Tele2 to invest $50 million in its Latvian subsidiary

  • 2000-10-26
  • Ilze Arklina
RIGA - NetCom AB, a leading Pan-European provider of telecommunications and related services, announced Oct. 24 that the acquisition of Baltkom GSM, the second largest mobile telecommunications company in Latvia, by its subsidiary Tele2 AB has been approved by the Latvian Ministry of Transport.

"The purchase of Baltkom GSM brings speed to the market. We see it as an excellent basis for our expansion in Latvia," Baltkom GSM's new managing director Bill Butler told reporters Oct. 24.

Tele2 expects to invest an additional $50 million in the development of Baltkom GSM mobile telecommunications network over the next two or three years. "We will rapidly expand our network coverage, as it is vital to ensure competitiveness," Butler said.

Baltkom GSM has about 100,000 subscribers.

Its rival, mobile telephone operator Latvijas Mobilais Telefons (LMT) is the current market leader in Latvia with 250,000 subscribers. But this probably won't last for long as the new owners are eager for Baltkom to become a leading provider of telecommunication services in Latvia.

"We have invested 17 million lats in the development of our network in 2000, but our total investment made in eight years of operation was $134.2 million," Davids Dane, LMT spokesman, told The Baltic Times.

He said LMT's subscribers are 10.35 percent of the total number of Latvia's inhabitants.

NetCom acquired 100 percent of Baltkom GSM for approximately $277 million on Oct. 3, 2000. The price included Baltkom GSM's liabilities in the amount of $53 million. Stock market experts noted that although the price is not high by international standards, Baltkom GSM might be among very few Latvian companies - like Latvenergo, Latvian Shipping Company, Latvijas Mobilais Telefons and Lattelekom - which could be sold for such a price.

"There have been few Swedish investments in Latvia so large, and we shall all benefit from it as consumers of telephone services," Tomas Bartelman, the Swedish ambassador to Latvia, said at a press conference Oct. 24.

NetCom representatives stressed that Baltkom GSM purchase was a long-term investment. Last year, the company was 2 million lats ($3.22 million) in the red. "This year will also end bottom line," Svedberg stressed.

"We are happy that such a large, strong company with influence in Estonia and Lithuania enters the (Latvian) market," Inara Rudaka, director of communications department at the Ministry of Transportation, told journalists.

NetCom also has subsidiaries in Estonia and Lithuania, where it has acquired the third telecommunications operator's license. "This gives you quite a different position on the market. I think we are in a better position here," NetCom vice president Johnny Svedberg told The Baltic Times. NetCom's Ritabell in Estonia has 63,000 subscribers, but it's UAB Tele2 Lietuva in Lithuania has 8000 subscribers.

"The aim of Tele2 in respect to Baltkom GSM is to make the main telecommunication solutions available to all residents of Latvia at the lowest prices," Butler said.

He indicated that the prices of the mobile communications market will be going down very shortly. "The prices here have been quite higher than in other countries and we intend to bring them down as fast as we can," he said. Butler declined allegations that the company would lower rates to attract customers then raise them again.

An LMT representative said that their prices might also go down if the competition pushes for it. "We do not rule out the possibility to revise our tariff policy as well," Dane said.

"People tend to migrate from fixed to mobile services. In Finland people in their 20s and 30s do not have fixed lines anymore, they just have the mobiles," said Svedberg, explaining his company's eagerness to purchase Baltkom GSM.

In Latvia, only 13-14 percent of the total population use mobile services. "So, this is a tremendous opportunity for NetCom to make our services available to those 85 percent left," Butler stressed.

Butler said NetCom sees the rapid increase in demand for mobile services in Latvia. He said in 1999 the number of mobile phone users increased 60 percent. "This is the kind of picture that really excites us," he stressed.

The new owners of Baltkom GSM won't change the company's name as they appreciate its current position in the market gained under this trademark, Svedberg said. In addition to Baltkom GSM services NetCom plans to offer other products with the Tele2 brand.

NetCom AB intends to develop various new telecommunication services in Latvia in the near future, said Svedberg. The company plans to develop Internet portals, broadband Internet access, voice-over IP, call-center services, online payments and e-commerce services. The company would also like to offer fixed communication services as soon as the monopoly of Lattelekom expires. For now, Lattelekom is the only fixed telecommunications provider in Latvia and its monopoly was supposed to run until 2013.

The Latvian government has decided to reduce this term by 10 years in order to meet the requirements of the World Trade Organization and the European Union and now faces a lawsuit from minority shareholder Tilts Communications at the international court of arbitration over that decision.

For now NetCom has no plans to acquire any other company in Latvia, Svedberg said. If a profitable opportunity comes up, NetCom will take it, however.

Formed in 1993, NetCom is a leading alternative pan-European telecommunications company offering fixed and mobile telephony, data network and Internet services under the brands Tele2, Tango, Comviq and Q-GSM to over nine million people in 20 countries. The company is listed on both the Stockholm Stock Exchange and New York Stock Exchange.