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Joint ING & EY Polish telecom infrastructure meet-up

Joint ING & EY Polish telecominfrastructure meet-up

Warsaw, 16 November 2017


8.00 – 8.45 Registration, coffee and breakfast

8.45 – 9.00 Introduction by Joanna Erdman, ING Bank Śląski, and Iwona Kozera, EY Advisory

9.00 – 9.30 Recent trends in the European data centre market

9.30 – 10.00 Polish data centres/hosting market overview

10.00 – 10.15 Coffee break

10.15 – 10.45 Potential data centre assets financing options

10.45 – 11.15 European Fund Operation Programme Digital Poland (POPC 3)

11.15 – 12.30 Refreshments followed by networking session


Meet-up agenda


Recent trends in the European data centre market

Presented by Rostyslav Zhuk, Vice President, ING TMT Corporate Finance



London

Frankfurt

Paris

Amsterdam

European colocation supply and availability by metro location (Q1 2017)

4

The European data centre market continues to grow quickly… breaking previous energy take-up levels and catching up on available supply of space and energy

European colocation supply and take-up (MW)

648 696 772 826 958 1 163

2012A 2013A 2014A 2015A 2016A 2017E

Contracted IT power Available IT power Projected supply

423

213

148

212

Total: 996 MW

79

31

23

26

Total: 159MW

Q1 17/Q1 16 growth 20.0%

Supply

14.4%

Availability

37.1%

Take-up

Supply Absorption rate1 Q1 17 take-up (MW)

2.7 yrs 17.5

1 yr 3.3

1.5 yrs 2.3

2.1 yrs 3.5

Availability

1. Number of years required to fill in existing available supply at an average take-up rate for last five periodsSource: CBRE research

70 66 66 63 156

x Annual take-up

MW

Joint ING & EY Polish telecom infrastructure meet-up 5

MACRO: DC demand underpinned by data explosion MICRO: a number of industry factors create further demand for DC services

Data centre demand is driven by a host of macro and micro level factorsData explosion and ongoing outsourcing of IT infrastructure set pace for further sector growth

1

23

4

Digitisation of business and social

processes

Proliferation of mobile devices

The Internet of Things/rise of the machine user

Cloud computing 1

2

34

5

6

Capacity limitations of DCs with traditional

architecture

Tightening data sovereignty laws on

data protection

Rapid expansion of internet users and

traffic globally

Structural undersupply as major DC providers are projected to run

out of capacity in next two to three years

Regulatory requirements of

financial institutions to have multiple data

backup

Increasing IT outsourcing trend


Cloud IP traffic on rise

1,5 2,11,6

6,53,1

8,6

2013A 2018E

Zett

abyt

es

Traditional IP traffic Cloud IP traffic

Explosion of DC-centric global IP traffic

3 3427 566760

1 886

321

905

4 423

10 357

2015A 2019E

Zett

abyt

es

Within DC DC to User DC to DC

Total global IP traffic

Data centre outsourcing on march

10,0%

18,0%

2012A 2017E

Global percentage of data centres outsourced¹

Robust DC market growth in motion(≥EUR17bn market by 2018)

12,1%14,5%

16,3%19,7%

Global Europe Asia Latin America

2015A-2018E CAGR

Exponential increase in data creation is resulting in data traffic explosion… causing rise in importance of data centre ecosystems and ensuring robust market growth

1. Reflects percentage of data centre square feet outsourced to service providers. Providers include hosting, colocation, outsourcing, cloud as well as providers’ own business service offerings. Source: Cisco Visual Networking Index (VNI), Ericson Mobility Report and Go-Globe.com


Constraining data centre space / power supply and creating further demand requirements

A number of industry level and regulatory factors are firming up trends

• Much of the existing DC supply in the market is in a traditional format

- raised floor architecture

- fixed power density

• Designed with static capacity with very limited ability to expand without significant repositioning

