Orange Polska’s failure to successfully implement its strategy could lead to a loss of market share and/or shrinking margins

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• Increased competition and pressure on services and prices
• Loss of a part of the market due to introduction of new services and technologies
• Failure to obtain the expected return on investment in fibre and loss of broadband market share
• Marginalisation of the role of mobile network operators due to implementation of eSIM technology
• Increased competition from CATV operators in the convergent market
• Emergence of new types of fraud with new technologies
• Consequences for Orange Polska resulting from coronavirus outbreak

The main markets in which Orange Polska operates are mature or even saturated. It therefore faces extremely tough competition, which initially was mainly on price, but presently focuses on the quality of products and customer care.

The rapid growth in broadband use (both fixed and mobile) and emergence of new technologies allow global players in the internet sector to establish a direct link with customers of telecom operators, thus depriving the latter, including Orange Polska, of a portion of their revenues and margins. If this phenomenon continues or intensifies, it could seriously impair the financial position and outlook of operators.

Orange Polska’s failure to successfully implement its strategy could lead to a loss of market share and/or shrinking margins. The same could occur in the event of consolidation of other players in one of the markets where it operates.

Moreover, with growing complexity of technologies and networks and accelerated implementation of new applications and services, particularly related to interconnection and customer relationship management, new types of fraud which are more difficult to detect or combat could also emerge. This may result in a loss of revenues.

Caused by COVID-19 pandemic closure of substantial part of physical distribution network and restrictions of people’s mobility will impact sale of new services as well as sale of equipment and related accessories. Closure of borders will impact revenues from international roaming and visitor roaming. There is a risk of delays or cancellations of some projects from our business customers. Likely significant economic slowdown may have adverse impact on collection of receivables and create risk of bad debts. Weakening of PLN to EUR and USD may negatively impact our costs and capital expenditures denominated in foreign currencies. We see more adverse impact on revenues than on profitability because the core service revenues are expected to be much less impacted by the crisis. As of the date of this report it is not possible to give more precise assessment, as it depends on factors beyond the control of the Company. These factors include, among others: the length and severity of the pandemic; its ultimate impact on the Polish economy; and the measures taken by the government on the one hand to limit the pandemic threat, and on the other hand to help and protect society from the effects of the crisis and the pandemic.

In response, Orange Polska has chosen to make significant investments in fibre, pursue a convergence strategy and continue with transformation and efficiency gains. It is also committed to developing adjacent business activities, such as IT & Integration, sale of devices and electricity supply.

We assess that the core of our operations remain relatively immune to the impact of the pandemic. Data and voice connectivity has become more essential than ever to the needs of consumers and businesses. To counteract closure of large part of points of sale, we are boosting online and telesales and we see increased customer traffic in these channels. We also intensified marketing push on our fully digital Flex offer which can be activated fully remotely. We expect that reduced commercial activity will positively impact customer churn. Recent weakening of PLN versus EUR and USD will have a limited short-term negative influence on operating costs and level of capital expenditure, as we are using hedging instruments to cover majority of our foreign exchange exposure.

Increase in the number and duration of service interruptions

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• Orange Polska’s IT&N infrastructure outage
• Exposure of Orange Polska to cyber attacks
• Occurrence of terrorist attacks
• Decrease in quality or non-performance of services due to dependence on external partners
• Consequences for Orange Polska resulting from coronavirus pandemia outbreak

Service disruption or interruption may occur following (i) cyber- attacks (on the IT&N infrastructure), (ii) outages (of hardware or software), (iii) human errors, acts of terrorism or sabotage of critical hardware or software, (iv) failure of a critical supplier, or if the network in question does not have sufficient capacity to meet the growing usage needs, or (v) during the implementation of new applications or software or (vi) unavailability of critical products or their providers due to markets’ instability. The impact of such incidents could seriously damage Orange Polska’s reputation and result in revenue erosion, affecting its profits and market position.

This risk is mitigated by proper network and IT systems development planning, investments in the development of disaster recovery solutions, insurance schemes (covering cyber and terrorism risks), as well as implementation of business continuity and crisis management plans. Orange Polska has become the first telecom operator in Poland to obtain the ISO 22301:2012 Certificate for its Business Continuity Management System in the scope of provision of telecommunication, ICT and cybersecurity services.

Regarding the coronavirus situation, Orange Polska mitigates the risk by following business continuity plans and introduction of telework mode for over 80% of its employees. Sanitary and disinfection means are being provided to each premise for employees’ and customers’ safety.

Breach of information security, including personal data

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• Breach of information security, including personal data

Orange Polska’s activities may trigger the loss, disclosure, unauthorised communication to the general public or third parties, or inappropriate modification of the data of its customers. Such losses could arise from (i) implementation of new services or new applications, for example those relating to billing and customer relationship management, (ii) launch of new initiatives, especially in the field of Internet of Things (IoT), (iii) malicious acts (including cyber- attacks), particularly aimed at theft of personal data, or (iv) potential negligence within Orange Polska or its external partners.

For infringement of GDPR protection rules, administrative fines of up to 4% of the annual global turnover may be imposed. Such incidents could have a considerable impact on the Group’s reputation and a heavy impact on its liability, potentially including criminal liability, and hence have an adverse impact on Orange Polska’s future financial performance.

Alongside the risk related to customer data, Orange Polska faces a similar risk of unauthorised disclosure, publication or communication to unauthorised entities of commercially sensitive information, particularly the details of planned initiatives, marketing campaigns, new offers or sales packages. The premature disclosure thereof could result in Orange Polska’s failure to achieve its sales objectives and loss of its market shares. The main causes of this risk include: (i) industrial (corporate) espionage, (ii) malicious acts (including cyber-attacks), particularly aimed at theft of proprietary information, or (iii) potential negligence on the part of the Group or its business partners.

