F='IUTTERWQRTH
733-739, 1995
Since 1990 the telecommunication sec-
tor in Poland has been undergoing
rapid development and modernization.
It is heavily dominated by Telekommu-
nikacja Polska SA (TP SA), a state-
owned company which is split into 10
regional directorates. Although TP SA
enjoys a legal monopoly only over In-
ternational traffic, it is a de facto mono-
polist In the Polish market too. Apart
from difficulties in funding local tele-
phone operations, many of the dlfflcul-
ties facing private competitors to TP SA
focus on interconnectlon and pricing
Issues. The Anti-monopoly Office,
which seeks to restrict unfair competi-
tion end restrictive business practices,
has been monitoring the compliance of
TP SA with the statutory standards. In
its business practices TP SA has been
reluctant to meet the required stan-
dards, particularly these relating to the
setting of tariffs. This has been found to
have a restrictive effect on the emer-
gence of competition in the form of
local operators.
Marek Czarny can be contacted at Clifford
Chance Sp 20.0., Warsaw Corporate Cen-
tre, ul Emilii Plater 28, 00-688 Warsaw,
Poland (Tel: 48 2 630 33 44; fax: 48 2 630
33 55).
Telecommunications Policy, Vol. 19, No. 9, pp.
1995 Elsevier Science Ltd. Printed in Great Britain
0308-5961(95)00041-0 0308-5961/95 $10.00 + 0.00
Anti-monopoly issues
in Polish
telecommunications
Marek Czarny
General telecommunication services in Poland are provided by Tele-
komunikacja Polska SA (TP SA). TP SA is a wholly state-owned joint
stock company which is split between 10 regional directorates. Prior to
January 1992, post and telecommunication services were carried out by
the same state-owned body, Polska Poczta Telegraf i Telefon. This body
was split into two public utility companies: Polska Poczta (Polish Post)
and Telekomunikacja Polska SA.
The Polish telephone network is one of the least developed in
Europe. At the end of 1992 there were a total of just below 4 million
exchange lines in service in Poland. This represented a penetration rate
of 10.25 exchange lines per 100 inhabitants, among the lowest in
Europe. The waiting list was estimated at about 2 000 000 potential
subscribers. Not only is telephone line density low, but there is severe
congestion of the networks. This is mainly due to the fact that the lines
and equipment are outdated. Two years ago only 3% were connected to
digital exchanges, 40% were connected to crossbar exchanges and 40%
to step-by-step exchanges. Some 6% of exchange lines in service were
still connected to manual exchanges.
It is not surprising, therefore, that the top priority of TP SA in the last
few years has been the modernization of the transit, long-distance and
international networks. It also has been endeavouring to raise the
quality of service.
Privatization of Polish telecommunications is very much a political
issue. Until recently the government maintained that it did not intend to
privatize Polish telecommunications. The Strategy of Development of
Telecommunications in Poland to the Year 2000, an official document
prepared in 1993, laid down a general scheme under which TP SA would
be gradually privatized by disposal of its shares. The government would,
however, retain a controlling shareholding of at least 51%. Subsequent-
ly the government has changed its mind, putting the emphasis on
restructuring of TP SA rather than its privatization.
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Anti-monopoly issues in Polish telecommunications: M Czarny

Legal framework
In November 1990 the Polish government passed a new Communica-
tions Act which came into force in January 1991. It governs the
operation and regulation of telecommunications in Poland. The Act
ended the state monopoly of domestic services although it retained the
state monopoly of international services and state control of domestic
long-distance services.
The main provisions of the Act can be summarized as follows:

• International telephony services may only be performed by TP SA.

The Minister of Communications has no power to grant a licence to a
foreign company, or a Polish company with foreign participation, to
provide public international telecommunication services or for the
operation of equipment, lines and network connected by cable, radio
or satellite with equipment, lines and networks outside Poland. It
follows that TP SA enjoys a statutory monopoly when it comes to
international telephony services.
• Long-distance national telephony is subject to restrictions. A licence
will not be granted to a foreign company or Polish company owned
more than 49% by foreign participants for the operation of intercity
telecommunications equipment. Due to the policies pursued by the
Minister of Communications, which will be discussed shortly, TP SA
enjoys a de facto monopoly in this area as well.
• Local networks are opened up to any company with the requisite
capital and know-how.

