The Finnish Sonera and Telia of Sweden, which own large stakes in Eesti Telekom, are going to unite to become the leading telecommunication group in the Nordic and Baltic countries - a company with great potential for growth in Russia and other parts of the former Soviet Union.
The deal represents the first major step toward the consolidation of the telecommunication industry in the Nordic countries, the chairman of Telia's supervisory council, Lars-Erik Petersson, said.
He added that both companies stand to benefit from the scale effect in the Nordic and Baltic region this will bring.
The home market of the new company - the Nordic countries and Baltic states - has a population of 31 million.
It's expected to have 8.1 million mobile customers and 7.6 million fixed-line customers, and companies associated with it, 14.6 million mobile and 1.2 million fixed-line customers.
The merger will be fully accomplished by 2005.
Telia will hold around 64 percent and Sonera about 36 percent of the shares in the new entity. Telia's offer to Sonera shareholders holds on the condition that the Swedish telecom will gain control of more than 90 percent of the Sonera shares and votes.
The merged group's pro forma combined sales would have reached 9 billion euros in 2001. The two companies employ 34,000 employees.
The processes connected with the merger may not reach the Baltic region until next year, Eesti Telekom CEO Jaan Mannik reckons.
Mannik said on March 26 that the merger would at the outset bring no changes for Eesti Telekom and Telia's and Sonera's other Baltic holdings, as the two groups will first have to agree on a management structure for the combined entity.
The merged group will be looking for ways to cut costs in the Baltic states.
The new entity is bound to seek to reduce overlapping of Baltic operations. But before coming to that Telia and Sonera will have to do the same job with regard to one another, Mannik said.
Asked about the possibility of Eesti Telekom expanding to Latvia and Lithuania, the CEO said all Baltic subsidiaries of Telia and Sonera needed to show their innovativeness.
He said the unification of Baltic telecoms could not be ruled out.
Latvian officials have different opinions about the likely effects of the merger.
Sonera holds 49 percent in Latvian fixed-line telephone communications monopoly, Lattelekom, and 24.5 percent in mobile telephone operator LMT. Telia also holds 24.5 percent in LMT.
A Sonera-Telia merger would have full control of fixed-line telephone communications and partial control over the mobile telecommunications network.
Economy Ministry spokesman Kaspars Paupe said Latvia should give serious thought to increasing competition on the market, for example by granting a license to a third mobile telephone operator in Latvia.
When asked whether the merger would have any impact on arbitration proceedings between Lattelekom co-owners Tilts Communications, fully owned by Sonera, and the Latvian state, Paupe refused to comment, saying the litigation was confidential.