We provide mobile telecommunication services mainly through Polkomtel, one of the leading mobile operators in Poland. As at the end of 2015 we provided 10.1 million mobile telephony services and over 1.8 million broadband LTE Internet access services offered under two alternative brands: Cyfrowy Polsat and Plus. Polkomtel also offers wholesale services provided to other mobile operators. Currently, our LTE Internet and HSPA/HSPA+ Internet covered 96.8% and nearly 100% of Poland’s population, respectively.
Mobile telephony market in Poland
The Polish mobile telephony market is a mature one. Based on data published by the Central Statistical Office of Poland (GUS), the number of mobile telephony SIM cards as at December 31, 2015 reached 56.2 million, which translates into a penetration rate of the population of Poland of 146%.
The high rate of penetration with SIM cards in Poland is due to many factors, a significant one being that domestic operators retain pre-paid cards, that are no longer being actively used by retail customers, in their reported bases for relatively long periods time. Certain operators, among them Polsat Group, decided to report only active cards arguing that this method of reporting improves transparency and credibility of published data. As at the date of preparation of this Report, however, reporting of prepaid SIM cards based on actively used cards has not become a generally applied practice on the Polish market.
PMR expects further growth in the number of reported SIM cards used in Poland to almost 67.1 million in 2020, though the growth dynamics will continue to weaken every year. As a result, according to PMR forecasts, the mobile penetration rate in Poland will increase to 175.8% in 2020.
In terms of value, mobile telephony remains the largest segment of the Polish telecommunications market, with a share in total market revenue of nearly 45% in 2014 (excluding revenue from mobile Internet access). According to data published by UKE in the “Report on the telecommunications market in Poland in 2014” (hereinafter “UKE report”), the estimated value of mobile telephony market in Poland in 2014, expressed as the sum of the operators’ retail service revenues, was PLN 17.6 billion (excluding revenue from mobile Internet access) and it was lower by around 5.1% compared to 2013. According to the UKE report 81% of revenue was generated by post-paid customers. At the same time, however, 54% of the SIM cards reported by Polish mobile operators constituted pre-paid cards. In our opinion, this discrepancy in statistical data results mainly from the already mentioned above relatively long period of including pre-paid cards in reported bases by domestic operators, even after end-users have stopped using those cards.
In recent years average revenue per SIM cards of mobile voice services (ARPU per SIM) decreased systematically as a result of competitive pressure stimulated by regulatory reductions of wholesale voice and SMS termination rates (MTR). Since July 1, 2013 the MTR rate per minute of voice connection is stable at the level of PLN 0.0429 which, according to a BEREC report dated June 2015, is significantly lower than the European Union average. As at the date of preparation of this Report, no plans concerning further potential reductions of MTR rates in Poland are known.
Assuming no further MTR reductions, PMR estimates that the mobile telephony market, including revenue from mobile Internet access, will grow at an average rate of 2.8% (CAGR 2015-2020) until 2020 and its value will reach PLN 28.2 billion in 2020.
The Polish mobile telephony market is highly competitive and relatively polarized. Four leading infrastructural operators operate on the Polish market: Polkomtel (Plus network), Orange Polska (Orange network), T-Mobile Polska (T-Mobile network) and P4 (Play network).There are also about 20 mobile virtual network operators (MVNO), but their market share in terms of revenue and customer base is relatively low (2% in terms of subscriber base in 2014, according to the UKE report).
The graph below presents market shares of the major MNOs in terms of number of contract SIM cards at the end of 2015.
Market shares in 2014 in terms of number of contract SIM cards
Infrastructure operators (MNOs)
At the date of this Report, there were five MNOs operating commercially in Poland based on their own allocated frequency bands and infrastructure necessary to provide mobile telephony services on their own. This group included Polkomtel, Orange, T-Mobile, P4, and Midas Group (including Aero2 and Sferia).
According to the UKE report, Polkomtel, Orange, T-Mobile and P4 together accounted for approximately 99.8% of the revenue generated on the Polish mobile telephony market in 2014. The remaining revenue was generated by MVNOs and the remaining MNO.