A licence from the Minister of Communications is required for both the

installation and use of the facilities and provision of services over such
facilities, lines and networks. There are no statutory guidelines relating
to the licensing process, which means that the Minister has the
discretion to grant a licence. The Act merely says that a licence will not
be granted, inter alia, when it would pose a danger to state security,
contradict international agreements or disturb existing equipment.
Licences may be revoked by the Minister of Communications if the
operator violates the terms of the licence, fails to pay the fees required
to implement an official recommendation regarding the equipment, or
fails to start operating within a specified time.
TP SA does not require any licences, but its activities, rights and
obligations are laid down in the Communications Act and the provisions
of its incorporation documents. The State Treasury, which is the owner
of all the shares in TP SA, is represented as a shareholder in the
company by the Minister of Communications. Additionally, the Minis-
ter as the sole shareholder in practice determines the authority of the
company. It should be noticed that the present legislation does not
provide for a separate and independent regulatory authority. The
Minister of Communications performs many functions. In an apparently
conflicting position, the Minister is also responsible for issuing licences
to potential competitors of TP SA.
As already mentioned, private companies may provide telecom-
munication services under licence. By March 1994, 75 such licences had
been granted. It was envisaged that the private operators would install
switches for about 2 million new subscribers in local communities.
However, in 1994 only three local operators were operational due to the
lack of resources. A number of licences have been issued to companies

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 Anti-monopoly issues in Polish telecommunications: M Czarny
providing specialized services such as Centertel, cable television oper-
ators and paging operators.

Supply of telecommunications equipment

The Communications Act provides that a homologation certificate is
required for telecommunications equipment and systems, including
cables and wires, that are installed and operated in Poland.
In October 1991 an Order of the Ministry of Communications was
issued, which imposed control over foreign investment. The Order
specified that, as from 1 July 1992, only switching and transmission
equipment manufactured in Poland with a local added value content of
50% or higher could be installed in Polish telecommunications net-
works. Where components are imported, the cost of these components
must not exceed 50% of the cost of production of the equipment.
Furthermore, the switching equipment was required to satisfy certain
conditions: it must be program controlled, be upgradable to ISDN
standards, utilize common channel signalling and be suitable for all
network stage levels (local to international).
In 1993 the Polish government tightened the restrictions on foreign
suppliers of public telecommunications equipment. The government
procurement policy was based on three policy objectives:
• the need to reduce the number of different suppliers of equipment;
• the need to stimulate competition between suppliers; and
• the need to boost Polish production of equipment.
The Ministry has subsequently drawn up a list of three suppliers to
whom all future orders for switching equipment should be given. They
are AT&T, Alcatel and Siemens. The approved suppliers have entered
into joint ventures with Polish telecommunications manufacturers:
AT&T with Telfa, Alcatel with Teletra and PZT Telecom, and Siemens
with ZWUT.

Anti-monopoly issues
The Act on Counteracting Monopolistic Practices ('the Anti-monopoly
Act'), adopted in February 1990, is charged with the general task of
ensuring the development of competition, protecting economic entities
from monopolistic practices and protecting the interests of consumers.
An amending Bill to the Anti-monopoly Act is now being considered in
the Polish Parliament, which is expected to become law in the next few
months.
Chapter 2 of the Anti-monopoly Act deals with restrictive business
practices which can result either from an abuse of a dominant position in
the market or from restrictive agreements among competitors. Articles
4 and 5 provide that the following acts, inter alia, are restrictive business
practices:
• agreements to fix prices, divide the market, restrict output or deny
market access to other companies;
• abuse of a dominant position such as preventing the emergence of
competition, certain price discrimination, and refusal to sell or
purchase goods in certain circumstances; and
• other unfair business practices, such as imposing onerous contract
terms that give undue benefit to one party, anti-competitive acquisi-
tions, etc.

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Anti-monopoly issues in Polish telecommunications: M Czarny
The above restrictive business practices are prohibited by Article 6 of
the Act unless 'they are necessary for economic, technical and organiza-
tional reasons to conduct an economic activity and do not result in a
significant restraint of competition'. Thus a rule of reason is applied by
the Anti-monopoly Act. The effect of the rule is to allow practices which
are necessary to conduct economic activity and which do not result in a
significant restraint of competition. The burden of proof, however, is on
the entity claiming that a challenged practice is not illegal.
The Act takes a stricter approach to restrictive business practices if
they are performed by a monopolist. The same strict approach is applied
to dominant entities if the market share and their conduct have an effect
similar to that of a monopolist. The Act does not define what it means
by 'monopoly' but it says that a firm has a 'monopolistic position' if it
does not encounter competition in a market. The Anti-monopoly Office
would presume that a firm is in a monopolistic position if it has a market
share of over 80%.
The 'dominant position' is defined by the Act as the position of an
economic entity if it does not encounter significant competition in a
national or local market. It is presumed if the entity has a market share
of over 40%.
In accordance with Article 7, monopolies and dominant entities are
forbidden to 'charge excessively exorbitant prices', refrain from the sale
of commodities in order to increase prices, or limit the production, sale
or purchase of goods in order to influence prices. The rule of reason is
not applicable here. Any defaulting firm would need to show that it is
not a monopolist or that its prices are not excessively exorbitant, etc.
The Anti-monopoly Office enforces the law against restrictive prac-
tices by way of administrative proceedings. The proceedings are initi-
ated by a complaint lodged by eligible parties (eg local government,
consumer bodies). The Office may inspect documents and demand
information during an investigation. Decisions of the Office may be
appealed to the Anti-monopoly Court, whose judgment is final and not
appealable. In the first six months of 1994 the Anti-monopoly Office
instituted 98 proceedings, as a result of which sanctions were applied in
33 cases.
A firm found to have committed a restrictive or monopolistic practice
is ordered to cease the practice. It can be also be fined up to 15% of its
revenue for the previous year. Individuals may be fined the equivalent
of up to 6 months' salary if they refuse to provide information in
response to an official demand, provide false information or do not
make the required notification of a structural change.