Capacity limitations of data centres with traditional design

• Governments around the world are increasingly viewing their online customer base as a national resource needing protection

• Growing requirement for companies to hold data onshore

Tightening data sovereignty laws

• Data centres do more than provide data storage, instead, acting as a node within a larger network of data centre environments

• Diversification into higher value-add IaaS / Cloud solutions via partnerships with leading names

Continually evolving strategies

• Use of internet services has exploded, particularly in emerging economies

• Large portion of customer base has skipped a usage generation and gone direct to mobile usage

Exponential increases in amount of data to be managed

• Disaster recovery requirements mandate multiple locations for data storage/backup

• Proximity to exchanges and providers are an additional consideration

Regulatory requirements of financial institutions

• Enterprises increasingly seeking service providers to meet their DC requirements

• Service providers typically operate and require higher density DC facilities

Increasing IT outsourcing trend


Primary split of global IT outsourcing market

82%

18%

Enterprise owned Outsourced

76%

24%

Retail Colocation Multi-tenanted facilities

• Legacy data centre facilities need to be upgraded to handle the increasing amounts of data

• Strong demand for colocation driven by increasing outsourcing of data centre services to maximise reliability, efficiency, security and IT capabilities while minimising cost

- enterprise owned – facilities are increasingly insufficient to meet IT requirements

- 76% of the market is retail colocation: suited to multi-tenanted facilities

Global and European IT markets are still at the early stage of outsourcing…with only c.18% of IT activities operated outside enterprise premises

Sources: IDC, Cisco Global Cloud Index


Key European markets remain highly fragmented

Source: Company data

Netherlands

4 DCs 89,225sqm

1 DCs 40,576sqm

9 DCs 35,100sqm

2 DCs 34,000sqm

3 DCs 30,000sqm

7 DCs 22,700sqm

2 DCs 13,820sqm

Poland

3 DCs 13,600sqm

2 DCs 12,800sqm

2 DCs 12,300sqm

5 DCs 6,300sqm

4 DCs 4,700sqm

1 DCs 4,700sqm

n.a. 4,000sqm

2 DCs 1,750sqm

Germany

11 DCs 57,500sqm

14 DCs 24,200sqm

1 DCs 17,308sqm

2 DCs 12,500sqm

2 DCs 10,400sqm

1 DC 3,000sqm

UK

13 DCs 91,456sqm

2 DCs 88,981sqm

16 DCs 78,400sqm

1 DC 70,000sqm

6 DCs 39,700sqm

12 DCs 33,000sqm

3 DCs 25,900sqm

2 DCs 13,200sqm

2 DCs 11,435sqm

1 DC 8,500sqm

3 DCs 8,500sqm

3 DCs 6,900sqm

France

2 DCs 51,426sqm

7 DCs 38,555sqm

8 DCs 23,300sqm

7 DCs 13,000sqm

5 DCs 7,000sqm

2 DC 4,900sqm


Notable recent European deals1

15,4x13,0x

15,5x

18,7x20,0x

12,5x

Recent US data centre transactions1

16,5x

23,1x

13,0x 12,0x14,1x

16,4x

Few sizeable transactions in Europe vs. North American marketsHowever, valuation multiples between comparable US and European deals have been converging as European assets mature

VS.

Target country

EV (€m) 215 772 3,722 2,737 860 250 1,494 6,757 3,416 2,661 506 1,702

DateSep

2017May2016

May2015

Mar2015

Mar2015

Jun2014

Jun2017

Jun2017

Dec2016

Nov2016

Oct2015

Jul2015

Target

Acquirer

1. LFY EBITDA where LTM metric is not available; 2. Eight Equinix data centres in London , Amsterdam and Frankfurt as part of Telecity concession; 3. Not completed as the offer lapsed; 4. 29 Verizon DCs; 5. 57 DCs and Colocation business of CenturyLink; 6. Consortium formed by BC Partners, Medina Capital Advisors and Longview Asset ManagementSource: Company information, Mergermarket

