External environment

The Polish telecommunications market is subject to wide sector regulation including the one established at EU level and transposed to national legislation. It is supervised by a National Regulatory Authority, the Office of Electronic Communications (UKE). As a general rule the telecom market is divided into separate markets for 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. In particular OPL is obliged to prepare regulatory accounting separation statements and perform cost calculation for LLU and BSA services, which are to be verified by independent auditor annually. As such, this regulatory regime has a 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).

Changes in the Polish economy, such as GDP growth, inflation, unemployment, disposable income, interest rates or foreign exchange rates, can influence our ability to create value. Whilst these areas are outside of our direct control, we can use our hedging strategies to mitigate the potential adverse impact of market movements.

The outbreak of COVID-19 pandemy in 2020 affected significantly Polish economy. This was the first economy recession in Poland from 30 years however it occurred to be relatively shallow in comparison to West European countries. Still active pandemy and its consequences for the individuals and businesses make uncertainty the most common word among economy forecasts. Despite this fact, majority of prognosis indicate for economy rebound already in 2021 and its positive dynamics in the years to follow. That is possible thanks to COVID-19 vaccines and growing number of people in the society who are already resistant to the coronavirus.

The Polish telecom market is mature, with high penetration in most segments. This sector is very important for the Polish economy, particularly in the digital age. Together with the IT and content industries, it shapes the information society and actively participates in the transformation of Polish companies.

The telecommunications market is also evolving in terms of technology, as we are at the dawn of the 5G era and all the new solutions and services it promises to bring to the Polish market – a transformation of particular importance for business customers. To meet this great responsibility, the telco industry faces many business and technical challenges that will require large investments in infrastructure, now and in the coming years, in order to provide individual, public sector and corporate customers with fast and secure internet access (both wired and wireless), as well as new services and equipment to meet new requirements.

The Polish telecom market is characterised by high levels of competition and relative fragmentation. It is mainly driven by mobile services and a high degree of fixed-to-mobile substitution in both voice and broadband. In the past, these factors have had a critical impact on the overall performance of the market. The market landscape changed further in 2019 thanks to mobile operators increasing tariffs in a ‘more for more’ formula, with visible results also in 2020. This came as a consequence of the favourable economic situation in Poland in 2019, the very low prices of telecom services, the relatively equal market shares among major players and upcoming investments in 5G technology. That is why we expect market participants to continue to focus on value generation.

We aim to build strong, long-term relationships with our suppliers. We want our relations with suppliers and business partners to be based on transparent principles and a mutual obligation to abide by ethical standards.

The pandemic only exacerbated the problem. While the employment rate for people with tertiary education rose despite the lockdowns (up to 88,2% as compared to 83,4% in the entire EU27 area), it remains much lower and rapidly shrinking for those with primary and lower secondary education. Only 25% of working age Poles with the lowest level of educational attainment were  employed in Q3 of 2020 (the number nearly halved over 12 months and is about 20 p.p. below EU average). In case of women in this educational category the rate stands at mere 16,2%, and it is even lower for youngest of them – only 8,2% is employed (against UE average of 35%). Other problems of the labour market include steep rise in self-employment which replaces job contracts (6,4% over the course of 2020), and rapid loss of jobs under fixed-term or civil contracts (by 14,3% – which stands for nearly 400 thousand jobs). In the light of these facts the surprising fall of unemployment rate to 3,3%, reported by Eurostat  in December 2020 (with UE average of 7,5%), might suggest that wider groups of Poles are pushed towards insecure employment forms or are deterred from seeking employment whatsoever.

The abovementioned trends might undermine the effects of recent efforts to eradicate poverty and reduce inequalities in the country. Since 2015 increase in the minimum wage, changes in civil contracts and – above all – programmes of social benefits for families (PLN 500 monthly allowance per each child, PLN 300 yearly allowance for school starter kits) have radically improved the situation of many vulnerable groups, particularly those of lower social and economic status. As of 2020, crisis in the labour market, increased inflation that diminishes the impact of social transfers (purchasing power of 500+ fell by 10% since 2016) and risk that social programmes would push women out of the job market become more prominent.

