Our business model and value creation / Business model
To be able to render mobile telecom services we require access to radio spectrum. The amount of spectrum that is at our disposal influences the competitiveness and quality of the services we render and ultimately the customer experience. This is especially important in the light of huge growth in mobile data consumption.
Our competitive position in radio spectrum significantly improved in 2016 following completion of the relevant auction towards the end of 2015. As a result of the auction we acquired 10MHz spectrum in 800MHz band (the maximum that was allowed) and 15MHz spectrum in 2600MHz band. Spectrum at our disposal at the moment is used in the most effective way. On top of our own spectrum permissions based on the agreement with T-Mobile we also use part of T-Mobile's spectrum in the 1800MHz band and 2.4MHz of T-Mobile's spectrum in the 900MHz band.
Over the next 5 years our only licence that will expire is the right to use T-Mobile's spec- trum in 900MHz band. It is due to expire in July 2018.
In March 2017 the management decided not to extend the licence for 4.5MHz in 450MHz band that expired at the end of 2016. The decisive factor was the price of PLN 115 million set by the regulator. The spectrum in question was used to provide wireless broadband services in CDMA technology. We are concentrating on migrating these customers to other technologies.
Our activities with respect to network development are driven primarily by the needs of our customers. These needs are evolving along with the growing number of mobile devices, cloud services, high resolution videos, games and streaming services. In addition, our customers increasingly expect secure access to the digital world at home, at work, and on the move, with optimal quality and speed, regardless of technology. We believe that, among other factors, quality of connectivity is a key criterion when customers choose a telecom service provider.
To full these needs, our network has to be widely accessible, reliable and safe. We are the only operator on the market with a converged network infrastructure (combined xed and mobile networks). That means we can ensure the best network connectivity.
As the former incumbent operator we have the largest network infrastructure in Poland. Network topology consists of around 14 000 km of bre in backbone, 75 000 km of bre in aggregation network and more than 500 000 km of access network. Access network is predominantly built in copper technologies, bre accounts for around 3 500 km at the moment, however it is growing rapidly, in line with our heavy bre investment plans. This constitutes the basis for rendering xed and mobile services.
Fibre is also increasingly used to connect our mobile base stations on one hand to boost capacity to withstand growing data consumption and on the other hand to ensure greater reliability of the network. At the end of 2016, 58% of our mobile base stations were con- nected to backbone through bre. Not only cable infrastructure is shared between mobile and xed networks but also higher network layers like core, control and service platforms. Our network is expected to undergo gradual transition to fully IP-based in the years ahead which will require elimination of certain net- work elements (e.g. PSTN stack).
To ensure the best connectivity and optimum resource allocation we take into account the speci cs of local markets. In cities, we are focusing on the development of Fibre to the Home (FTTH) coverage, whereas in less densely populated areas copper-based technologies, supplemented by mobile ones, are the primary broadband access solution.
In the xed network we stepped up our intensive deployment of bre. At the end of the year our bre access network covered al- most 1.5 million households in 37 cities.
In the mobile network, thanks to LTE800 roll- out based on frequencies purchased in 2016 and earlier Investments in the 1800 MHz layer we were able to ensure almost 100% coverage with our 4G network. In response to the growing demand for high-speed internet access, Orange Polska is also steadily increasing the number of locations supported by LTE Carrier Aggregation technology (4G+), which multiplies available bandwidth.
Network reliability and resilience requires the adoption of self-healing network mechanisms and constant quality monitoring. We are ca- pable of monitoring service quality not only at the statistical level but also from the perspec- tive of an individual customer. We are proactive in our approach and respond before parameters start to deteriorate, preventing network congestion. We want to ensure the same connectivity experience, whether cus- tomers use our mobile or xed networks.
The signi cant increase of security incidents in the online economy resulted in growing customer demand for cybersecurity. Therefore we set up our Security Operations Cen- ter (SOC), serving Orange Polska and Orange Group af liates. We have introduced security services for individuals (e.g. Cybershield) and business customers. Orange Polska's Computer Emergency Response Team (CERT) operates around the clock, taking care of all cybersecurity issues that impact users who access the internet through the Orange Polska network. CERT Orange Polska is also a part of the national cybersecurity ecosystem.
To increase the ef ciency of our infrastructure, legacy technologies and solutions which are mainly voice oriented are being replaced with a converged network capable of handling all types of traf c: voice, data and video. We implement solutions that fully support IP technology, and, thanks to self-healing and dynamic recon guration mechanisms, provide for higher service quality while improving cost-effectiveness.
In our efforts to serve customers with the best network in Poland we leverage our own investment by using third party infrastructure and bene ting from EU funds for network construction.
On the mobile side, we co-operated with T-Mobile to set up Networks!, a company responsible for network construction and network operation. We share sites infrastructure (over 10.000 shared sites) and frequency resources (in the 1800 MHz band) which enabled the fast introduction of 4G and optimis- ation of operational costs.
We are also actively looking for opportunities for bre coverage enhancement.