Polkomtel operates under the umbrella Plus brand, it also owns an alternative brand Plush. On May 7, 2014 Polkomtel was incorporated in Polsat Group. Activities of Polsat Group on the telecommunications market are described in following chapters;
Orange Polska, a leading Polish fixed-line telephony operator, operates under the umbrella Orange brand and also has an alternative brand nju.mobile. As at December 31, 2015 Orange reported ca. 15.9 million SIM cards.
P4 operates under the umbrella Play brand, and also has an additional brand Red Bull Mobile. According to the data provided by the operator, at December 31, 2015, P4 had 14.2 million SIM cards. P4 operates solely on the mobile services market relying on purchased access to mobile networks of its competitors.
T-Mobile operates under the umbrella T-Mobile brand and also uses additional brands such as Heyah, Blueconnect and Tu Biedronka. According to the data provided by the operator, at December 31, 2015 T-Mobile had 12.1 million SIM cards. T-Mobile is currently expanding its offer by fixed-line telephony services addressed to business customers based on the infrastructure of the company GTS Poland, acquired in 2014.
Midas Group operates on the wholesale market through companies Aero2 and Sferia, providing wholesale access to its network mainly to Polsat Group. At the same time, Aero2 operates on the residential market, where, in line with its concession obligations, it offers free-of-charge broadband Internet access and provides residential services in the prepaid model based on the “wRodzinie” brand, while Sferia provides telecommunication services to residential users based on its brand “Sferia”.
Virtual operators (MVNOs)
MVNOs are those operators who provide mobile telephony and/or mobile data transmission services, but do not hold any frequency allocations on their own and do not need to have their own infrastructure to provide such services. Under the MVNO business model, existing MNOs provide frequency resources and the necessary infrastructure to MVNOs. According to the UKE report, 20 operators provided mobile services under the MVNO model in 2014.
Although the number of MVNOs is on the increase, none of them has significant market power. According to the UKE report, the joint share of all MVNOs (including Midas Group) in the mobile subscriber market was 2% in 2014. According to the UKE report, total revenue of all MVNOs (including Midas Group) accounted for a mere 0.24% of the total value of the Polish mobile telephony market in 2014. Limited success of MVNO operators has led some of them to cease operations on the Polish market. For example, in 2015 Lebara Mobile and Vectone Mobile terminated their operations in Poland, although they continue successful operations on foreign telecommunication markets.
Internet access market in Poland
Broadband Internet access services can be provided through a wide range of different solutions based on fixed-line technologies, including (but not limited to) xDSL, cable modem, LAN-Ethernet, and WLAN, or mobile technologies such as mobile modems or routers operating in the GPRS, EDGE, UMTS, HSPA or LTE technologies. In Poland broadband Internet access is provided through fixed-line and wireless networks.
Based on the data from the UKE report, in 2014, 90% of households in Poland had Internet access, which translated to a population penetration ratio of 31.6%. At the same time, referring to the Digital Agenda Scoreboard from June 2014, UKE shows in its report that fixed-line Internet access penetration is merely 18.4% in Poland, which the lowest level among all European Union countries, where the average penetration is 30.9%, while in the case of selected countries (Denmark, the Netherlands) it exceeds 40%. Mobile Internet penetration in Poland is significantly better compared to the European Union. According to UKE report, 80.6% of Poland’s inhabitants connect to the Internet with the use of mobile technologies (the EU average is 66.7%).
In the 2015 Digital Agenda Scoreboard Poland was ranked 23 out of 28 EU countries in terms of the Digital Economy and Society Index, which measures the development of individual member states in the areas of digitization of the economy and the society. This report also underscores the weakness and the low popularity of fixed-line broadband infrastructure, contrasting it with the favorable indicators for mobile broadband technologies.
Due to the relatively low saturation of the Polish broadband Internet access market and the progressing development of mobile technologies, mobile data transmission constitutes the fastest growing segment of the telecommunication market.
According to UKE report, in 2014 7.2 million Internet users in Poland used fixed-line access (decrease from 7.6 million reported by UKE for 2013), whereas the number of mobile Internet users reached 5.8 million (growth by 38% versus 4.2 million reported by UKE for 2013). 2G/3G/4G modems are gaining popularity (growth of market share from 39.4% in 2013 to 44.9% in 2014), while the popularity especially of the xDSL technology and cable modems is declining. The market share of the first decreased from 25.7% in 2013 to 22.5% in 2014, and in the case of the latter from 21.1% in 2013 down to 19.0% in 2014.
