TPSA: Feedback from conference call

The most important message that came out of the conference call was the dividend floor of PLN 1.4 per share established for the medium-term, following the PLN 1.9 per share cash distribution set for this year. Management also gave colour on their 1% revenue decline guidance for 2007, stating that they intend to fend-off the impact of aggressive deregulation by leveraging the scale of their products, offering convergent services, pushing broadband and mobile further, and controlling costs to protect their margins.

Management stated that so far, the impact of deregulation has been significantly less severe that originally perceived, although they remain cautious and expect 2007 to be even more challenging than 2006. They highlighted that in the fixed line, where much of the deregulation focused in 2006, TPSA even managed to stabilize their share of the traffic market, and line churn has been less than the gains reported at Netia and Dialog. They also reminded that with regards to WLR implementation, the loss they suffer in the residential segment will migrate to the wholesale business, preventing total loss of revenues.

Finally, management mentioned that they are earmarking a portfolio of real estate assets for disposal to streamline and optimize their balance sheet. Although no details regarding the value was disclosed, we believe this could be a source of additional cashflow in the near to medium-term.

Our view: Overall, we were comforted by the trends reported by TPSA, and we believe that their strategy to counter the ongoing deregulation has proven and will continue to prove effective in limiting revenue contraction and protecting profits. We also believe that the cash distribution policy is a positive sign to the market that they are now ready to be returns-focused and return the cash to shareholders. We expect modest broker upgrades in the coming days to incorporate slightly better than expected guidance for 2007.