Turkcell Identifies BeST as Prime Acquisition Target in Belarus

Turkey's leading mobile operator, Turkcell, has confirmed in a short press release that it intends to submit a bid to Belarusian mobile operator Belarusian Telecommunication Network (BeST) to purchase the majority of its shares. No further details were provided. The news follows Turkcell's admission last month that it was keen to invest in Belarus, but had not specified its plans and was in the process of conducting studies into the investment potential of the region. As well as its domestic operations, Turkcell has operations in northern Cyprus; a stake in Ukraine's third-largest mobile operator, Astelit; and, through its 41.45% stake in Fintur, assets in Azerbaijan, Kazakhstan, Georgia, and Moldova.

Outlook and Implications

• Turkcell's Targeting of the Belarusian Market is Understandable: As Turkcell's domestic market matures, it is understandable that the operator is looking at overseas investment opportunities. It already has around 18 million subscribers in its international operations, with an available population of around 80 million. Belarus has a population of just fewer than 10 million and geographically is fairly close to Turkey. With two foreign investors already pumping money into the country's leading mobile operators and penetration of over 70% at the end of 2007, the market is in a healthy condition. It is not, however, one of the biggest or most lucrative markets of Eastern Europe. As such, Global Insight considers the move by Turkcell to be an initial step towards international consolidation, aimed at gently substantiating the operator's footprint and subscriber base, and creating a platform for possible further expansion in the longer term.
• BeST in Need of Fresh Investment: As anticipated last month by Global Insight, Turkcell's examination of the Belarusian market has led it to target BeST (see Belarus: 5 March 2008: Turkcell Discusses Investment Opportunities in Belarus). However, while the Belarusian mobile market is in a healthy state, BeST itself is not faring so well. Within a national market of 7.036 million subscribers, it had only 181,600 at the end of 2007. Belarusian Deputy Information Minister Larysa Labkovich was quoted by BelaPAN in February 2008 as indicating that the operator was experiencing a crisis, having failed to meet its 2007 subscriber targets and facing financial difficulties. Such speculation was hardly quelled by BeST's failure in the last two months to release its monthly subscriber numbers, despite the explanation offered by a spokeswoman of a new billing system. BeST had begun 2007 in a positive fashion, increasing subscriber numbers by 140% in the first half of the year, but has faltered somewhat since. It has coverage of only 24% of Belarus, home to around 61% of the population, and is therefore in need of network investment and quite possibly new management.
• Potential for Progress as Indicated by Rivals: However, the example of MTS Belarus, backed by Russia's MTS, and MDC, backed by Telekom Austria—both of which boast over 3 million subscribers—are indicative of the subscriber gains that can be achieved by strong foreign investment. It should be noted that subscriber uptake is likely to continue rising even after penetration has reached 100% due to multiple SIM ownership, so there are enough incentives for Turkcell to invest in BeST.
• Turkish Investment Would Be Welcomed in Belarus: Belarus' financial plight has eased a little this year, with Russia's stabilisation loan and lower-than-expected gas charges providing some breathing space. Nevertheless, the Belarusian economy remains in a fragile state and would undoubtedly benefit from foreign investment. Last year, Belarus President Alexander Lukashenka indicated that a US$500-million bid for BeST had been received from an unnamed suitor, an indication of the sort of price tag that Belarus would look to place on BeST. Lukashenka would be particularly keen to receive investment from a non-Russian, non-U.S. and non-European Union (EU) source, and as such Turkcell's interest is likely to be warmly received. There does, however, remain the possibility that Russian mobile operator VimpelCom could look to hijack any Turkcell bid for BeST. VimpelCom has often made clear its eagerness to expand its footprint across the entire CIS region, and Belarus represents a gap in its coverage. VimpelCom previously, unsuccessfully, attempted to acquire MDC, so there is a strong possibility it would make a similar move for BeST. However, as a Russian operator, it would face political obstacles and Turkcell currently occupies pole position.