4 52 3

PE consortium

6NTT

EU Median: 15.5x NA Median: 15.2x


80

90

100

110

120

130

140

150

160

Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17

Equinix Digital Realty InterXion US data centers¹ STOXX Europe 600 Index

11

EV/EBITDA 17

Market cap (€m) 3,409 32,796 21,069 3,321 4,624

EV (€m) 4,178 40,339 29,860 4,221 6,461

1. Includes Equinix, Digital Realty, CoreSite Realty, QTS Realty and Cyrus One. Source: CapIQ as of 08-Nov-2017

18,9x 25,3x 23,2x 20,7x 20,5x 19,5x

Public markets continue to show strong interest in data centres

Resilient share price performance over last 24 months

+19.0%

+39.2%+44.7%+45.5%+53.1%

The valuation gap between InterXion and US data centre operators has been closing

Median: 20.6x


Equinix has been driving M&A activity in Europe since 2015

UK

16 DCs 78,400sqm

France

7 DCs 38,555sqm

Netherlands

9 DCs 35,100sqm

Germany

11 DCs 57,500sqm

Poland

2 DCs 1,750sqm

Turkey

2 DCs 12,800sqm

Key deals since 2015

Oct-17 → €80m

Sep-17 → €215m

Feb-17 → €35m

Jul-15 → €180m

May-15 → €3,722m

Istanbul

Paris

Spain & Portugal

5 DCs 30,000sqm

Source: Company data, Mergermarket, ING estimates


Why we foresee more data centre deals in Europe…

13

Rationale for passive infrastructure monetisation, IT outsourcing and market consolidation

1. Free-up capital to reinvest in more strategic parts of the business

2. Value-accretive opportunity (data centre properties trading at a significant premium to mainstream telcos/industrials/financials)

3.Achieve operational efficiencies (data centre operators more efficient at commercialising, managing, operating and constructing properties)

4.Formation of strategic, long-term partnership(s) with experienced data centre operators willing to deploy capital to satisfy future data centre infrastructure requirements (build-to-suit, monotenant, high security, location, (green) power efficiency)

5. Improvement of debt ratios and credit ratings

6. Take advantage of the M&A momentum in the industry


Polish Data Centers/hosting market overview

Presented by:Bartłomiej Smolarek & Michał Przybylski, EY Transaction Advisory Team



Overview of Polish Data Centers market

• Achieved value of EUR 345m in 2016, growing ca. 12% y/y.• Has been experiencing double-digit growth for the past several

years.

• Highly fragmented with significant share of the market held by small, local players.

• Top 5 players possess over 50% of colocation space.

• Warsaw is the key location hub for data centers due to presence of the largest financial institutions, telecommunication players and other businesses generating significant demand.

• Poznan and Krakow as emerging hubs with large potential.

• Vast majority of data centers with net area below 2 500 sqm.• High popularity of scalable projects among Polish players.• Recent investments of high EU standards.

Source: PMR Polska, Audytel, companies data

The largest data centers operators in Poland

13,600

12,800

12,300

6,300

4,700

4,700

4,000

1,750

x

s

d

f

g

j

t

r

Net area (sqm) # of DCs

3

2

n.a

1

4

5

2

2


Key data center hubs in Poland

Location of the largest data centers:

Warsaw20 (57%)

Torun2 (6%)

Lodz1 (3%)

Poznan4 (11%)

Wroclaw1 (3%)

Szczecin1 (3%)

Katowice1 (3%)

Krakow5 (14%)

Warsaw:

• The demand driven by presence of the largest financial institutions, telecoms, HQs of significant majority of the largest Polish businesses.

• Is believed to remain key location in the upcoming years.

Krakow:

• Large number of local SMEs.

• May serve as a backup location for Warsaw.

Poznan:

• The largest concentration of businesses in North-Western part of Poland.

