TeliaSonera offers to buy out Lattelekom

  • 2003-09-18
  • Aaron Eglitis
RIGA - Scandinavian telecommunication giant TeliaSonera made an official bid onSept. 9 to buy out the Latvian government's stake in both Lattelekom,Latvia's monopoly landline operator, and Latvijas Mobilais Telefons,Latvia's leading mobile phone operator.

However, the bid stipulated that the Latvian state must withdraw its lawsuits from the Stockholm Court of Arbitration.
Tilts Communications, which is wholly owned by TeliaSonera, was granted a
stake of 49 percent in Lattelekom until 2013, under an umbrella agreement
that required the company's direct investment in building up the necessary
infrastructure to meet Latvia's telecommunications needs, while the Latvian
government retained a majority stake.
The breakup of the Soviet Union revealed the dreadful state of the
telecommunications industry in Latvia. Building a new infrastructure for the
country capable of meeting European Union standards required money,
technical expertise and resources, which the Latvian government did not
possess at the time.
Due to EU law, which prohibits state monopolies in the telecommunications
sector, the Latvian government decided in 2000 to end TeliaSonera's monopoly
on fixed line telephones by 2003 ‹ 10 years prior to the agreed end of the
contract. Prematurely ending the agreement led to lawsuits, first by
TeliaSonera, and later a counter suit by the Latvian government.
TeliaSonera asked for compensation of 80 million lats (137 million euros),
due to lost revenue. The Latvian state countered with a lawsuit of its own,
claiming that Lattelekom had not invested enough resources in the rural
development of phone lines and asked for 600 million lats in damages.
The stipulation by TeliaSonera that the Latvian government drop its lawsuit
is one possible way out of the complicated impasse the two sides are in.
Kjell Lindstrom, chief spokesman for TeliaSonera's Baltic and Nordic
regional division, played down the situation. "We understand that they (the
Latvian government) have a lot of political issues that they are tying to
solve, such as the coming European Union referendum. " But the bid by
TeliaSonera to buy the remainder of Lattelekom and LMT, which was
unofficially submitted in June, has not yet received a response. "We would
be happy with a reply," he added.
"Our offer is based on the real market value of the companies," Lindstrom
said, declining to say how much the actual offer amounted to for LMT and
Lattelekom. Lattelekom posted a net profit in 2002 of 21.8 million lats,
while at the end of the same year LMT had 474,000 customers signed up to its
network ­ almost a quarter of the Latvian population.
Dienas Bizness, the daily Latvian business newspaper, published an
unofficial report that the offer was approximately 200 million lats,
contingent on the withdrawal of lawsuits by both sides.
As well as its 49 percent stake in Lattelekom, TeliaSonera also has a 49
percent stake in LMT, with Lattelekom controlling a 23 percent share, the
Transport Ministry owning 5 percent and Latvia's Digital Radio and
Television owning the remaining 23 percent.
"When it was decided to cut short the monopoly it opened up the possibility
for new carriers to legalize their operations," Peteris Avisans a
telecommunications expert told The Baltic Times. But the eagerly awaited
changes in the monopoly system, which is supposed to lead to significant
price cuts for Latvians once it comes into effect as of December of this
year, won't be able to materialize as long as the legal wrangling continues.
But Avisans believes the two sides will resolve their differences. "The only
thing that can stop a deal with Lattelekom is a negative reaction by
society," he said.
If the deal is approved, TeliaSonera will effectively control Lattelekom and
LMT, thus consolidating its already formidable position in the Latvian
telecommunications market, which could prevent new, smaller operators from
making any significant inroads into the lucrative industry.
But the Latvian government may well be tempted to accept TeliaSonera's bid.
By doing so, it would receive a vast injection of much-needed cash,
extricate itself from a costly legal battle and also comply with an
international agreement. Many experts believe that the issue will be finally
resolved sometime soon after the EU referendum on Sept. 20.