Polish e-commerce: Challenges, but Solid Fundamentals.

UNCLAS SECTION 01 OF 02 WARSAW 000735

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/NCE, EUR/ERA, EEB/CIP
EUR/NCE FOR DKOSTELANCIK, BPUTNEY
USDOC FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MWILSON
TREASURY FOR MGAERTNER

E.O. 12958: N/A
TAGS: ECPS ECON EINT EINV PL
SUBJECT: Polish e-commerce: Challenges, but Solid Fundamentals.

REF: WARSAW 000688

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Summary
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1. Poland's e-commerce sector appears to be doing well
although some challenges remain in the level of internet access,
business IT investment, and government e-commerce initiatives. The
business-to-consumer segment of the market has already reached 4
billion zloty ($1.4 billion) annually, while estimates put the
business-to-business segment at 60 billion zloty ($20 billion). The
continued growth in Polish e-commerce should provide plenty of
opportunities for U.S. companies. End Summary.

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Fulfilling E-Commerce Prerequisites of...
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2. What conditions need to exist to promote healthy e-commerce?
Based on internet research and conversations with a leading reporter
on technology matters and the spokesperson for the predominant
Polish on-line store, we identified three: access to computers and
high-speed internet; investment in IT infrastructure; and the
presence of a permissive regulatory and policy environment.

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Internet Access
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3. Access to the internet is increasingly available and affordable.
Polish computer sales increased by 38% last year, compared to 10.5%
worldwide. By the end of 2006, 37% of all Poles had access to an
internet connection, which is expected to increase to 50% by 2010.
Of these, close to three million users have access to broadband. In
addition, costs are falling - for example, many companies now charge
less than 1 Polish Zloty ($.33) per month to host an internet
domain. The ability to participate in e-commerce is now within
reach of the average consumer and small business.

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Infrastructure Investment
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4. Corporate, private, and public investment in information
technology (IT) is substantial and increasing, helping to create an
e-commerce ready economy. The Polish market in IT goods and
services reached nearly 20 billion zloty ($680 million) last year,
an increase of 14% from the previous year. The IT market supports
an estimated 10,000 Polish IT firms. The GOP plans to provide an
extra boost, with a six year plan to spend up to 3.5 billion zloty
($1.2 billion) on IT procurement and service contracts between 2007
and 2013.

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Permissive Regulatory and Policy Environment
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5. In the governmental arena, one positive development has been the
adoption of the first national IT plan, which consolidates many
previous IT-related strategies that caused some degree of confusion.
The government now appears to have a policy framework in place that
permits the continued development and growth of Polish e-commerce.
In addition, our e-commerce contacts told us that they could not
come up with any examples of government regulations or practices
that were hindering the development of e-commerce in Poland.

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Leads to Growth and Opportunity
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6. The result: in 2006, the business to consumer (B to C)
e-commerce market reached 4 billion zloty ($1.4 billion),or 4% of
the B to C market as a whole - an increase from just 1 billion zloty
($340 million) 4 years ago. While there is less information on the
business to business (B to B) e-commerce market, estimates suggest
that it is approximately 60 billion zloty ($20.3 billion). Both of
these segments of the e-commerce market should see continued robust
growth over the next couple of years, with estimates of the B to C
market reaching 16 billion zloty ($5.4 billion) by 2010.

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But There's Still Room for Improvement
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7. While the building blocks for successful Polish e-commerce are
largely in place, there are still challenges that remain in each of
the conditions we identified as necessary for healthy e-commerce.

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Internet Penetration Below EU Norms
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8. Poland lags in internet access when compared to western and
northern Europe. The proportion of the population with access is
just half the 71% in the United Kingdom and also falls behind the
50% for the EU as a whole. However, Polish internet access, while
below that of the EU average, is already higher than Italy (25%) and
Spain (19%). Costs for hosting sites may be falling, but for other
essential e-commerce components remain high. This is especially
true for telecommunications, where dominant player Telekomunikacja
Polska S.A. controls two-thirds of the market and is uniformly
criticized for high connection fees and monthly access charges.

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Infrastructure Investment Dominated By Foreigners
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9. Investment in Polish IT is still primarily by foreign companies
- with big names such as Microsoft, Oracle, IBM, and SAP all amongst
the largest investors. Homegrown companies have yet to contribute
significant resources to the continued growth of e-commerce. While
the GOP will provide a boost to this for in the first half of its
six year IT plan, it is front loaded: investment for the second half
will fall to 1 billion zloty ($340 million) between 2010 and 2013.
Even many of the largest contracts awarded to date have been delayed
by litigation by companies that did not submit winning bids.

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GOP Initiatives Lacking
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10. While our sources could not identify any regulatory obstacles
to successful Polish e-commerce, neither could they identify any
successful government initiates designed to act as catalysts to
e-commerce growth. Certain government projects that could propel
growth in the business-to-government market segment, such as
e-signatures or e-filing of taxes for corporations, have suffered
from repeated delays and cost overruns.

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Comment
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11. Polish e-commerce faces challenges, but post believes this is
because Poland is earlier on the growth curve than its neighbors and
not because serious obstacles will prevent sustained development of
e-commerce. Most of the building blocks for robust growth in
e-commerce already exist. Stories about continued IT investment by
large companies abound in the press. Government initiatives in
e-signatures and e-taxes, while delayed, are still making progress.
U.S. companies should find ample opportunity to invest and grow with
Poland's e-economy.

ASHE