RIGA - The Scandinavian telecommunications company Telia-Sonera has proposed to split Lattelecom into two separate entities as part of a compromise solution to the troubled privatization of Latvia's two large telecom operators.
TeliaSonera claims that by dividing Lattelecom into two businesses 's one that would maintain the network and another that would concentrate the company's myriad retail sales 's and allowing TeliaSonera to take full control of both parts, the competition in the industry would not suffer, which is the government's overriding concern.
In return, TeliaSonera wants 100 percent control over both Lattelecom and LMT, a mobile phone operator, for which it is prepared to pay 500 million lats (714 million euros). Currently it own 49 percent in each.
As Kenneth Karlberg, TeliaSonera's chief for the Nordic-Baltic region, wrote in a letter to the government, "Details of the separation would have to be discussed further, but in principle Lattelecom's retail business would be clearly separated from the network business."
According to the proposal, TeliaSonera would have to form a new company that would become the sole operator of the network. This company, in turn, would lease the network to anyone interested in using it.
TeliaSonera stressed that the network would be leased to all operators at the same prices, which would guarantee fair competition. "The new company would offer equal prices and treatment to all operators, including Lattelecom," wrote Karlberg.
Since being formed in December, the government of Prime Minister Ivars Godmanis has been in a dilemma as to how to resolve the tricky privatization issue. Instinctually, the government fears giving 100 percent in both Lattelecom and LMT to one investor, since this could harm competition. Yet TeliaSonera is a respected corporation and is offering a tremendous amount of money for the assets. The deal, if pulled off, would be the largest privatization in Latvia's history.
TeliaSonera continues to be the dominant telecommunications player in the region. In Lithuania, TeliaSonera owns 60 percent of Leo LT, the dominant fixed-line operator, and 100 percent of Omnitel, a mobile services provider. In Estonia it owns nearly 59 percent of Eesti Telekom, a fixed-line telecom company that controls EMT, a mobile operator.
The government has confirmed that it received the proposal but refused to comment until the Cabinet has a chance to discuss it.
Previously Godmanis had expressed hope that TeliaSonera would sell its stake in Lattelecom to U.S.-based Blackstone Group, so that the government could sell its 51 percent in LMT to TeliaSonera.
TeliaSonera has never concealed its ambition to become 100 percent owner in both companies, and at one point relations between the company and Latvia so soured that the two had filed massive lawsuits against one another.
It would appear that, for now at least, the Scandinavians have the upper hand since, pursuant to a contract signed back in the 1990's, they have to approve any final deal involving Lattelecom.
The previous government of Aivars Kalvitis had given its preliminary approval to a management buyout of Lattelecom financed by Blackstone. The proposal collapsed, however, after Godmanis assumed office, forcing Lattelecom CEO Nils Melngailis to hand in his resignation on Feb. 26.
But Blackstone is still in the running. The firm has agreed to buy TeliaSonera's 49 percent stake in Lattelecom and expressed an interest in participating in an open tender for the state's 51 percent, a final decision for which has yet to be made.
Looking at the company's financials, it is not difficult to see why the Americans haven't given up. Lattelecom announced Feb. 29 that 2007 revenues rose 5 percent to 153 million lats. Earnings were down 2.4 percent to 38.1 million lats, the company said.
Spokeswoman Maija Celmina said that the fastest growth came on data transfer and Internet services, which grew 22 percent, or 6.1 million lats, and IT and network construction services, where revenues jumped 17 percent.
The Lattelecom group consists of six subsidiaries 's Lattelecom, Lattelecom Technology and its subsidiary Baltijas Datoru Akademija (Baltic Computer Academy), Lattelecom BPO, Citrus Solutions and LSS.