According to the UKE report, in 2014 49.6% of Internet users in Poland used access links with throughputs below 10 Mbps, while links offering over 30 Mbps were used by only 26.7% of Poles.
According to the UKE report, the value of the Polish broadband market, measured in terms of revenue from sale of services, was PLN 5.1 billion in 2014, up by 11.5% compared to 2013. 2014 mobile technologies increased their share in quantitative terms in the revenue structure to 31.8% (from 26.8% in 2013), while the importance of fixed-line offers, relying on xDSL lines, cable modems and LAN-Ethernet remained in a downward trend during this period. According to the UKE report, the average monthly revenue per user of Internet services (ARPU) decreased by PLN 2.24 in 2014, down to PLN 32.9.
Fixed broadband Internet access in Poland
In Poland, availability of fixed-line broadband services is limited mainly to urban areas. Outside urban areas, fixed-line broadband services are offered only to a limited extent, which is due to historical underinvestment resulting primarily from the high cost of build-out of local loops and strategies adopted by leading fixed-line operators. According to the UKE report, access to xDSL technology remains the most popular form of fixed-line Internet access. Orange is the dominant player operating this technology, whose share in the total number of xDSL customers decreased to 73.3% in 2014.
Cable modems, offered by cable TV operators, are the second most popular fixed-line access technology. Based on the UKE report, UPC Polska (39.9% share in user base), Vectra (19.6%) and Multimedia (15.2%) were the major operators on this market in 2014. Due to the high cost of cable network construction in less urbanized areas, cable networks’ growth potential in the field of Internet access is limited.
Mobile broadband Internet access
The market of broadband Internet access based on mobile technologies (defined as access via modems or dedicated SIM cards integrated with laptop computers or tablets) is dominated by four mobile operators. According to the UKE report the four leading providers of those services (Polkomtel, T-Mobile, Orange and P4) jointly held 79.2% of the market in 2014. The remaining 20.8% is divided between MVNO operators and Cyfrowy Polsat, who actively promotes and sells mobile Internet access in LTE/HSPA+ since 2011.
Compared with other EU Member States, Polish mobile broadband market offers large potential for growth. It is related to relatively low quality of the existing fixed-line infrastructure in Poland, which makes mobile broadband technology more attractive to Internet users as it offers better quality parameters in their respective area of residence. Moreover, Poland's low urbanization level often makes mobile access the only technology available in a given location.
According to the UKE report, in 2014 revenue from mobile technologies grew at the fastest rate on the entire broadband Internet access market, and mobile broadband became the most popular Internet access technology in terms of the number of users (market share of 44.9%, up from 39.4% in 2013). The success of mobile broadband can be attributed to broad availability and the ease of installation of this form of broadband access, affordability, the growing HSPA+ and LTE network coverage, and increasing data transmission speeds. The mobility feature constitutes an advantage of this form of broadband access to a group of customers.
Development forecasts for the broadband Internet access market
The continuing development of HSPA+, LTE and LTE Advanced technologies, offering high-quality mobile broadband Internet access to the majority of the population of Poland, combined with the provision of new services and products (such as those based on video streaming), will make this form of broadband Internet access even more popular among Polish users. As network investments by fixed-line operators in suburban and rural areas are limited, mobile broadband technologies will be also the key factor contributing to further increase in the penetration of Internet access services in Poland. In addition, high quality of LTE-based services will lead to increased data usage by customers, which will improve ARPU, reduce churn, and increase the broadband Internet market share of mobile operators.
According to PMR forecasts, the Data Transmission, Line Rental and Internet Services Provision (DLISP) market will remain the fastest growing segment of the telecommunication market. Further investments into broadband network roll out as well as further development of the LTE technology will be the most significant factors. According to PMR forecasts, in coming years the value of the broadband Internet access market will demonstrate continuous positive dynamics, reaching the level of PLN 6.4 billion in 2020.