In areas where we are planning to upgrade our network to high-speed, besides our
investment we are also using modern third party infrastructure, if a reasonable commercial arrangement can be made.
We participate in the national Operational Programme 'Digital Poland' (POPC). From 2014-2020, POPC is implementing EU Digital Agenda objectives in Poland and providing EU funds to support network construction in areas where standalone commercial investment is not pro table. That should allow us to upgrade our network to high-speed capabilities in less populous areas.
We aim to meet the needs of our customers by delivering unmatched data connectivity and products and services that matter to them. We want to be the number one operator for Polish households and the trusted partner of choice for businesses, supporting digital transformation. We offer a broad portfolio of telecommunication products and services for individual, business and whole- sale customers. We are the unique xed-mobile convergent operator in Poland offering xed connectivity based on different technologies.
Our success as a business depends on delivering value to all our customers, enabling them to fulfill their needs and aspirations. This translates into increased market share on the one hand, and on the other hand into revenues and pro ts. To achieve success we have to design a palette of services that t customer needs, are competitive and allow us to differentiate ourselves on the market. Finally, the offer has to be properly communicated.
As customer needs are evolving rapidly and the continued digitization of society generates a vast increase in demand for data transfer, we have to constantly develop our offer, adjusting it to customer needs and providing the right products at the right price. Our activities in this respect are different for the mass consumer market and for business customers. Furthermore, the business customer group is not homogenous either. We make a distinction for internal purposes between small businesses, bigger corporate customers and the largest customers (key accounts). An example of a change in customer needs is the trend towards fulfilling the digital needs of entire households, as opposed to the single service contracts that were the market standard a few years ago. Our products are available to all our customers regardless of their age, ability, skills or place of residence. We conduct an active dialogue with our customers to ensure that our services and products meet the relevant needs and requirements.
In order to be successful, our service portfolio must be competitive. So we very closely monitor the activities of our competition and react appropriately. The Polish market is very competitive with a significant number of players in all its segments. The level and dynamics of competition has had a very significant influence on our financial results. We are constantly looking for innovations in our product portfolio and the right balance between features and price. The key differentiator and the source of competitive advantage for us is the ability to offer both mobile and xed services, which we call convergence. By addressing the household's telecommunication needs in a comprehensive manner and encouraging customers to buy additional services, convergence increases customer satisfaction and reduces churn as compared to single service users. We also develop adjacent services that complete our basic telecom product portfolio for a household, like financial services and energy resale. On the business market a good example of differentiation strategy is our development of competencies in ICT, which in a lot of cases helps us to win business in our core services. Our global and widely recognized "Orange" brand is a vital source of competitive advantage and allows us to differentiate.
The Polish telecom market is not homoge- nous, with households divided fairly equal- ly between big cities, small and medium cities, and rural areas. Each of these three zones is different with respect to factors like competitive environment, our market shares in particular segments, connectiv- ity options and customer needs. As such we have implemented the ‘Macro2Micro’ model, dividing sales into 10 regions and 80 districts. This decentralised structure allows us to diversify our sales approach to match local expectations and customer needs. It also allows us to better recognise the potential of these markets and more effectively plan our network investments adjusted to local demand.
Our strategy with respect to the right mix of sales channels is driven mainly by evol- ving customer purchasing preferences and internal ef ciency. We carefully monitor costs to revenue ratios. An obvious trend is growing importance of online sales. Al- ready around 25% of customers begin their experience with Orange on the internet and that ratio is increasing. Another trend is the desire to have the same experience regard- less of distribution channel, face-to-face, by phone or online. To address this we have developed an omnichannel approach. De- spite the trend towards online we do not expect traditional points of sale to lose their importance. We have seen a trend towards synergy between these channels: custom- ers start a transaction on-line but nalise it in the shop, or vice-versa. At the same time we actively manage our network of points of sale. This includes closures of non-prof- itable locations, relocations, modernisations and upgrades. To encourage customers to explore new solutions, in 2016 we continued to open Smart Stores, interactive outlets de- signed in line with the latest trends, where our customers can test all our services and products.
Orange Polska is the only telecom provider in Poland to hold the prestigious internatio- nal COPC (Customer Operations Perfor- mance Center) certi cate. It attests to the highest standards in customer care manage- ment. In all our contact centres we have im- plemented the relevant global management standards, which concern ef ciency moni- toring, quality, employee recruitment and de- velopment, etc. We currently have 22 contact centres, in which we employ more than 5200 employees both permanent and outsourced, as of December 2016. Customer care at Orange Polska is increasingly handled through the newer contact channels, like social media platforms or mobile apps. For ve years we have been Poland’s leader in us- ing Facebook for customer care, and Orange is among TOP 10 in the worldwide list of Socially Devoted Brands. The ‘My Orange’ mobile app and portal is regularly used by 2 560 000 of our customers. It enables them to quickly and easily check their credit balance, activate or deactivate services, review details of fees and charges or pay invoice. E-invoice share as a proof of possibility of con- tacts digitization (over 68%).
We offer our customers solutions tailored to their lifestyles and needs. In particular, we have implemented dedicated customer service for the following groups: