July 2000

Poland Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

1. The interaction between business and regulatory constraints

1.1 Attitude of the incumbent operator towards alternative network providers

The strategic investor will be France Telecom and Kulczyk Holdings consortium. On 22 May the Minister of the State Treasury granted a six week exclusivity period (from 22 of May to 30 of June) to the consortium for negotiations to buy 35% of the Polish Government (Treasury) shares. By 2001 the strategic investor will be able to increase its shares in TPSA to over 50%. Nevertheless, TPSA retains its monopoly over international connections until 2003. TPSA also partially owns Centertel, the mobile operator.

In the voice telephony market, local communications services are more liberalised, and there are fewer entry barriers. Full liberalisation in this sector will occur in 2001. In addition, domestic long-distance voice telephony and international communication and voice services closed to user groups are partially liberalised. Until 2003, the law requires a Polish majority to own a long-distance provider.

Nevertheless, the international voice telephony by internet will be permitted much earlier. Voice of Internet Protocol (VoIP) will be permitted by the Minister of Posts and Telecommunications in a few weeks. The first operator, which started VoIP in Poland for international connections in December 1999, was Polska Telefonia Cyfrowa (Era GSM). After protests by the Ministry of Telecom and TPSA, the operator has to stop. Finally, ERA GSM was allowed to provide "experimental" services.

On 20 April 2000 Minister Szyszko provided information for the press regarding the main objectives of the Ministry in telecommunication services market liberalisation. These objectives are:

• increase of the competition and services development in local and long-distance telephony
• liberalisation for IP providers by cancellation of licences
• legal regulations for the Voice over IP service
• stimulation of telecommunication structure in the less developed rural areas by lower licence fees for telecom operators

Mr Szyszko mentioned that Ministry is going to call for tender for the Universal Mobile Telecommunication System UMTS - the III generation mobile telecom services - at the beginning of 2001.

Licences for 3 long-distance operators (Netia 1 Sp. z o.o. (Co Ltd), NG Koleje Telekomunikacja (KT) Co Ltd, Niezalezny Operator Miedzystrefowy) were signed by Mr Tomasz Szyszko, the Minister of Posts and Telecommunications on 17 May 2000.

1.2 Ongoing regulatory developments concerning alternative networks

1.2.1 Railway networks

In 1999, the first reading of the governmental project on commercialisation, restructuring and privatisation of Polskie Koleje Panstwowe (PKP), which was elaborated by the Ministry of Transport and Maritime Economy, took place in the Polish Parliament. It is planned that PKP enterprise will be divided by few stock companies, and up to 15% of its shares will be offered to PKP employees. Till now there is no final solutions.

1.2.2 Gas networks

The path of the second pipe line from the Yamal to the West Europe is now under discussion and negotiation. The second pipe line is unlikely to be parallel to the first one. Three main options are under consideration.