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86/2011 TP Group and PTC signed an agreement on mobile access networks sharing - Orange Polska

Pursuant to article 5(1.3) of the Decree of the Minister of Finance of 19 February 2009 on current and periodic information disclosed by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state (Journal of Laws of 2009, No. 33, item 259, as amended), the Management Board of Telekomunikacja Polska S.A. (“TP S.A.” or “the TP Group”) hereby informs about conclusion of a significant agreement.

            TP Group and PTC signed an agreement on mobile access networks sharing

TP expects free cash flow benefits of ca. PLN 1 bn by 2015 and yearly savings of ca. PLN 0,2 bn in subsequent years

21 July 2011: TP Group’s mobile arm – PTK Centertel sp. z o.o. (“PTK”) and Polska Telefonia Cyfrowa sp. z o.o. (“PTC”) signed an agreement on reciprocal use of radio access networks (“RAN Agreement”). The parties have also signed a Shareholders Agreement, which regulates the governance of a previously established company – NetWorkS! –  in which the parties hold a 50% stake each and will finance its operations in the same proportions, and which will conduct management, planning, operations, development and maintenance of their access networks. The parties have previously obtained permission of the Polish Competition Office (“UOKiK”) for the establishment of the company.

Pursuant to the RAN Agreement, the Parties will render each other access services, in particular by providing radio transmission function for the other party, in order to service traffic generated by other party’s users. Depending on legal and technical conditions, the cooperation may also involve reciprocal use of frequencies.

The cooperation will be implemented gradually, particularly depending on the choice of infrastructure supplier. The cooperation will be based on a similar number of base stations owned by each party, which by the time of its full implementation (expected in 2014) may amount to a total of ca. 10,000 sites (both operators counted together), though each party will remain the owner of its respective network assets and frequencies. For TP Group, this provides a potential for reduction of the number of its sites by ca. 1,400, while simultaneously enhancing the network coverage and capacity.

The RAN Agreement has been signed for 15 years with an option to extend it. In case of termination thereof by either party upon prior termination notice, parties commit to continue their cooperation in a site sharing model (access to base stations of the other party) for a period of up to 10 years following the termination.

Settlements between the Parties for the reciprocally rendered services will be made on the basis of costs incurred by the respective Party  plus a margin.

Both agreements provide for a number of contractual penalties. The highest penalty set forth in the RAN Agreement, amounting to PLN 500 mn, is for a material breach of the RAN Agreement resulting in its termination by the entitled party. The highest penalty set forth in the Shareholders Agreement, amounting to PLN 100 mn, is for a breach of the defined terms of sale of NetWorks!shares.

Either party will have the right to claim damages in excess of contractual penalties defined in the RAN Agreement. The Shareholders Agreement does not provide for an option to claim damages in accordance with general regulations. Furthermore, neither party to both agreements shall be liable for lost profits, and total liability of either party due to non-performance or improper performance under both agreements has been limited to €500 mn.

The tasks of NetWorks! will be carried out by employees, transferred with the relevant functions, from both PTC and TP Group. In case of TP Group, it is expected that ca. 350 employees will be transferred to the new company, without any change to terms of employment.

Upon implementation, this co-operation is expected to allow TP Group to: 

  • Create best class mobile networks in Poland and offer enhanced quality of service within the network footprint to improve customers’ mobile experience;
  • Widen its coverage area, thus supporting the delivery of new services, including mobile broadband, to a greater number of customers;
  • Reduce demand for capital expenditure through maximising network efficiency and joint planning of selected new investments and network upgrades; 
  • Secure network quality of service through service level agreements and control over the new entity;
  • Reduce network operating costs, particularly through lower total number of sites in operation; and 
  • Reduce the environmental impact.

In addition, TP S.A.’s Management Board estimates that this cooperation will deliver benefits, which may potentially positively impact TP Group’s net free cash flow by an accumulated total of ca. PLN 1 bn over the next five years (up to 2015 inclusive) and up to ca. PLN 0.2 bn of annual sustainable cost savings in following years.

TP S.A.’s Management Board confirms that TP Group’s cooperation with PTC will be limited to technical aspects and, in particular, that both operators will continue to compete on wholesale and retail telecommunication markets.

The Agreement is considered significant due to the fact that the estimated value of TP S.A.’s obligations thereunder exceeds 10% of TP S.A.’s equity (as of 31 March 2011).

Forward-looking statement

This presentation contains 'forward-looking statements' including, but not limited to, statements regarding anticipated future events and financial performance with respect to our operations. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like 'believe', 'expect', 'anticipate', 'estimated', 'project', 'plan', 'pro forma', and 'intend' or future or conditional verbs such as 'will', 'would', or 'may‘. Factors that could cause actual results to differ materially from expected results include, but are not limited to, those set forth in our Registration Statement, as filed with the Polish securities and exchange commission, the competitive environment in which we operate, changes in general economic conditions and changes in the Polish, American and/or global financial and/or capital markets. Forward-looking statements represent management’s views as of the date they are made, and we assume no obligation to update any forward-looking statements for actual events occurring after that date. You are cautioned not to place undue reliance on our forward-looking statements.


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