Integrated Report 2018

  • Introduction
    • Message from CEO
      •
    • About the report
      •
  • Company and our stakeholders
    • About our company
      •
    • Our stakeholders
      •
  • Business model and value creation
    • Business model and value creation
      •
    • Key resources
      •
    • Business model
      •
    • External environment
      •
    • Internal environment
      •
  • Strategy
    • Q&A with CEO
    • Our strategy
  • Results
    • Q&A with CFO
    • Outputs & outcomes
    • Financial review
  • Risk
    • Risk management
    • Risk exposure
  • Corporate governance
    • Our approach to corporate governance
    • Our governance structure
    • Governing bodies activities in 2018
  • Selected financial data
  • Appendix
    • GRI table
    • Defining the Reports content
    • Sustainable Development Goals
    • Methodology
    • Glossary
    • Independent Limited Assurance Statement
    • Contact information
Business model and value creation

External environment

Regulatory

General rules

The Polish telecommunications market is subject to sector regulation established at EU level and transposed to national legislation. It is supervised by the National Regulatory Authority - Office of Electronic Communications (UKE). As a general rule the telecom market is divided into separate markets of wholesale and retail services (so-called “relevant markets”). UKE analyses the level of competition within each of these markets and, based on this analysis, decides on the necessary level of regulations. As a former incumbent operator on the fixed services market, Orange Polska is designated an entity with significant market power and is subject to regulations in certain market segments. As such, this regulatory regime has significant impact on some of the services we provide. On the mobile market, regulations are equal for Orange Polska and other big market players. Our activities are also subject to supervision by the Office of Competition and Consumer Protection (UOKiK).

Core regulations

We consider the following regulations to be the most important for our business at the moment:

  • Regulation of wholesale broadband services (so-called BSA) and physical access to last mile infrastructure (LLU) belonging to Orange Polska, is mandatory in all areas of the country under cost orientation obligations and non-discrimination requirements, and covers both fibre and copper lines. BSA to Orange Polska fibre and copper infrastructure is not mandatory in the 76 municipalities which are deregulated. In the rest of the country, Orange Polska is obliged to provide BSA based on non-discriminatory conditions and prices based on costs (verified by Margin Squeeze/Price Squeeze tests).
  • Regulation of call termination services in fixed network – Orange Polska is not the only operator subject to this regulation but its regulation is the most restrictive in terms of termination rate and wholesale access conditions. Additionally, the fixed termination rates applied to Orange Polska and other operators are asymmetrical.
  • European regulations regarding roaming prices in the European Union – Since 15 June 2017 retail prices for roaming services are equal to domestic retail prices. Operators are protected against abusive use of roaming through the “fair use” policy. As roaming price regulations have a negative impact on both revenue and profitability, Orange Polska applied to UKE for the right to use surcharge mechanisms for customers who abuse Roam Like at Home rules.
  • n the course of works on the European Electronic Communications Code, it was postulated to regulate international calls. The relevant Regulation, which came into force on December 20, 2018, provides that starting from May 15, 2019, international rates within the European Union should not exceed EUR 0.19 per minute for calls and EUR 0.06 per SMS message. The regulation applies to consumers only and will remain in force for five years.
Obviously as a business entity we must also comply with administrative decisions and general law and regulations. Recently the legal environment has been changing dynamically. Further amendments to telecom rules are pending both at European and national level.

Recent trends in regulatory environment

The regulatory regime over the past few years has been evolving toward a policy of balanced intervention. This is mainly related to changes in the structure of the overall telecom market in Poland and a much higher degree of competition in particular segments (e.g. emergence of cable operators as important players in retail fixed broadband).

In particular, the Office of Electronic Communications (UKE) has issued decisions that will ensure symmetrical access to cable ducts operated by the largest infrastructure owners. The relevant regulatory obligations have been imposed not only ontelecom operators, but also on the biggest cable TV operators. Furthermore, UKE is working on regulations on access to indoor cables; these would cover the biggest CATV operators as well.

In the beginning of 2019, UKE published draft decisions which would lift regulatory obligations from Orange Polska in the markets for wholesale broadband access (BSA) and access to the local loop (LLU). After final decisions are issued, a total of 151 communes (namely 67 deregulated in 2014 plus 84 additional ones) will be deregulated in the BSA market, and 51 communes will be deregulated in the LLU market.

We expect the next major development in the regulatory framework to be a change in Fixed Termination Rate (FTR) calculation. UKE is working on a new FTR costing model in line with the European Commission’s recommendation. When it is implemented, it will have significant impact on Orange Polska’s revenue