Global Insight Perspective | |
Significance | While the main protagonists have refused to comment, press reports indicate that Altimo is keen to sell 100% in Sky Mobile for US$600 million. |
Implications | This creates an obvious opportunity for Russia's major mobile operators—MTS, VimpelCom and MegaFon—to achieve their well-publicised goal of further CIS consolidation. |
Outlook | Global Insight expects that, despite previous bad experiences in the country, MTS will be sorely tempted, while VimpelCom will need to resolve boardroom unrest if it is also to partake. |
A number of press reports have indicated that Altimo, the telecoms arm of Russian holding Alfa, is auctioning 100% of Kyrgyz mobile unit Sky Mobile. Unnamed sources have suggested that Altimo hopes to attract around US$600 million, with Morgan Stanley assigned to arrange the auction.
Sky Mobile was acquired by Altimo in June 2006. However, Altimo specialises in investments of minority stakes, rather than management of telecoms operators, and its eagerness to divest Sky Mobile has been well-documented for some time (see Kyrgyzstan: 7 June 2007: Reports Suggest Altimo to Divest Kyrgyz Unit Sky Mobile). Bloomberg has reported that Altimo's latest move to auction off the asset has been prompted by a dispute over its ownership.
Sky Mobile has a GSM 900/1800 licence for the entire territory of Kyrgyzstan. Prime-Tass reports that it has around 1.2 million subscribers, equating to around 78% of the national subscriber market, where it competes with Eventis-owned BiMoCom.
Outlook and Implications
- RollUp, RollUp: Press reports suggest that Morgan Stanley has been offering Sky Mobile to various potential buyers, although both Morgan Stanley and Altimo have declined to comment. Russia's "usual suspects" of major mobile operators are likely to front the queue for this opportunity to expand their CIS portfolios. The Kyrgyz market hardly represents the most lucrative market, with GDP per capita in the country estimated by Global Insight at US$529.22 in 2006. However, MTS and VimpelCom have each established footprints across the CIS region, and MegaFon has also hinted that expansion in the region is now a company target. An acquisition in Kyrgyzstan would help boost the regional profile of a prospective Russian buyer, create synergies such as roaming and international calling potential, while also providing opportunity for revenue and subscriber growth.
- MTS Could be Tempted Despite Bad History in Kyrgyzstan: Earlier this year MTS made clear its eagerness to continue consolidating its CIS portfolio, while also staying alert to opportunities further overseas. Company president Leonid Melamed outlined the key criteria for acquisitions as "markets with low penetration level … with sufficient income of population and the high growth level of GDP" (see CIS: 2 February 2007: MTS Outlines Plans for 3G Investment and CIS Acquisitions in 2007). Only this week, Melamed reiterated at the Reuters Investment Summit the company's strategy to achieve "organic and non-organic growth in core CIS markets", emphasising MTS's local expertise and knowledge of consumer behaviour in the region. Kyrgyzstan has not traditionally been a happy hunting ground for MTS. The operator acquired mobile operator BiTel in December 2005 for US$150 million, but was unable to gain operational control and saw BiTel's assets transferred to Sky Mobile. Bloomberg has cited MTS spokeswoman Yelena Kokhanovskaya as confirming that the company has been invited by Morgan Stanley to bid for Sky Mobile. While MTS may be wary of re-entering Kyrgyzstan after the BiTel debacle, Global Insight expects that the opportunity to acquire a leading operator in the country will be too tempting for it to resist, given its CIS expansion strategy.
- Boardroom Unrest Continues to Plague VimpelCom's Expansion Plans: Russia's second-largest mobile operator was reportedly offered a 51% controlling stake in Sky Mobile for US$450 million in October 2006. Altimo itself owns a 44% stake in VimpelCom, but the stumbling block to this deal was apparently the unwillingness of 29.9% shareholder Telenor to make an investment with legal risks involved. It would be understandable if Telenor's stance remained thus. However, the Nordic group appears to have acquiesced earlier this week to VimpelCom's expansion into Vietnam, albeit in a deal in which risks have been minimised by partnering the Vietnamese government (see Russia: 12 September 2007: Russia's VimpelCom Announces US$1-bil. Expansion into Vietnamese Mobile Sector). VimpelCom chief executive officer (CEO) Alexander Izosimov has frequently made clear that continued CIS expansion is a company priority, so whether or not the company bids for Sky Mobile seems to depend upon the state of boardroom relations.
- MegaFon May Be Eyeing Other Kyrgyz Opportunities: Unlike its bigger rivals, MegaFon has not yet embarked upon any notable programme of consolidation in the CIS region. However, earlier this year MegaFon hinted at a more expansive policy, with CEO Sergei Soldatenkov quoted in Dow Jones, citing Vedomosti, as suggesting that the company was mulling moves into Kyrgyzstan, Armenia and Uzbekistan. MegaFon already has strong links with Kyrgyz GSM operator BiMoCom, having reportedly offered consultations and technical support to Eventis at the time of the latter's purchase of the operator (see Kyrgyzstan: 13 July 2007: Eventis Rules Out Sale of Kyrgyz Mobile Operator BiMoCom to MegaFon). Consequently, rumours have remained that some sort of partnership between BiMoCom and MegaFon is on the cards. It is also worth noting that in Russia, MegaFon has achieved complete nationwide coverage by building its own networks from scratch, rather than by a policy of acquisitions. Given these factors, Global Insight does not expect MegaFon to be among the bidders for Sky Mobile.