Such developments are especially worrying, as income inequality rates that were steadily falling in Poland since 2005 started rising again even before the pandemic, in 2019. The Gini coefficient of income inequality, which measures the distribution of (equivalised) disposable income across the society, has been falling from almost 35.6 in 2005 to only 27.8 at the end of 2018, but started moving up in 2019, reaching 28, 5 – still well below EU average. This trend would be even more alarming if we take into account work of some economists, who argue that for Poland inequality levels calculated based on tax data might be even 25% higher than the official statistics based on declarations – thus placing Poland among least equal societies in EU (see Blanchet, Chancela, Gethin, 2019).

In addition, Poland is still facing the problems of a rapidly ageing population. The unfavourable demographic trends are already reflected in a decline in the working-age population. The percentage of elderly people in the entire population is expected to grow from 20.9% in 2010 to 58% in 2050, according to the European Commission’s Country Report Poland 2016. In addition to that, number of births fell by 5% in 2020, reaching lowest level in 15 years. The economic effects and temporary failures of healthcare system during the pandemic will undeniably strengthen this trend.

In the reality of pandemic, internet access is not only a convenience, but by no doubt a precondition of full participation in social, cultural and professional life. According to the Central Statistical Office, as of 2020 more than 9 out of 10 Polish households had access to the internet. Almost the same share of them (89,6%) had a broadband connection – a fairly steep rise since 2019, when 83,3% of households had it. The biggest improvement in broadband adoption over 2020 could be seen in rural areas and small towns, nearly closing digital divide to the biggest cities in this respect. Especially mobile broadband gained unprecedented traction with almost 67% of Polish households accessing fast internet by its means (rise by 12,4 p.p. since 2019).

Since the internet became the main means of functioning in many fields of life, digital exclusion touching certain social and demographic groups becomes an especially urgent problem. Use of the internet and modern technologies varies with social and demographic factors, especially age, professional activity, and education. The internet is used by the great majority of young people and very few seniors. Digital divide starts in the 55+ age group, but the most affected group is those aged over 65 – with only 40% of them regularly using the Internet. Education level plays a major role as well, with 98,2% of Poles with tertiary education regularly online, compared to 75,6% of those with upper secondary and 67,8% with primary or lower secondary education. The problem is also greater than average among unemployed, with nearly 20% of them not using the internet regularly in 2020.

What might be worrying in the face of recurring lockdowns and economy shutdowns, is the level of digitalization of Polish enterprises. Even though at the end of 2020 98,6% of enterprises in Poland had broadband internet access, their overall level of the digital intensity index is one of the lowest in EU, with 60,4% of them rated as “very low”. Before the pandemic 30% of Polish enterprises didn’t have a website (7 p.p. more than the EU average), and mere 16,5% of them were selling goods and services online (as of 2019), which is well below EU average as well.

As a telecommunications company, we must respond to the diverse needs of our customers, both the older ones, who are less convinced of the need to adopt new technologies, and the younger ones, who are used to constant online presence and try to keep up with the latest technological trends. Telecommunications expenditure is a permanent component of any household budget, and we try to ensure that each customer, regardless of their income, can find a suitable offer for them and their relatives. Nowadays, it is no longer network access itself but rather the ability to use new technologies wisely and safely which has become a social challenge.

Owing to the nature of our business model and supply chain, we follow the human rights policy formulated at the international level by the Orange Group. In addition to the general framework of the International Labour Organization conventions, the Universal Declaration of Human Rights and the Global Impact principles, Orange Group complies with the UN Guiding Principles on Business and Human Rights adopted in 2011.

