The newly established telecom regulatory office UKE has set up a busy schedule for this year for the introduction of legal measures aimed at fostering competition, according to the “Rzeczpospolita” daily. By the end of February, UKE intends to rule on TPSA’s framework offer, which allegedly is the key obstacle for fixed-line local loop unbundling. By March, UKE should announce the results of the tender for GSM 1800 frequencies, which potentially could lead to the creation of a 5th mobile telephony operator in Poland. By mid-March, UKE should rule on wholesale access fees for alternative operators. By mid-year, UKE should rule on the dominant market position of individual operators, which is a pre-requisite for introducing internal–roaming obligations for existing mobile operators.
Overall, though a significant impact on TP is expected, our below-consensus estimates for 2006 already incorporate related market share erosion. We believe that the regulatory risk discount of TP is overdone and that once management has announced its 2006 guidance (expected to incorporate a higher level of competition), the stock could surprise positively thereafter. We reiterate our Buy rating for TPSA with a PLN 28.0 fair value estimate. We reiterate our Sell rating for Netia with a PLN 4.7 fair value per share estimate.