• May serve as a backup location for Warsaw.


Current stage of development and main trends

Currently the market… What we may observe in the future…

345,2309,5273,8231,0

20202019201820172016201520142013

Size of data centers market in Poland (EURm)

Yearly growth rates expected to preserve historical levels.

Source: PMR Polska, Audytel

• Relatively low in terms of size.

• Price decreases recently observed.

• Strong investment pipeline.

• Ongoing modernization and virtualization processes.

• IT outsourcing trend has been driving demand’s growth.

• Financial institutions, telecoms, IT companies are main clients.

• Public sector generates low demand.

• New supply of EU funds.

• Pressure on small / local players.

• Wholesale market driven by cloud.

• IT outsourcing trend continues.

• Large financial institutions move operations to Poland (Brexit).

• Demand surge driven by public sector.


Growth of cloud and its consequences for Polish data center market players

7 7 812

16 17 17 18 18 20 2228

35 3542

4857

Cloud services usage in enterprises (%)

12 p.p

182321 431

609781

1 0021 257

1 5301 808

2 117

2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F

Cloud computing services expenditures (EURm)

• Usage of cloud computing services has been growing exponentially – CAGR of 43.9% between 2012 and 2016.

• Only 8% of enterprises operating in Poland purchase cloud services, which means there is significant gap between Poland and majority of EU countries.

• The market is believed to almost triple its size within next 5 years.

What does it mean for Polish DC market players?

Cloud addresses new client groups. As a consequence total volume of data stored / computing power usage

increases.

Source: BMI Market Research, Eurostat


Historical M&A waves in the global data centers market

Global data centers market is relatively young. It has already seen 3 waves of M&A. Looking at a transaction history on global market, can we see any indications what may happen in Poland?

1. New entrants 2. Expansion 3. Assets

Companies operating in adjacent industries acquire data center start-up’s as a way to enter the colocation industry.

Exodus Communications Global Center

Savvis Cable and Wireless America

2nd wave started around 2010. It was about expanding business to new markets.

Numerous acquisitions of leading players across the US, Europe and Asia

The most recent M&A wave has been about assets. The view of data centers as property assets with a cost basis and ROI.

Digital Realty DuPont Fabros

Equinix Verizon’s data centers

From the perspective of Polish market

Has not happened in Polish market –greenfield investments supported by EU funds

replaced the wave.

No spectacular acquisitions of foreign players so far.

Transaction of such a nature not observedin the Polish market so far.

EQT Infrastructure Lumos Networks


Consolidation potential in the Polish market

Current stage of development of the market, including its size, structure and growth potential, indicates there is a significant consolidation potential

Typical for DC market and already seen in more developed markets:

• Economies of scale.

• Difficult acquisition of clients.

• Limited access to high qualified staff.

• High reliability expected.

• Features of a real estate market.

• Clients as the assets.

Which factors are believed to drive consolidation?

Characteristic for Polish market at current stage of development:

• Increase in salaries of IT staff.

• Current market structure.

• Highest pressure of small, local players.

• Know-how required.


Potential data centre financing options

Presented by Wim Steenbakkers, Managing Director, Global Head of Technology, ING SF TMT Amsterdam



The global data growth is set to accelerate as more people and machines are connected to the internet

The bigger picture

Growth of the Internet of ThingsData volume growth

There will be 50bn estimated devices connected to the internet by 2020

Human users Machine users

2003A2010A 2015A

2020E

Sources: IDC, Cisco Global Cloud Index

-

50

100

150

200

250

300

2014A 2015A 2016A 2017F 2018F 2019F 2020F 2021F

Fixed Internet Managed IP Mobile data

CAGR16-21

+46%

+13%

+23%


Sector views from an Equity and Debt perspective

The data centre and hosting sector is increasingly well being understood as a separate, critical communications asset class

