Latvia approves Nordic telecom tie-up

Aug 22, 2002
Jorgen Johansson

Latvia's Competition Council last week approved a merger between Nordic telecommunication giants Telia and Sonera, prompting one member of the council to resign in protest.

The merger of Swedish Telia and Finnish Sonera, both in dominant positions on the Baltic market, gives the new company a 49 percent stake in Lattelekom, Latvia's fixed-line monopoly and its largest mobile-phone operator, LMT.

The new Telia-Sonera company, the name of which has yet to be decided, will also own 60 percent of Lithuania's fixed-line carrier Lietuvos Telekomas and 55 percent of the country's largest mobile operator Omnitel. The merged company will also own a 49 percent stake in Estonia's state-owned fixed-line provider Eesti Telekom.

Worldwide, a merged Telia-Sonera company would create a carrier with market capitalization of roughly $17 billion, comparable to some of Europe's largest telecoms. The new company would be the largest telecom operator in the Baltic and Nordic states.

The companies announced their plans in March and the European Union blessed the merger in July.

It is unclear when the merger will be completed. Peteris Vilks, chairman of Latvia's Competition Council, said the deal should be finalized before year's end.

Vilks, said the merger was not a threat to telecom competition in Latvia.

"We have made sure that there will be no horizontal overlaps in any of the telecommunication market segments," he said. "Lattelekom still has a monopoly on fixed-phone-line services and since neither Sonera nor Telia has any stake in (second mobile-phone operator) Tele2 there is no overlap."

He said there was a small overlap on the Internet access provision market but heavy competition would ensure that Telia-Sonera did not capture a dominant position.

Latvian Internet Association director Ina Gudele said the competition council made sure that Lattelekom and Telia-owned Datatel, which offers international Internet access service, must remain separate companies, thereby preventing a monopoly situation.

But Aleksandrs Vasilevskis promptly resigned his seat on the competition council to protest what he said would lead to unfair competition.

"I didn't agree with the merger decision. We lost control over the merger process," he told The Baltic Times.

Vasilevskis said he was upset that the council backed off a demand that Telia sell its 24.5 percent stake in LMT, the country's largest mobile-phone operator.

Sonera also owns a 24.5 percent stake in LMT as well as a 49 percent stake in Lattelekom. The remaining 51 percent is held by the state.

Lattelekom holds an additional 23 percent in LMT, a setup that Vasilevskis says muddies the waters even further.

He said a possible future merger between LMT and Lattelekom would devastate the local market.

Officials from both Lattelekom and LMT denied plans for a merger and LMT maintained that there will be no change of ownership structure in the company.

Telecommunications consultant Peteris Avisans said much of the current confusion could have been avoided had the competition council ruled more quickly on the merger.

"I think they announced their decision too late. They should have reacted already when the two companies announced their intentions to merge," Avisans said. "Now, Telia-Sonera will have a dominant position on Internet access, fixed-line phones and, to some extent, international call traffic."

LMT is also opposed to a provision that requires Telia to rent out part of its network to a third mobile operator, which it calls unnecessary.

"The Competition Council probably believes that Telia-Sonera will take over the entire telecommunication market here in Latvia if we don't lease our network to a third GSM operator, but we are against this," said LMT spokesman Davids Dane, spokesman for LMT.

Officials say they do not expect the merger to have any affect on plans to auction off a third-generation license this September.

"I don't think the Telia-Sonera merger should scare off potential bidders," said Pauls Plaitis, director of corporate financing at Hansabank, one of the state-selected advisers for the tender.

It is expected that the merged group will have 8.1 million mobile customers and 7.6 million fixed-line customers across the Nordic and Baltic regions. According to the two companies, their combined revenue will be around $8.8 billion. Officials from both Lattelekom and LMT denied plans for a merger and LMT maintained that there would be no change of ownership structure in the company.

Telecommunication consultant Peteris Avisans said much of the current confusion could have been avoided had the competition council ruled more quickly on the merger.

"I think they announced their decision too late. They should have reacted when the two companies announced their intentions to merge," Avisans said. "Now, Telia-Sonera will have a dominant position on Internet access, fixed-line phones and, to some extent, international call traffic."

LMT is also opposed to a provision that requires Telia to rent out part of its network to a third mobile operator, which it calls unnecessary.

"The competition council probably believes that Telia-Sonera will take over the entire telecommunication market here in Latvia if we don't lease our network to a third GSM operator, but we are against this," said LMT spokesman Davids Dane, spokesman for LMT.

Officials say they do not expect the merger to have any effect on plans to auction off a third-generation license this September.

"I don't think the Telia-Sonera merger should scare off potential bidders," said Pauls Plaitis, director of corporate financing at Hansabank, one of the state-selected advisers for the tender.

It is expected that the merged group will have 8.1 million mobile customers and 7.6 million fixed-line customers across the Nordic and Baltic regions. According to the two companies, their combined revenue will be around $8.8 billion.

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