Merger to tighten grip on Baltic telecoms

  • 2002-04-04
  • Edvinas Butkus
BNS

Sweden's Telia and Finland's Sonera, which last week announced plans to merge, plan to consolidate their Baltic assets - fixed-line operator Lietuvos Telekomas and mobile phone operators Omnitel in Lithuania and Latvijas Mobilais Telefons in Latvia.

So far all merger attempts by the European Union's national telecommunication companies have failed, but analysts point to harmonious relations between Sweden and Finland as a reason why the Sonera-Telia deal announced on March 26 is more likely to work than the 1999 merger attempt between Telia and Norway's Telenor.

The deal represents the first major step toward consolidating the telecommunication industry of the Nordic countries, said Lars-Erik Petersson, chairman of Telia's supervisory council.

The announcement ended long speculation that Sonera would sell its successful Baltic holdings to Telia to cut its debts as it attempted to win a third-generation mobile phone license.

Telia will hold roughly 64 percent of the new entity, while Sonera will hold 36 percent.

The deal will cost Telia an estimated $6.4 billion and has yet to be approved by shareholders and regulators.

Both the Swedish state, which controls 70 percent of Telia, and the Finnish government, which holds 53 percent of Sonera, say they will reduce their holdings in the new company over the next five years.

Telia's offer to Sonera shareholders hinges on the condition that it gains control of more than 90 percent of Sonera shares and votes.

The merged group, which will be based in Stockholm, is expected to have 8.1 million mobile customers and 7.6 million fixed-line customers across the Nordic and Baltic region. Its home market has a population of 31 million.

The as yet unnamed company will own 60 percent of Lietuvos Telekomas, 55 percent of Omnitel, and 60 percent of LMT, as well as minority stakes in Estonia's Eesti Telekom, Latvia's Lattelekom and Estonian mobile operator EMT.

"It seems rational to expect some consolidation to take place," said Toomas Reisenbuk of Trigon Markets." But I don't think anything is going to happen in the Baltics for another 12 to 24 months."

Estonian Prime Minister Siim Kallas said he was treating news of the merger with "cautious optimism."

"I earlier met with representatives of both Sonera and Telia, and I have to say that their different views on the development of Eesti Telekom have to some extent hampered Eesti Telekom's progress," Kallas said.

Ultimately the merger is good news for Estonia and could result in a unification of the Baltic states' telecommunication systems, said Eesti Telekom's chief executive Jaan Mannik. But the effects will only reach the Baltics early next year, he cautioned.

Maanik also did not rule out a new group gaining a stake in Eesti Telekom.

Peep Aaviksoo, EMT's chief executive, also said unification of Omnitel, EMT and LMT was possible "if political and national emotions, which often prevail over economic considerations with neighbors, are left out."

"EMT, LMT and Omnitel have already jointly taken the first step for their customers' benefit - in the networks of the three cooperating partners, incoming roaming calls are free (of charge) for clients," Aaviksoo told the Baltic News Service.

Latvian Ministry of Economy's spokesman Kaspars Paupe said Latvia should now step up plans to grant a third mobile phone license, noting that the merger would give one consortium full control of fixed-line telephone communications in Latvia and partial control over the mobile network.Latvia currently has 625,200 wireless subscribers.

Economy Minister Aigars Kalvitis said the merger would not affect the Latvian government's ongoing litigation with Sonera over its stake in Lattelekom.

Tilts Communications, a subsidiary of Sonera, is suing the Latvian government over its decision to open the country's fixed-line market to competition rather than preserving Lattelekom's monopoly status until 2013, as promised in the original privatization agreement.

The roaming agreements brokered between EMT, LMT and Omnitel in December aimed to striking a blow to Sweden's Tele2, which was the only mobile operator with an integrated group of clients in all three Baltic states.

The Helsinki based Sonera boasts more than 2.4 million mobile telephone subscribers.

Telia has 4.5 million customers in Denmark, Finland, Norway and Sweden. oLatvia currently has 625,200 wireless subscribers.

Economy Minister Aigars Kalvitis said the merger would not affect the Latvian government's ongoing litigation with Sonera over its stake in Lattelekom.

Tilts Communications, a subsidiary of Sonera, is suing the Latvian government over its decision to open the country's fixed-line market to competition rather than preserving Lattelekom's monopoly status until 2013, as promised in the original privatization agreement.

The roaming agreements brokered between EMT, LMT and Omnitel in December aimed to striking a blow to Sweden's Tele2, which was the only mobile operator with an integrated group of clients in all three Baltic states.

The Helsinki based Sonera boasts more than 2.4 million mobile telephone subscribers.

Telia has 4.5 million customers in Denmark, Finland, Norway and Sweden.