Equity view

• Investors becoming more savvy in their investment approach, taking the time to learn about the sector as they see the criticality of digital infrastructure

• New investment strategies are popping up that investors are willing to take a look at

• Equity investors can be broken down into:

• Transformative, high-growth PE

• Traditional PE

• Infra PE

• Real Estate investors

Debt view

• Debt financiers becoming more focused on the sector; difficulties to classify as Cash Flow-based or Real Estate-based financing;

• Specialized mezzanine and direct lenders become more active in the sector and provide appropriate debt financing along the operator and/ or asset development cycle;

• TMT banks are able to provide bespoke, cash-flow based structures in order to help further business acceleration;

• Relationships banks do more corporate lending, leveraged structures and corporate acquisition approaches

[]


Company cycle

24

Financing solutions change throughout a company’s development

The company life cycle

Inception Introduction Growth Maturity Decline/Reinvention

Equity funding

Debt funding

FFF

Revenues

Cash flow

Profit

Venture capital Private Equity/ IPO M&A (trade) Private EquityAngel capital

Structured Finance / Business Banking

Structured Finance / HY Bonds

Corporate / DCMStructured

Finance

Sources: ING analysis


The data centre universe can be divided into different type of players

In-house

Wholesale

Retail

ITS operationsD

egre

e o

f IT

Ser

vice

co

mp

lexi

ty

Level of outsourcing

Managed Servicesranging from mass hosting

to bespoke services

Hig

hLo

w

Low High

Key features

Location Subarban, rural Subarban, rural Metropolitan Suburban Sales/ tech teams need local presence

Network connectivity >1 >1 >20 >1 Multiple networks

Node proximity No No Yes Preferable N/a

Pricing Medium Low High Medium High

Support services No No Yes Yes Yes

Capacity constraints Medium Low High High N/a

Customer concentration High High Low Low Low

Barriers to entry Low Low High High Low

Margins n/a High High Medium Low/Medium

In-house Wholesale Retail ITS operations Managed Services

Private Cloud Public CloudHyperscale territory



Free Cash Flow Revenues

EBITDA

26

Illustrative cash flows


Remarks Observations

Company life cycle

• The phased build-out is an important characteristic:• Ramp up profile• Booked-but-not-Build profile• Capacity options and future contracts pipeline

• Mix in tenants can provide pricing upside• Operator needs to manage

• (i) Extension risk• (ii) re-pricing risk, and • (iii) utilisation and offtake optionality

• Tailored financing solutions are available• Pricing dynamics dependent on anchor tenant and project risk

• Pre-completion project finance for multi-tenant DCs requires:• Right contractual characteristics• Financeable ramp-up schedule• (maintenance) capex cycle• Booked-But-Not-Built capacity • Management of important risks

• Multiple possibilities in terms of debt sizing


Revenues

Cash flow

Profit

Pre-completion project finance

Wholesale and IT Services ProvidersPre-completion project finance



Remarks Observations• Contains less separate build-out phases and ramp-up periods

• Hyperscale often contracts the full data centre• More visibility on the build-out schedule

• Pricing of hyperscale contracts is normally lower • Evolution of tenor terms is seen with hyperscales• More efficient, standardized and accelerated build-out can still lead to

healthy IRRs• Operators are actively looking to mix hyperscale tenants with enterprise

colo customers

• Hyperscale data centres single-tenant (high credit quality) and ‘built-to-suit’ nature, where project financing capacity requires:

• Strong hyperscale contract (non-termination provisions)• Appropriate ramp-up schedules & maintenance capex cycle• Limited excess capacity options• Special conditions

• Financing structures a function of contractual strength and tenor• Debt Sizing Principles used are DSCR or LLCR, and balloon size

Wholesale and IT Services ProvidersHyperscale (single-tenant)