Restrictive business practices

As has been indicated, TP SA is a statutory and de facto monopolist in
the Polish telecommunications market. It is not surprising, therefore,
that the Anti-monopoly Office has been looking at TP SA's business
practices with great interest in the last three or four years.
The Office has instituted several proceedings with regard to TP SA's
activity pursuant to complaints lodged, and on its own initiative. In the
period from 1991 to 1994 the Office issued 14 decisions, according to
which illegal business practices were found in six cases. In most cases
complaints were lodged in relation to unfair pricing practices.
Prior to the 1990 reform, prices for telecommunication services were

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 Anti-monopoly issues in Polish telecommunications: M Czarny
fixed by the Ministry of Finance according to specific social objectives,
ie they were kept artificially low. The tariffs were not related to costs or
to consumer demand, as demand greatly exceeded supply. This has now
been changed under the 1990 Communications Act. In February 1991
TP SA took over responsibility for setting its own tariffs. The Ministry
can set a maximum price for domestic tariffs and has the right to
approve international tariffs before they come into force. Otherwise, TP
SA is free to set its own tariffs. The Act does not provide any safeguards
against predatory pricing by TP SA vis-gz-vis its competitors or indeed its
consumers. Nor is there a formal mechanism for setting price caps on
tariffs in areas where TP retains its monopoly.
At present TP SA is free to set its own tariffs. However, the Minister
of Communications can set maximum prices for domestic services and
has the right to approve international tariffs before they come into
force. Since 1991 there have been several price increases which TP SA
said were necessary due to high inflation and the need to pay off foreign
credits. (Some increases have raised the telephone tariffs by 40-100% .)
However, no tariff increases were justified by rising costs of providing
service. The Anti-monopoly Office therefore claims that these tariffs
are not related to costs at all.
According to figures produced by the Anti-monopoly Office, Polish
tariffs in 1992 were higher than the average telecommunications charges
in 24 developed countries, members of the OECD. Furthermore, there
is a substantial disparity between tariffs for local calls and long-distance
calls in Poland. According to the Office the ratio between tariffs for
local calls and long-distance calls in OECD countries is approximately
1:4, whereas in Poland the ratio is still 1:24. This not only has an adverse
effect on consumers but also affects access to the market by local
operators.
On 13 July 1993 the Anti-monopoly Office issued a decision obliging
TP SA to lower its proposed tariff increases from 900 PLZ per impulse
to 800 PLZ per impulse. In particular it ordered TP SA to rebalance its
tariff structure. It pointed out the need to reduce the disparity of
charges applicable to local and long-distance calls.
In addition the Office suggested that a discount for off-peak calls
should be introduced in the tariff structure and applied consistently. As
a result TP SA agreed to introduce, from 1 February 1994, some
off-peak discount.

Restraint of competition
In the Anti-monopoly Office's view, the structure of tariffs in Poland
has had a restrictive effect on the emergence of competition in the form
of local operators. This view is based on the fact that only three local
operators have been able to begin operations out of around 80 licensees
who have received required permits. Some of the licensees complained
to the Anti-monopoly Office that they had difficulties in agreeing
finantlial arrangements with TP SA. The complaints related to the
unreasonably high proportion of earnings which TP SA wanted to
receive under cooperation agreements with the local operators.
The Anti-monopoly Office maintains that the present tariff structure
enables TP SA to subsidize the costs of local calls from the revenues
generated by long-distance and international calls. In other words, TP
SA is able to maintain artificially low prices for local calls at the expense