In accordance with the PMR forecasts, in 2020 the number of broadband Internet access subscribers in Poland will increase to 16.6 million. PMR forecasts that increments of the number of mobile Internet subscribers will systematically exceed 400 thousand annually in the years 2015-2020, hence the rate of growth of the number of mobile broadband Internet subscribers will be several times higher than that of fixed-line access users. The advancing popularity of mobile technologies in Poland will be the result of competitive pricing as well as growth of mobile network coverage, which will directly translate to improved quality and continuity of coverage of the purchased service. The fast development of LTE network coverage, as well as LTE Advanced and 5G in the future is an additional factor stimulating the development of mobile Internet services. These standards will enable the provision of mobile services characterized by transmission rates and network throughput levels which have so far been unachievable for radio access technologies.
Mobile telephony offer
Residential mobile voice services
Our residential contract offer is standardized and includes a variety of contract plans. Currently, it is available in the postpaid and prepaid model as well as in the mix offer.
Our postpaid residential offer “JA+Abonement” (“I+Subscription”) is based on a monthly subscription fee which includes a specified number of minutes and, depending on the value of the commitment, other services such as text and multimedia messaging, data packages, packages of minutes and data in roaming or TV available on the handset. Similarly to other offers available on the Polish market, our offer is currently based on unlimited tariffs which allow the customer to make unlimited calls, send unlimited text messages and sometimes also multimedia messages (MMS). The extent of services available in unlimited tariffs, including the direction of voice calls (only within a given network, to all mobile networks or to fixed-line networks as well) depends on the subscription fee. We also offer our customers data packages. The contracts are concluded for a fixed term - typically 24 months. Contract plans give customers the possibility to choose from a broad selection of handsets, with the option to purchase an economic, subsidized handset or one sold in the installment model. Customers can also select a tariff without a handset.
The “JA+Mistrzowski Mix” (“I+Champion Mix”) and “Plush Mix” offers combine the characteristics of a prepaid and contract offer. Customers commit to make a specified number of top-ups of specified values, which can be used for telecommunication services, including minute packages, text messages or data packages. Unlike traditional contract plans, the period for providing services is not fixed and customers are only required to make one top-up of a specified value at least once every 30 days.
Prepaid offerings allow customers to gain access to our mobile network upon the purchase of a starter pack (SIM card with a fixed amount of credits to be used for mobile services). All prepaid plans provide that the top-up can be made at any time with the use of a prepaid top-up. Prepaid voice services are offered in the tariff “Ja+Na Kartę” (“I+Card”) and “Plush na kartę” (“Plush card”).
Mobile voice services for business customers
Business customers are mainly offered contract solutions, often on the basis of solicited tenders for their mobile requirements on a competitive basis. We also offer fixed telephony services, LAN (local area network)/WAN (wide area network) solutions, mobile broadband and other dedicated solutions. Business contracts specify the tariff, contract duration and the value of the monthly subscription fee.
Business mobile voice services for Small Office/Home Office customers are more standardized. The offering comprises several monthly subscription fee options, taking into account the specific preferences of this segment. Small Office/Home Office contracts have a fixed term, which is usually 24 months.
We provide international roaming services to our individual customers, who can use telecommunications services (including voice calls, text messaging and data transmission) while being abroad and logged into foreign networks.
The majority of roaming calls made by our customers are directed through European networks. Vodafone is Polkomtel's key partner in retail international roaming.
Internet access offer
We provide a comprehensive array of data services to both residential and business customers under two alternative brands: Plus and Cyfrowy Polsat.
We offer our mobile broadband Internet services through the use of third generation technologies: HSPA+ and HSPA+ Dual Carrier and since 2011 also the world’s latest, cutting edge LTE technology. Our broadband Internet offering is universal, and provides broadband Internet access via all supported technology platforms, for a single monthly fee. Thanks to this solution today almost 100% of Poles live in areas covered by Cyfrowy Polsat’s Internet service, while 96.8% of them can access our LTE Internet.
We offer several data plans with different allowances and price tiers, tailored to customers' individual needs.
Dedicated mobile broadband Internet access is offered in contract tariffs. These contract plans are based on a monthly access fee and allow for a defined data transmission limit or unlimited data transmission in the LTE network. Under our contract plans customers may purchase access devices (including dongle modems, fixed and mobile routers). In addition, our offer includes a wide array of tablets and laptops, which can be purchased in an installment plan, as well as tariffs without equipment “SIM only”.
