Tower M&A activity in the Polish market is starting to heat up with Cyfrowy Polsat’s towers up for grabs, Play’s portfolio potentially coming to market in early 2021 and American Tower entering the market through a small scale acquisition With interest in the country increasing, TowerXchange reached out to Fitch Solutions to provide further intel into the dynamics at play in the Polish mobile market.
Recent Developments:
- Fitch Solutions estimates the Polish mobile market ended June 2020 with a total of 52mn subscribers, up by 2.3% y-o-y and 0.04% q-o-q (according to operators’ data). The market is saturated, with little organic subscriber growth; therefore, market dynamics will be driven by upselling offerings and advanced data packs with the introduction of 5G.
- In April 2020, due to the ongoing Covid-19 health crisis, the Office of Electronic Communications (UKE) decided to postpone the auction for frequencies in the 3.4-3.8GHz band. The auction is now expected to take place in late 2020 or early 2021.
- Despite delays in awarding 5G-suitable frequencies, the new technology has already been commercially launched by operators using spectrum in the 2100MHz and 2.6GHz bands.
- In H120, Play announced the decision to create a separate TowerCo, which will manage the operator’s existing and future passive networks; reportedly, Play will look to monetise this unit in early 2021 through a partial sale.
- In April 2020, Play agreed to buy Virgin Mobile Polska from its shareholders and investors. Virgin Mobile Polska provides MVNO services on the Play network.
- Three telcos and two state-controlled entities signed an agreement, in October 2019, to roll out shared infrastructure for 5G mobile networks. Orange Polska, T-Mobile Poland and Cyfrowy Polsat (Plus) are working with Exatel and PFR to develop a single nationwide 700MHz band 5G network.
Poland’s mobile market is highly competitive and displays many characteristics of advanced and mature mobile markets. This maturity is reflected in volatile growth in subscription numbers, the downward trend in retail service revenues, the presence of a large number of sub-brands and mobile virtual network operators (MVNOs) and the fact that mobile penetration is declining.
With few organic subscription-based growth opportunities remaining, operators are looking to deepen and lengthen relationships with existing customers. This has necessitated heavy investment in advanced active and passive infrastructure and the development of data- and content-centric services and applications. Mobile data traffic increased by almost 550% between 2015 and 2019, according to the UKE.
Premium Mobile Data Upselling A Crucial Strategy
Mobile Data Traffic (TB), 2015-2019
Investment in network expansion is therefore key to telcos’ revenue growth and increased relevance and the launch of 5G will open up new opportunities, both in the consumer and enterprise segment. Although the potential of 5G is currently curbed by delays in awarding the necessary frequencies, operators have already launched the technology across the country by leveraging their existing spectrum holdings in the 2100MHz and 2.6GHz bands. T-Mobile and Orange currently provide their 5G services through 1,600 base stations managed by their NetWorkS! joint venture, while Plus is looking to deploy an additional 600 base stations to deliver 5G connectivity.
Orange is planning to begin the rollout of its 5G network in 2021. The operator has stated that, at present, the agreement with T-Mobile continues to bring considerable asset optimisation, but it does not completely exclude the possibility of looking for a different arrangement for its mobile network in the future - although Orange’s current priority remains the creation of a FibreCo (Orange Polska has launched a process aimed at selling a just below 50% share in its fibre network) . We believe Orange could evaluate a different solution for its mobile network as part of its plan to possibly monetise its mobile assets, having announced the intention of creating several different towercos across its European markets [starting with France and Spain].
Investment in mobile infrastructure is a priority for Play, too, with the operator aiming to reach the target of 9,500 base stations by end-2021 (up from 7,000 in 2018). In H120, Play announced its decision to spin off its mobile towers in a separate towerco, which will manage the operator’s existing and future passive networks. In June 2020, rumours about a possible asset sale began to spread. Reportedly, Play could be looking to monetise parts of its mobile infrastructure (which includes around 8,000 sites, of which 4,000 are towers), with the process possibly starting in early 2021. In September 2020, Iliad Group announced its plans to takeover Play; with Iliad also having divested towers in France, Italy and Switzerland, the tower sale is expected to continue.
The mobile market continues to grow, albeit nominally, but there is the risk operators are accruing large numbers of inactive subscribers, as has been seen in the past. In H120, T-Mobile gained 67,000 customers, a good performance overall but lower than the 82,000 signed-up over H119. Although this is a relatively small increase, Fitch Solutions believe there is a risk that operators are accruing inactive subscriptions, particularly where customers look to take advantage of short-term promotional offers.
Plus and Orange did significantly better in H120, adding 243,000 and 203,000 subscribers respectively. Play was the only operator to have reported a decrease in subscriber numbers over the first half of 2020, with its base shrinking by 281,000.
Organic Growth Elusive
Mobile Market Growth, Q218-Q220
The market ended Q220 with a total of 52mn subscribers, reporting a yearly growth of 2.3%, but growing only by 0.04% q-o-q. We note that inactive SIM discounting continues to be a feature of the market as low-cost prepaid SIMs continue to accrue.
Price competition is stiff among the four major carriers and the availability of mobile number portability has made it easier for customers to switch operators. Play has generally underperformed in the last three years, losing market shares to its competitors, and lost the mobile market leadership to Orange in Q319. Meanwhile, Plus and T-Mobile have recorded positive growth since 2017, further contributing to the erosion of Play’s market share.
A Competitive Market
Mobile Market Share (%), Q220
At the end of 2019, more than 80 MVNOs were active in the market, including the larger pan-European players (such as Lycamobile), local cable TV operators (such as Vectra, Inea, Toya and UPC) and independent telecoms operators (such as NOM and Netia). Most recently, Russian MVNO DANYCOM launched in four markets in December 2019, including Poland, while MVNO Caritas Laczy is set to start services in 2020, using the services of Polish company Move Telecom and planning to operate under full MVNO model. Although customers served by these players are usually included in the main network operators’ results, their impact on their host operators can be difficult to gauge.
Despite being the market leader, Orange reported ARPU of PLN19 in Q220, well below T-Mobile’s PLN32 and Play’s PLN34. We believe this difference is due to Orange’s convergent offering, which has a dilutive effect on ARPU. Plus has not been reporting mobile-only ARPUs since being taken over in 2013 by Cyfrowy Polsat, which reports ARPUs for converged services only.
Orange Lagging Behind
Operator ARPU (PLN), Q210-Q220
Stagnating ARPUs have led to stagnating revenues. Operators’ financial performance has not improved over the past few years, despite efforts to increase the quality of service and expand networks. Low revenue growth and high capex pose a threat to telcos’ economic sustainability. This will continue to remain an issue across the industry over the coming years, as operators will be required not only to deploy capital-intensive 5G networks – which will take time to provide significant returns on investment – but also to maintain existing 2G, 3G and 4G infrastructure.
Therefore, it is not surprising that operators are looking to invest in mobile networks in a cost-effective way, spinning off their infrastructure in separate towercos to attract investors and/or agreeing to jointly deploy infrastructure. The collaboration between the four Polish MNOs and Exatel and PFR to establish a national 5G wholesale player – which will develop a nation-wide 5G network operating in the 700MHz band – is a clear example of telcos seeking to limit deployment costs without sacrificing coverage. The project is expected to cost around PLN2.3bn and the infrastructure will be owned by a joint venture set up by the involved parties.
High Capex Required
Operators Revenue (PLNmn) And Capex (% Of Revenue), 2019
