephone subscribers—compared with around 12.5m fixed lines—giving Poland a mobile penetration rate of around 67%. However, penetration rates for mobiles, despite recent increases, continue to be lower than in other advanced economies in the region.

The market for Internet services is constrained by high telephone charges and still-low levels of PC ownership among individuals. At end-2004 the country had an estimated 11.8m Internet users, an Internet penetration rate of around 31%. E-commerce is growing fast but is still held back by inadequate telecoms infrastructure and, for transactions that involve the delivery of physical goods, also by poor transport links. Until mid-2004 most online sales were restricted to goods ordered electronically but sent by post, such as books, music and consumer electronics. However, the arrival of low-cost airlines transformed the e-commerce market in 2004, and air tickets are estimated to have accounted for 68% of total e-commerce turnover in 2004. Turnover is growing rapidly: in 2004 e-commerce sales were estimated at US$252m, nearly three times the level of the previous year. Internet banking is growing steadily in popularity.

Business demand for IT products and services fell sharply in 2001 and 2002. The market began to recover in 2003 and, according to the local PMR market research firm, is estimated to have grown by 11.5% in 2003 and by a further 15.1% in 2004.

Supply: technology

There is a severe shortage of IT professionals, especially technicians and engineers, as workers have been attracted abroad to high-paying jobs in the US, the UK and Germany. An IT professional in Poland makes only about US$450-600 per month. Most computer software and hardware is imported by US, European and Japanese giants, some of which operate production facilities in Poland. Telecoms equipment is almost all supplied by foreign-owned firms such as Lucent (US), Nokia (Finland) and Ericsson (Sweden). However, there is a thriving local specialist software sector.

Supply: telecoms

Although Poland’s communications infrastructure has improved since 1989, progress has been uneven. International telecoms between business centres and in the largest towns are efficient, but domestic telephone links, particularly in the countryside, remain poor. Although improving slowly, fixed-line penetration is still low by European standards.

The fixed-line market is still dominated by TPSA, but, following the opening of the market, competition is increasing rapidly, particularly in international calls, where TPSA’s market share is reported to have fallen to 73% at the end of 2004. Overall, TPSA still had around 87% of the total fixed-line market in 2004. However, fixed-line telephone charges were still higher than in many other OECD countries in 2004 and were around 20% higher for domestic users than in the Czech Republic or Slovakia, although they were lower than in Hungary. The cost of mobile telephone calls is also generally higher in Poland than elsewhere. The exception is the price paid by individuals making only a few calls, where a price war between the three Polish operators has led to a sharp fall in the cost of pre-paid services. However, prices for broadband Internet access are more internationally competitive.

SOURCE: ECONOMIST INTELLIGENCE UNIT