“JA+Internet na Kartę” (“I+Prepaid Internet”) is a prepaid tariff plan dedicated to data transmission allowing customers to receive a data package, whose size and period of validity are determined by the value of the top-up.
Under pay as you go services customers (both contract and prepaid) are charged on a per-kilobyte basis at a standard rate.
Thanks to our LTE Internet access service combined with the set Home LTE Internet, created specifically for Cyfrowy Polsat and Polkomtel, we can offer customers a product that constitutes an excellent substitute for fixed-line Internet. Based on the ODU-IDU technology (Outdoor Unit Indoor Unit), the Home LTE Internet set consisting of an external LTE modem (ODU) and an internal router Wi-Fi (IDU) is an innovative and unique product on the market. It significantly improves LTE coverage and quality thus enabling the use of the state-of-the-art LTE technology in places, where it was so far impossible to do. The existing TV installation (satellite or terrestrial) can be used to install the set and transmit both the TV signal and LTE Internet over one concentric cable.
Most of the terminals offered by us for Internet access rely on LTE data transmission technology. We sell modems, portable mobile routers, fixed-line routers, tablets as well as sets including laptops. Currently, we offer a choice of equipment supporting maximum LTE download rates of up to 150 Mbps.
Over half of the contracts sold with equipment involve mobile or fixed-line routers. Among the available devices the ODU-IDU set is particularly worth noting. It is a combination of an LTE modem for installation outdoors, which is able to operate in difficult conditions, and a router which distributes the signal inside the house. This solution provides much better signal power than traditional routers.
Currently, smartphones constitute the majority of the handsets sold. The share of classic handsets in total sales continues to decrease and currently does not exceed several percent. The majority of smartphones sold in 2015 supported LTE technology for data transmission. The LTE technology is offered in increasingly lower-end terminals. Until recently, this was true for products of renowned producers. New brands, such as Huawei, are currently joining the race. Today an LTE handset can be bought for the proverbial one zloty with an affordable monthly commitment.
Handsets are sold in two sales models. In the subsidized model the price of equipment paid by the customer decreases as the subscription fee increases. In the installment plan model an installment for equipment purchased by a customer is added to the monthly subscription fee. Bundled data packages, also for use in LTE technology, are now offered with subscription levels.
Based on our data, the share of smartphones in total number of handsets sold to Plus customers increased from 84% in the fourth quarter of 2014 to 88% in fourth quarter of 2015 and hence the share of smartphone users increased in Plus network from 44% at the end of 2014 to ca. 54% at the end of 2015.
See also: www.plus.pl
Technology and infrastructure
Our broadband Internet access services are based on a radio infrastructure provided by Polkomtel and companies of Midas S.A. capital group.
Polkomtel operates an integrated 2G and 3G mobile communication network. Polkomtel's network supports GSM/GPRS/EDGE (2G) and UMTS/HSPA+/HSPA+ Dual Carrier (3G) technologies. Polkomtel also has an extensive CDMA network. Moreover, ee have access to mobile data transmission service on 900 MHz and 2100 MHz frequencies in LTE and HSPA+ technologies.
As in mobile telecommunications networks it is possible to automatically switch between technologies, uninterrupted service functionality for end users is ensured, while the parameters (e.g. data transmission rate) improve when the user comes within the coverage of a more technologically advanced network.
As at December 31, 2015, the LTE/HSPA+ network operated by Midas Group and being developed jointly with Polkomtel, consisted of 5,170 HSPA+ base stations and 7,590 LTE base stations, 3,291 of which were stations operating in the 800 MHz frequency band.
Polkomtel's access network is supported by an appropriate transmission network using mainly packet data transmission technologies. The network is divided into the access layer (180 Mb/s, 360 Mb/s and 1 Gb/s microwave links, and fiber optic links), an aggregation network (mainly fiber optic, using Carrier Ethernet Transport MPLS-TP technology, mainly 10 Gb/s), and a backbone network (solely fiber optic, using the IP/MPLS technology, with bit rates being multiples of 10 Gb/s, and since 2014, also of 100 Gb/s).
The core network, solely owned by Polkomtel, ensures central handling of customer services, integrating them for the 2G/3G/4G technologies (Single Core). In this way, Polkomtel is able to provide customers with access to its services irrespective of the radio technology applied, enabling an evolutionary transition of voice services from 2G (GSM), through 3G (including higher quality voice services), to 4G (with voice services based on CSFB or, in the future, VoLTE). The same strategy was used for data transmission services, enabling customers to use the broadband Internet access both in the 3G (HSPA+, HSPA+ Dual Carrier) and the 4G (LTE) networks. The core network architecture facilitates effective and easy capacity expansion to match the growth of the customer base and increased service demand.
In December 2015, UKE commissioned a study of the quality of services provided by the largest Polish mobile operators. Results of this study demonstrate that Plus stands out among its competitors with very good results in terms of average transmission speed (both download and upload), a low ratio of package loss and short time of establishing voice connection.
According to the published report, the average download speed in Plus network was 25.19 Mb/s while in T-Mobile and Orange it was 20.64 Mb/s and 19.66 Mb/s, respectively, and in Play network – 12.43 Mb/s. Plus also had the highest upload speed of 17.71 Mb/s. In the case of the remaining telecoms this parameter was as follows: T-Mobile – 16.87 Mb/s, Orange – 15.85 Mb/s and Play – 12.60 Mb/s. The conducted study also demonstrated indirectly that Plus has the widest LTE coverage in Poland. Data transmission tests in Plus used the LTE technology 94% of the time, while in the case other operators is was 83% for Play and 78% for T-Mobile and Orange.
We regularly upgrade and expand our network in order to provide its customers with technologically advanced services and optimize the network's technical performance and efficiency. Network modifications include increasing the capacity of the network's existing elements, hardware replacement and installation of additional hardware, as well as continuous optimization achieved by reconfiguring the network parameters.
Development of the LTE technology
Compared to HSPA+ or UMTS, LTE is characterized by much lower latency and has the capacity to support a greater number of users. The potential of the LTE technology is based on greater capacity and transmission speed with lower latency, which enables LTE Internet service customers to use interactive and multimedia applications requiring high bandwidth and transmission in real time, such as online games, video communication and HD TV through Internet. Devices offered for customers of Cyfrowy Polsat LTE service enable the speeds of up to 150 Mb/s for data received from the Internet and 50 Mb/s for data sent by a user.
In 2011, as the first commercial provider in Poland we started offering broadband Internet access in LTE technology, which currently is able to provide a maximum speed of up to 150 Mb/s based on a continuous 20 MHz block in the 1800 MHz band. Since 2015 we additionally use the network based on a 5MHz block in the 800 MHz band, provided by Midas Group, which allowed us to increase the coverage of the fastest mobile LTE Internet from Cyfrowy Polsat and Plus to 96.8% of Poles. According to data published by operators, this is the broadest LTE coverage currently offered in our country.
In light of extremely high price levels attained in the LTE Auction, we decided that potential cooperation with entities, who won 800 MHz frequency blocks, would be financially inviable and irrational, both for the Group as well as for our customers. Therefore, we have decided to invest in further development of our LTE network based on frequencies currently owned and utilized by Polkomtel and Midas Group, comprising 900 MHz, 1800 MHz, 2100 MHz and 2600 MHz frequency bands.
We expect that the roll out of the LTE network based first and foremost on a continuous 20 MHz block in the 1800 MHz band, the densification of the network of base station locations, a clear increase in the number of active transmitters and the application of the unique ODU-IDU technology (Outdoor Unit Indoor Unit) will allow us to maintain our competitive advantage in terms of quality of our mobile Internet service. The planned process of refarming of the 900 MHz and 2100 MHz spectrum constitutes another important solution, in consequence of which part of the spectrum currently used to provide 2G and 3G services will be allocated to the cutting edge LTE technology and, later on, LTE Advanced. As a result, we expect to achieve further improvement of the quality of the Internet access service provided by us. Concurrently, the level of capital expenditures required to execute the planned roll out of our mobile network will be significantly lower compared to the cost of purchase of the 800 MHz spectrum in the LTE Auction. Ultimately, this may translate into more attractive services and prices for customers than in the case of a network rollout based on the 800 MHz frequency band.