Orange Polska holds an Information Security Management System certificate of compliance in line with ISO/ IEC 27001, for the scope of services of ICT, hosting, collocation, cloud computing, cybersecurity and personal data processing in cloud computing.

In addition, Orange Polska holds a certificate of compliance with ISO/IEC 27018 Code of practice for protection of personally identifiable information (PII) in public clouds acting as PII processors; it covers personal data processing services in cloud computing via UCaaS (Unified Communication as a Service), ICS (Integrated Computing Standard), ICM (Integrated Computing Managed) and smart CCaaS (smart Contact Center as a Service) cloud computing.

Furthermore, the Company holds and maintains FIRST and Trusted Introducer

Risks related to financial markets

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• Increase of interest rates
• Depreciation of the local currency

The Polish Central Bank’s policy did not change in 2019 and interest rates remained stable at a historic low. It was expected to prevail till the end of the current members’ tenure, however in March and April 2020 Monetary Policy Council has cut the reference interest rate from 1,5% down to 0,5%, also increasing the liquidity in the banking sector and purchasing the securities, as a remedy mitigating the potential negative impact on the Polish economy resulting from the COVID-19 pandemic, which erupted in March 2020.

Foreign exchange rate fluctuations affect Orange Polska’s liabilities denominated in foreign currencies and settlements with foreign operators.

A potential increase in interest rates should not have any major influence on Orange Polska’s debt service costs, owing to a high hedging ratio.

Potential depreciation of the Polish zloty should not have any major influence on Orange Polska’s liabilities denominated in foreign currencies or settlements with foreign operators, owing to a high hedging ratio.

Regulatory obligations resulting from legislation changes and administrative decisions

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• Fixed Termination Rate (FTR) cuts
• Risks related to acquisition of new spectrum for high-tech telecommunications services (including 5G)
• Potential consequences of US – China Dispute
• Proceedings by UOKiK and European Commission related to network sharing
• Financial corrections with regard to POPC
• Increased tax burden and fiscal pressure resulting from changes in legislation
• Increase in remuneration for the use of third parties’ land for the purpose of development and maintenance of Orange Polska’s infrastructure
• Reputational and financial losses resulting from involvement of Orange Polska’s employees or partners in corruption schemes

Orange Polska must comply with various regulatory obligations governing the provision of services and products, particularly related to obtaining and renewing licences. The regulatory obligations result from legislation changes and administrative decisions. Regulatory decisions and changes in the regulatory environment may have an adverse effect on Orange Polska.

Due to a bilateral dispute between the US and China, some Chinese suppliers face a risk of sanctions by the US government. For telecom operators, such as Orange Polska, imposition of sanctions against Chinese suppliers could hinder the scheduled rollout of network infrastructure (particularly 5G) and affect the available range of telecommunications equipment suppliers. Orange Polska may also suffer losses resulting from decreased popularity of Chinese brand products. In addition, due to the global scale of the conflict, there may be delays or an increase in costs of implementation of the 5G network.

There is a risk of failure to achieve the expected return on investment due to decrease of co-financing with regard to POPC.

Despite Orange Polska’s drive to strengthen its anti-corruption policy, corruption cases could occur due to the number of partners engaged and complex processes performed. This could have an adverse impact, particularly on Orange Polska’s reputation.

In 2018, there were a number of changes in the legal environment with respect to both general law and provisions specific to the telecom sector. The legal and regulatory environment requires constant and diligent monitoring, as well as allocating resources to implement new regulations and prevent any noncompliance.

At the European level, in 2019 the European Union began developing a concerted approach to 5G network security, carrying out a risk assessment and identifying the key risks affecting 5G networks. As a result, “Cybersecurity of 5G networks - EU Toolbox of risk mitigating measures” was published in Jan 2020, setting out a general approach to 5G network security. This document does not explicitly exclude or prohibit any supplier. However, dependence on one supplier, as well as risk associated with the supply chain, including the activities of other countries, were considered a significant risk. Member States are also expected to carry out a risk profile analysis and, depending on the result, introduce appropriate restrictions and exclusions especially for key resources. This is already happening at the national level, as reflected in the signing of the US-Poland Joint Declaration on 5G in 2019 and commencement (2020) of a legislative process regarding new requirements for the security and integrity of telecommunications networks, including 5G. Orange Polska keeps track of potential regulation in this area, and will act to comply with any new obligations that may be put in force.

Orange Polska has implemented an Anti-Corruption Policy and Guidelines. These regulations contain detailed rules and standards as well as references to specific conditions and circumstances relating to the identification and mitigation of corruption risks. In addition, we have carried out a number of training and information campaigns to raise awareness of anti-corruption laws and rules among employees.

Exposure to electromagnetic fields (EMF) from radio equipment

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• Adverse effects of EMF on human health
• Decline in use of mobile telecommunications services
• Difficulties and additional expense in rolling out base stations and other wireless equipment

Exposure to electromagnetic fields (EMF) from radio equipment (used mainly on mobile, but also fixed, networks) might raise concerns for their possible adverse effects on human health. Since January 1, 2020, the Polish EMF limits have been consistent with the Council Recommendation 1999/519/EC. Consequently, they are currently similar to the limits adopted in most European countries. If, at some point in the future, the above-mentioned health risks were scientifically proven to any extent, this would likely result in a decline in use of mobile telecommunications services, difficulties and additional expense in rolling out base stations and other wireless equipment, and an increase in litigation.

The top management monitors compliance with regulatory requirements, emission limits and other legal requirements related to environmental protection. Furthermore, Orange Polska has implemented an environmental management system for provision of mobile services