Global Insight Perspective | |
Significance | Press reports indicate that TeliaSonera is likely to gain full ownership of mobile operator LMT, while the state will gain full ownership of fixed-line incumbent Lattelecom. |
Implications | TeliaSonera had harboured ambitions to acquire both operators, but will nevertheless be pleased to secure LMT. |
Outlook | Consolidation in Latvia appears to be part of TeliaSonera's broader ambition to expand beyond Scandinavia into the Baltic region and possibly Eurasia. |
Latvian Economics Minister Aigars Stokenbergs has indicated that Scandinavian telecoms group TeliaSonera and the Latvian government are close to agreeing to a settlement regarding the country's incumbent fixed-line operator and second-largest mobile operator. At the moment, mobile operator Latvian Mobile Telephone (LMT) is 49% owned by TeliaSonera, with the state holding 28% and fixed-line operator Lattelecom holding 23%. Lattelecom itself is also 49% owned by TeliaSonera, with the state holding 51%. Reuters News and Latvian News Agency have quoted Stokenbergs as suggesting that the likelihood of a deal has increased significantly in recent days. It seems probable that TeliaSonera will fully acquire LMT, while the state will buy out TeliaSonera's stake in Lattelecom. Stokenbergs has said that no timeline for a deal has been specified, as both LMT and Lattelecom are still being evaluated, but that a decision could be finalised by the end of 2006.
Outlook and Implications
- TeliaSonera Chasing Deal for Over a Year: An agreement over the ownership of LMT and Lattelecom would end more than a year of negotiations between TeliaSonera and the Latvian government. In July 2005 talks began as TeliaSonera sought to consolidate its Baltic presence through the acquisition of both the mobile and fixed operators (see Latvia: 20 July 2005: Latvian Government Considers Selling Stake in LMT and Lattelekom to TeliaSonera). However, the Latvian government has repeatedly stressed its reluctance to allow one company to control both operators. Earlier this year talks broke down after the government asserted that awarding control of both operators to TeliaSonera would be detrimental to competition in the country's telecoms market (see Latvia: 9 March 2006: TeliaSonera Dialogue with Latvian Government Ends in Deadlock). Stokenbergs's suggestion that a deal may even be seen as early as the end of 2006 is therefore surprisingly positive. The progress in talks between the government and TeliaSonera follows the re-election of Prime Minister Aigars Kalvitis earlier this month, a move indicative of some stability in a country which has had 12 different governments since independence in 1991.
- LMT a Satisfactory Asset: TeliaSonera had harboured ambitions of owning both LMT and Lattelecom, with a possible view to merging the two into a single dominant telecoms operator in Latvia. However, it will view full control of LMT as a successful conclusion to negotiations. In common with most of Europe, Latvia has seen a trend of fixed-to-mobile substitution in recent years. At the end of the first half of 2006 Lattelecom had 692,000 subscribers in a market it dominates, while LMT had 893,500 subscribers, despite trailing rival operator Tele2 in the market. Penetration in the fixed-line sector has fallen for five consecutive years, while mobile penetration rose 11% year-on-year (y/y) in 2005, to 78.2%. Perhaps most significantly, LMT generated a preliminary profit of 56.4 million lats (US$96.2 million) in 2005, compared with Lattelecom's 34.7 million lats in the same period. The financial and subscriber prospects of LMT therefore seem healthier than those of Lattelecom, despite the stronger level of competition in the mobile market.
- Latvian Consolidation Part of Broader Expansion Plan: TeliaSonera is keen to expand beyond the highly penetrated core markets of Norway, Sweden, and Finland, where it has seen strong mobile and broadband growth (see World: 25 April 2006: TeliaSonera Reports 6% Rise in Q1 2006 Revenue). The group is looking to consolidate in the Baltic regions and has stakes in Lithuania's leading fixed and mobile operators, Teo LT and Omntiel. It also increased its stake in Estonian holding group Eesti Telekom, owner of leading fixed and mobile operators Elion and EMT, to 50% in December 2005. Its main competitor in Scandinavia and the Baltics is Sweden's Tele2 AB, but TeliaSonera has also made clear its ambition to consolidate farther afield, possibly into the Eurasian markets of Russia and Turkey, where it has interests in Megafon and Turkcell, respectively. In this context a smooth conclusion to negotiations in Latvia will be a welcome step in TeliaSonera's aim of consolidation and expansion.