Illustrative cash flowsCompany life cycle


Revenues

Cash flow

Profit

Pre-completion project finance

Free Cash Flow Revenues

EBITDA


Free Cash Flow Revenues EBITDA

28

Illustrative cash flows


Company life cycle

• A stabilised asset allows for more cost efficient financing structures• no project development risk• longer term contracts • high credit quality tenants

• Asset control resides more with the anchor tenant (triple net lease)• Significant asset value appreciation for high-credit quality anchor tenant

DC’s• Various investment opportunities under ‘top class’ stabilized DC’s• Stabilized, not fully utilized, Enterprise DC’s provide potential upside for

the investor ecosystem

• Stabilized data centre leveragability depends on: • Quality of contract and anchor tenant• Stability of opex, insurance and tax payments• Price escalators (CPI etc)• Underlying asset value• Operational performance (no downtime)

• Structuring on Cash Coverage Ratios and Loan-to-Value• Structuring principles always take length and strength of contracts

Stabilised asset (real-estate structures)

Wholesale and IT Services Providers

Inception Introduction Growth Maturity

Real estate type financing

Decline/Reinvention

Revenues

Cash flow

Profit





Company life cycle

• Important retail colo characteristics compared to wholesale DC’s• Shorter lease tenors (typically 1-3 years)• Network diversity• More focus on add-on services

• Quality of management, operational performance and DC/service footprint are key items

• Ability to provide an integrated operational experience to clients• Quality of Service – low latency, no down-time, 24/7 support,

(network) interconnect, DDOS protection, etc• Compared to mass hosting, managed hosting contains the more

specialised and tailored services

• Leverage potential for retail colo operators is derived from:• Quality, diversity, topology and value of its datacentre portfolio• Lease tenors, anchor credit quality and lease extension behaviour • Expansion/maintenance capex cycles and growth potential

• Managed Services mostly (i) are asset light, and (ii) own the server infrastructure

• Customer stickiness enhanced by (i) specialised nature of the services, and (ii) quality of customer care, which improve the financing proposition

• Structures are comfortable to take some market risk into consideration,


Revenues

Cash flow

Profit

Corporate / leveraged structures

Retail colocation and Managed ServicesCorporate or leveraged structures


Zenium

30

ING TMT acts as Sole Coordinator for Zenium Germany €100m Senior Secured Credit Facilities

Company background

• Zenium, founded in 2013, is a leading pan-Europeanwholesale datacenter operator providing high-performance datacenter services to the world’s leadingcloud providers (hyperscales), enterprise andtelecommunication companies across their datacenterfootprint in London, Frankfurt and Istanbul

• Zenium Germany GmbH is the German operatingcompany of Zenium, which owns and operates theexisting Frankfurt data centre (“Frankfurt One”) andthe second data centre (“Frankfurt Two”), currently inconstruction

ING’s role

• Sole Coordinator

• Sole Hedge Coordinator

• Bookrunning MLA

Transaction details

• ING Bank acted as Sole Coordinator and BookrunningMandated Lead Arranger in the €100 million SeniorSecured Credit Facilities for Zenium Germany GmbH

• The transaction enables Zenium to refinance theiroperational datacenter in Frankfurt (Frankfurt One) andfinance the construction of the shell, build-out of the coreand fit-out of Frankfurt Two on the back of signedcontracts, expanding their Frankfurt datacenter capacity toover 26 MW IT load

• The financing package was structured as a 6-year seniorsecured hybrid project facility, allowing for the requiredflexibility during the new datacentre build, fit-out andramp-up phase

• ING coordinated the overall financing process, taking thedeal structuring, financial modelling, due diligenceworkstreams (legal, market, valuation and technical) out ofmanagement’s hands.