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Anti-monopoly issues in Polish telecommunications: M Czarny

of long-distance calls. This practice is considered to be unfair to private

operators, which are deprived of such an opportunity because they
operate only local networks. As a result many of the private operators
who had received required licences were unable to start their activities.
The conclusion therefore was that the current tariff structure prevents
the emergence of effective local competitors and constitutes a restrictive
business practice.
The Anti-monopoly Office has issued several decisions ordering TP
SA to abandon specific business activities which have been found to be
abuses of its dominant/monopolistic position, and therefore illegal. For
example, by virtue of its decision of 30 June 1992 the Office ordered TP
SA in Lublin to cease the practice whereby new subscription numbers
were allocated only to applicants who have made donations to the
Telecom Development Fund.
On 18 January 1994 the Office ordered TP SA in Bia/ystok to cease
the practice of requiring prospective subscribers to make 'contributions'
towards the 'costs of creating required technical facilities'. In accord-
ance with the regulations in force, such contributions should then be set
off against future telephone bills in accordance with agreements be-
tween the subscribers and TP SA. These contributions, which in many
cases were substantial, have been found by the Office to constitute an
abuse of its dominant position by TP SA. This decision was subsequent-
ly appealed by TP SA to the Anti-monopoly Court. The Court upheld
the decision, declaring that the practice of collecting off-tariff contribu-
tions from subscribers created a 'quasi credit mechanism of financing TP
SA's needs'. The practice has also been found to be discriminatory
against consumers who could not afford to make such contributions and
consequently would be deprived of access to the network.

Implications of the Europe Agreement

The Europe Agreement establishing an association between the Repub-
lic of Poland and the European Communities and their member states
was signed in December 1991 and came into effect in February 1994.
The most important objective of the Association Agreement (or
'Europe Agreement') is Poland's gradual integration into the structures
of the European Union during the transition period.
This is to be achieved, inter alia, by gradual creation of a free trade
area between Poland and the European Union, in the first instance for
industrial products and then for other goods and services. It also
provides that European Community companies shall have the right to
set up their operations in Poland, where they should enjoy equal
treatment with Polish companies (the right of establishment).
Article 65 of the Europe Agreement deals with the obligations of
Poland with regard to the promotion of competition in the market. It
states that, with regard to public undertakings and undertakings to
which special or exclusive rights have been granted, the Association
Council shall ensure that as from the third year following the date of
entry into force of the Agreement the principles of the Treaty of Rome,
in particular Article 90, are upheld.
Article 90 (1) imposes the duty on each member state neither to enact
nor to maintain measures contrary to the non-discrimination and
competition rules in their dealings with public undertakings and under-
takings to which member states grant special or exclusive rights. Article

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90 (2) limits the application of the Treaty of Rome rules, and the
competition rules in particular, where the enforcement of such rules
would threaten to obstruct the performance of public service duties by
the undertakings entrusted with such duties. These provisions provide a
significant exception to the European competition rules in such areas as
telecommunications, energy and banking.
As far as the telecommunications sector is concerned, two European
Directives in particular have laid down relevant provisions: the Direc-
tive of May 1988 on competition in the market for telecommunications
terminal equipment and the Directive of June 1990 on competition in
the market for telecommunications services. These Directives have
drawn the line between markets which could legitimately be subjected
to monopoly rights in favour of public entities and those which must be
opened to competition. The first permitted member states to maintain
national monopolies over the provision of telecommunications net-
works, but required the member states to remove special and exclusive
rights over the importation, marketing, connection, bringing into ser-
vice and maintenance of terminal equipment (eg telephones or mod-
ems).
An interesting issue to consider in the light of the European legisla-
tion is the policy under which exclusive rights to supply telecommunica-
tions equipment have been granted to the three approved suppliers
mentioned above. This arrangement probably constitutes 'special rights'
granted in their favour by the Polish government. In accordance with
the first of the two Directives mentioned here, member states are not
permitted to maintain special rights relating to the supply, maintenance
and service of telecommunications equipment. The Directives also
require that private companies as well as public companies can compete
in the market as suppliers of the equipment. It follows therefore that the
reservation of special rights by the Polish legislation is probably contrary
to the Directive.

Conclusions
The telecommunications sector in Poland, which is undergoing rapid
development and modernization, is heavily dominated by TP SA, which
enjoys a monopoly position. The anti-monopoly legislation, which by
definition seeks to limit unfair and restrictive business practices, im-
poses standards which are difficult for TP SA to fulfil. This relates in
particular to the setting of tariffs. The Association Agreement with the
European Union will in the next two or three years bring into play
European legislation relating to monopolies and competition, which will
require substantial adjustments to Polish law (and practice).

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