The Group’s activities with respect to safeguarding fundamental human rights focus on three main areas:

• relations with employees;
• relations with suppliers; and
• privacy and freedom of expression.

These areas are all addressed in the Orange Polska Code of Ethics. We respect all people and their right to privacy. We accept diversity in terms of background, race, gender, culture, age and marital status as well as religious beliefs, political views and membership of social or professional organizations.

We use a Supplier Code of Conduct at Orange Polska. The Code has been developed at the Orange Group level and adapted to national laws and regulations. It seeks to encourage compliance with and respect these laws and regulations, and ensure that they are faithfully and effectively enforced. Suppliers are required to respect human rights and avoid being complicit in human rights abuses of any kind.

The Code covers the following areas:

• social responsibility: freedom of association and the right to collective bargaining, forced labour, child labour, diversity and non-discrimination, remuneration, working hours and health and safety;
• environmental responsibility: environmental protection, natural resources and waste management; and
• prohibited business practices: anti-corruption policy, competition, sponsorship, political contributions, money laundering, data security and data protection.

The Code has been published and incorporated into our contracts with suppliers. We are currently working on a human rights policy specific to Orange Polska.

We also launched an e-learning training on human rights that was completed by 100 % of the purchasing team. Rights related to diversity are covered by our diversity management policy, privacy and data protection by our customer safety policy.

A separate corporate social responsibility clause is included in all contracts. Pursuant to the clause, the parties undertake to comply with, and ensure that their employees, suppliers and sub-contractors comply with all national, European and international rules associated with standards of ethical and responsible behaviour, including standards on human rights, environmental protection, human health and safety, and sustainable development. They also undertake to combat any infringements of human rights and fundamental freedoms, as well as any risks to the health and safety of persons and the environment. In addition, they declare that they will require their employees, suppliers and sub-contractors to refrain from using child labour or forced labour, and shall combat any discrimination. The clause has been included in all new purchasing contracts since 2019.

Orange Polska takes all issues related to human rights very seriously, paying particular attention to the rights to privacy and personal data protection. In order to prevent theft or unauthorised modification or processing of personal data of its customers and employees, or personal data entrusted by Orange Polska, we have implemented security measures consistent with international standards. In addition, we are introducing a process to identify and prevent violation of rights and freedoms of data subjects.

Orange Polska is sensitive to global challenges related to the natural environment and natural resources. We have set ambitious goals and are taking concrete actions to reduce our environmental impact, both direct and indirect. Our target is to become net zero carbon already by 2040 with respect to our own direct and indirect emissions as well as value chain emissions.

In addition to the efforts we make to reduce the impact of our own operations on the environment, as a provider of telecommunication services we can significantly contribute to reducing the negative impact of business activities of others. Digital technology is now integrated into all sectors of human activity, and developing its sustainable uses is becoming our daily challenge. Moreover, by radically transforming the industrial world, digital technology also creates the potential for more innovative and sustainable solutions to the challenges posed by energy use and ecological damage.

Modern digital technologies are a major tool to solve climate issues. Telecommunication services support green transformation and offer solutions which enable our customers to reduce their carbon footprint. Tele- and video-conferences decrease business travel (especially by plane), while IoT solutions, particularly in the Smart City domain, optimise consumption of resources (e.g. electricity or water) and reduce emissions and pollution thanks to smart management and monitoring systems for municipal services (e.g. utilities supply, city lighting, parking places, city bikes or waste collection).

Use of new technologies is a huge opportunity on the one hand, in terms of economic and social development and finding more eco-friendly solutions; on the other hand, it presents a challenge when it comes to the rapid obsolescence of products and increased demand for energy. It poses a problem about what to do with devices that are no longer wanted and provokes us to think about eco-efficiency inside the Company as well as relations with our suppliers. It also means educating customers and encouraging them to return ICT devices they no longer use.

⁽¹⁾Source: Malmodin and Lundén, Sustainability Journal 2018, International Energy Agency.