Orange Polska’s failure to successfully implement its strategy could lead to a loss of market share and/or shrinking margins

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• Increased competition and pressure on services and prices
• Loss of a part of the market due to introduction of new services and technologies
• Failure to obtain the expected return on investment in fibre and loss of broadband market share
• Marginalisation of the role of mobile network operators due to implementation of eSIM technology
• Increased competition from CATV operators in the convergent market
• Emergence of new types of fraud with new technologies

The main markets in which Orange Polska operates are mature or even saturated. It therefore faces extremely tough competition, which initially was mainly on price, but presently focuses on the quality of products and customer care. The rapid growth in broadband use (both fixed and mobile) and development of new technologies allow global players in the internet sector to establish a direct link with customers of telecom operators, thus depriving the latter, including Orange Polska, of a portion of their revenues and margins. If this phenomenon continues or intensifies, it could seriously impair the financial position and outlook of operators. Orange Polska’s failure to successfully implement its strategy could lead to a loss of market share and/or shrinking margins. The same could occur in the event of consolidation of other players in one of the markets where it operates. Moreover, with growing complexity of technologies and networks and accelerated implementation of new applications and services, particularly related to interconnection and customer relationship management, new types of fraud which are more difficult to detect or combat could also emerge. This may result in a loss of revenues.

In response, Orange Polska has chosen to make significant investments in fibre, pursue a convergence strategy and continue with transformation and efficiency gains. It is also committed to developing new business activities, such as mobile financial services and electricity supply.

Increase in the number and duration of service interruptions

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• range Polska’s IT&N infrastructure outage
• Exposure of Orange Polska to cyber attacks
• Occurrence of terrorist attacks
• Decrease in quality or non-performance of services due to dependence on external partners

Service disruption or interruption may occur following cyber- -attacks (on the IT&N infrastructure), outages (of hardware or software), human errors or sabotage of critical hardware or software, failure of a critical supplier, or if the network in question does not have sufficient capacity to meet the growing usage needs, or during the implementation of new applications or software. The impact of such incidents could seriously damage Orange Polska’s reputation and result in revenue erosion, affecting its profits and market position.

This risk is mitigated by proper network and IT systems development planning, investments in the development of disaster recovery solutions and insurance schemes as well as implementation of business continuity and crisis management plans. Orange Polska has become the first telecom operator in Poland to obtain the ISO 22301:2012 Certificate for its Business Continuity Management System.

Breach of security of information, including personal data

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• Breach of security of information, including personal data

Orange Polska’s activities may trigger the loss, disclosure, unauthorised communication to the general public or third parties or inappropriate modification of the data of its customers. Such losses could arise from (i) rapid implementation of new services or new applications, for example those relating to billing and customer relationship management, (ii) launch of new initiatives, especially in the field of Internet of Things (IoT), (iii) malicious acts (including cyber-attacks), particularly aimed at theft of personal data, or (iv) potential negligence within Orange Polska or its external partners. Furthermore, the new General Data Protection Regulation (GDPR) released in April 2016 will become applicable on May 25, 2018. For infringement of GDPR protection rules, administrative fines of up to 4% of the annual global turnover may be imposed. Such incidents could have a considerable impact on the Group’s reputation and a heavy impact on its liability, potentially including criminal liability, and hence have an adverse impact on Orange Polska’s future financial performance.

Orange Polska has implemented a certified Information Security Management System, which complies with ISO/IEC 27001:2013 with respect to provision of telecommunication and ICT services, hosting, collocation, cloud computing, cybersecurity and cloud processing of personal data. In October 2017, Orange Polska obtained a certificate of compliance with ISO/IEC 27018:2014 with respect to cloud-based personal data processing. Furthermore, the Company has maintained the European CERT certification for its CERT function.
Several months ago, Orange Polska launched a programme to prepare the organisation to meet the GDPR requirements, and the preparations are at a very advanced stage to implement GDPR on time.

Risks related to financial markets

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• Increase of interest rates
• Appreciation of the local currency

2017 did not bring any changes in the Central Bank’s policy and interest rates remained stable at a historic low. The Monetary Policy Council is expected to keep interest rates unchanged in 2018, while taking steps to prepare the market for increases in 2019.
Foreign exchange rate fluctuations affect Orange Polska’s liabilities denominated in foreign currencies and settlements with foreign operators.

A potential increase in interest rates should not have any major influence on Orange Polska’s debt service costs owing to a high hedging ratio.
Potential depreciation of the Polish zloty should not have any major influence on Orange Polska’s liabilities denominated in foreign currencies or settlements with foreign operators owing to a high hedging ratio.

Regulatory obligations resulting from legislation changes and administrative decisions

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• Fixed Termination Rate (FTR) cuts
• Changes of wholesale rates
• Risks related to acquisition of new spectrum for high-tech telecommunications services
• Proceedings by UOKiK and European Commission related to network sharing
• Increased tax burden resulting from changes in legislation
• Increase in remuneration for the use of third parties’ land for the purpose of development and maintenance of Orange Polska’s infrastructure
• Reputational and financial losses resulting from involvement of Orange Polska’s employees or partners in corruption schemes

Orange Polska must comply with various regulatory obligations governing the provision of services and products, particularly related to obtaining and renewing licences. The regulatory obligations result from legislation changes and administrative decisions. Regulatory decisions and changes in the regulatory environment may have an adverse effect on Orange Polska.
Despite Orange Polska’s drive to strengthen its anti-corruption policy, corruption cases could occur due to a number of partners engaged and complex processes performed. This could have an adverse impact, particularly on Orange Polska’s reputation.

In 2017, there were a number of changes in the legal environment with respect to both general law and provisions specific to the telecom sector. Such modification of the legal environment entails constant and diligent monitoring as well as allocating resources to implement new regulations.
Orange Polska has implemented the Anti-Corruption Policy and Guidelines. These regulations contain detailed rules and standards as well as references to specific conditions and circumstances relating to the identification and mitigation of the corruption risk. In addition, we have carried out a number training and information campaigns to raise awareness of anti-corruption laws and rules among employees.

Exposure to electromagnetic fields (EMF) from radio equipment

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• Adverse effects of EMF on human health
• Decline in use of mobile telecommunications services
• Difficulties and additional expense in rolling out base stations and other wireless equipment

Exposure to electromagnetic fields (EMF) from radio equipment (used mainly on mobile, but also fixed, networks) might raise concerns for their possible adverse effects on human health, even though the Polish EMF limit is much more restrictive than in most other countries, where the limit set in the Council Recommendation 1999/519/EC applies. If the above-mentioned health risks were scientifically confirmed to a certain extent in the future, this would likely result in a decline in use of mobile telecommunications services, difficulties and additional expense in rolling out base stations and other wireless equipment, and an increase in litigation.

The top management monitors compliance with regulatory requirements, emission limits and other legal requirements related to environmental protection. Furthermore, Orange Polska has implemented an environmental management system for provision of mobile services, which is subject to annual ISO 14001 certification.

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• Negative trends in the labour market

A further decline in unemployment may be expected in 2018. However, unemployment will be approaching the natural rate of 5%, which, despite continued favourable economic outlook, may intensify the existing problems with labour shortage and growing labour costs due to wage pressure. This in turn may negatively affect the mood in selected enterprise sectors and constitute a barrier to economic growth by limiting investments.

In response to the growing demand for various specialists, the Management Board of Orange Polska has been implementing programmes aimed to retain and attract employees in the areas which suffer most from lack of specialists (i.e. IT, sales, customer care and technical services).