• The structured facility was well received. Due tooversubscription banks were downscaled. HSH Bank isacting as Facility and Security Agent

Deal highlights

ING successfully led the company’s first ever syndicated facility and the client and its majority shareholder praised ING for its key role played in this landmark transaction Through this transaction, ING enabled further development for the company through the debt financing, whilst also creating significant traction in the lending market

Germany 08/17

Sole Coordinator, Sole Hedge Coordinator, BMLA

Technology

Zenium Germany GmbHEUR100m

Senior Secured Credit Facilities

EXAMPLE



European Fund OperationalProgramme Digital Poland

Presented by:Michał MajewskiEY TMT Business Advisory Team


New customer behaviors and business models require appropriate telecommunication infrastructureEuropean Commission periodically prepares digital strategies outlining common targets for all member states

with respect to i.a. coverage and average transfer speeds.

Digital Europe 2020 European Gigabit Society 2025

Targets ► 30 Mbps for all households by 2020

► 100 Mbps utilized by at least 50%

of households by 2020

► 1 Gbps download/upload speed for all schools, transport hubs and main

providers of public services as well as digitally intensive enterprises.

► 100 Mbps download speed (with possible upgrade to 1 Gbps)

for all European households.

► Fully-fledged 5G commercial service in at least one major city in each EU

member state by 2020.

► Uninterrupted 5G wireless broadband coverage in all urban areas as well

as major roads and railways by 2025.

Implications ► Realization of these targets requires large

investments in Next Generation Access

networks.

► Realization of these targets requires large investments in R&D,

fiber and 5G infrastructure and frequencies.

Strategy


Realization of Digital Europe 2020 targets is financed i.a. through POPC

► POPC is a program within which Ministry of Digital Affairs invests EU funds i.a. in broadband infrastructure and development

of efficient public e-services.

► The total Program’s budget amounts to ca. 10 billion PLN, to be spent until 2022.

► The Program consists of pillars, within each pillar CPPC (coordinating agent) allocates budget to beneficiaries in contests.

► Pillar no. 1 „Widespread access to high-speed broadband internet” is dedicated to investing in NGA networks.

1st contest 2nd contest 3rd contest

Budget

Used

budget

# H

H# S

chools

600 M PLN 3 147 M PLN

278 M PLN 2 031 M PLN

128 k 1 350 k

190 10 347

Closed contests Open contest

1 937 M PLN

?

461 k

2 579 (number of address

points)

Tim

e

Nov 2015 – Sep 2016 Sep 2016 - Aug 2017

Nov 2017 – Apr 2018 (deadline for the 1st round of

applications)

Regions with

subsidy

Regions

recommended to

subsidy after

applicant’s protest

Regions from which

beneficiaries resigned

Regions where beneficiaries did

not receive subsidy due to the result of assessment

Regions with no applications

Geographic fund allocation after 2 contests


While key conditions of the 2nd contest have been replicated in the 3rd contest, several significant modifications are introduced in the 3rd contest

Catalogue of costs eligible for refundNo changes in the catalogue of costs eligible for refund at this point. However, according to the comments some changes in the specific character of radio projects can be introduced.

3

Size of the regionsSize of the regions in the 3rd contest are comparable to the 2nd contest, however some regions have been reorganized (esp. in Lubelskie and Mazowieckie).

2

RoundsIf any region ends up without refund contract after the 1st round, CPPC will organize 2nd round, including only regions without the refund contract. Conditions of the contest in the 2nd round can be changed.

1

Deadline for connecting schools into the network2nd contest – 80% of schools due to be connected within 14 months, remaining 20% of schools due to be connected within 20 months from the date when the refund contract has been signed.

3rd contest – 80% of schools due to be connected within 20 months, remaining 20% of schools due to be connected within 26 months from the date when the refund contract has been signed.

5

Evaluation criteriaNo limit in additional points for declaration to increase the network coverage above the statutory minimum.

4


After 3rd POPC contest another 7.5 bn PLN will be necessary to increase NGA penetration to Digital Europe 2020 targets

Region NGA coverageHouseholds to

cover (million)

Financial gap

(billion PLN)

Urban 77% 2.1 1.4

Rural 37% 2.9 14.6

Total 64% 5.0 16.0

► Next Generation Access (NGA) coverage has improved since 2015 both countrywide and in rural

areas.

► Countrywide the coverage has increased from 2015 to 2016 by 3 p.p. to 64%.

► In rural areas the coverage has also improved by 3 p.p. up to 37% in 2016, which was slightly

below the EU average (40%).

► In 2016, 4G coverage was slightly above the EU average (91% versus 84%).

Situation after 2nd and 3rd contest

within POPC

7.5 billion

PLN

Situation before 2nd and 3rd contest within POPC

Assuming full allocation of 3rd

contest’s budget and level of the

beneficiary’s own cost similar to

the 2nd contest, the financial

gap is estimated to decrease to:

Further investment will be

required mostly in rural, low-

profit, locations.

36


5G radio cells

in the 700 MHz frequency range

5G radio cells

in the 3.4-3.8 GHz frequency range

Small 5G radio cells

in the 26 GHz and higher frequency

ranges

Major event with

thousands of users

Car-to-X communication

Urban carrier infrastructure

Smart cities and

environmental monitoring

Main transport routes

roads and railways

Improved indoor coverage

& smart grids

Meeting Gigabit Society goals requires further development of mobile broadband network towards 5G

37


5G

1 Step up network rollout

2 Make available frequencies based on demand

3 Promote cooperation between telecommunications

and user industries

4 Targeted and coordinated research

5 Initiate 5G for towns and cities

5 key regulatory steps will have to be taken in order to effectively deploy 5G (1/3)


► Facilitate connection of base stations via fiber optic cables

► Promote infrastructure sharing for the development of 5G

network

► Support network rollout, maintain health protection

Objective: prepare infrastructure and approval procedures

for 5G rollout

38

2 Step up network rollout 1 Make available 5G frequencies

► Step up harmonization of 5G spectrum at a global and

European level

► Make available spectrum for second digital divident

700Mhz

► Create planning certainty for the high band early on

Objective: support investment in 5G networks with

modern frequency policy

3 Promote cooperation between

telecommunications and user industries

► Open the 5G dialogue

► Actively support the standardization process among all

sectors that benefit from new network

Objective: all sectors must identify potentials and specify

their requirements

4 Support 5G research

► Support research

► Fund research in a targeted manner, support test beds

► Connect and coordinate research activities

Objective: increase commitment of businesses placed in

Poland in the field of applied 5G research



5 Initiate 5G for Poland

► Organize a 5G competition

► Support project planning with the help of industry partners

Objective: develop tailor-made 5G applications for Poland


40


Poland will have to invest ca. 25 bn PLN in infrastructure to effectively implement 5G by 2025…

25 billion PLN

► At the current stage, precise architecture of 5G is not known, therefore the costs of deployment of 5G network

can only be estimated at very high level.

► European Commission decided to estimate the cost by extrapolating the cost of deployment of 2G, 3G and 4G

networks per subscriber.

► As a result of this analysis, the Commission has estimated that the cost of 5G network deployment will amount

to 145 EUR per subscriber (on average for all EU 28 countries).

► The total cost of deployment of 5G networks in all EU-28 countries has been estimated at 58 bn EUR.

► By multiplying the cost per subscriber by the number of mobile subscribers in Poland in 2025 the total cost of

5G network deployment has been estimated at ca. 25 billion PLN.


…however the total investment in 5G and NGA infrastructure and frequencies will be much higher

7.5

billion

PLN

NGA

infrastructure

25

billion

PLN

5G

network

?

billion

PLN

5G

frequencies

42


Contact

Michał MajewskiSenior ManagerErnst & Young Business Advisory

Tel: 22 557 87 89Kom: +48 660 440 [email protected]

Izabela BogumiłSector Head Telecom and MediaING Bank Śląski S.A.

Tel: 22 820 42 54Kom: +48 571 312 [email protected]

mailto:[email protected]

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