Tuesday, September 06, 2005

Minister opposes sale of mobile & fixed to Swedes

Minister of Economics Krisjanis Karins declared the main principle in privatizing the remaining state shares in Lattelekom and Latvian Mobile Telephone (LMT) is that in no circumstances should they have the same owner.
This means, in effect, that Karins will urge the government working group to recommend against selling the remaining state interests in both companies to TeliaSonera. Most likely, some kind of swap of the 49 % TeliaSonera interest in Lattelekom for the state's remaining 28 % of LMT (and the 23 % of LMT held by Lattelekom) will be worked out.
This means that Lattelekom under 100 % state ownership will be offered to the highest bidder. However, analysts this blogger spoke to say that a pure wireline company has poor prospects for growth and profitability. so there may be few bidder and what bidders there are will offer less value than if both companies (with Lattelekom holdingh 23 % of LMT) were sold to the same buyer.
Some wild guesses as to who may want to buy Lattelekom include Denmark's TDC (who would pair it with its Bite mobile service, taking the situation sort of to square one), Norway's Telenor or even the long shot, Spain's Telefonica (which bought into Cesky Telekom, a fixed and wireless combo, however).
There is some analyst opinion, such as Johan Fagerberg of Swedish-based Berg Insight, who sees some merit to the competition argument (i.e. to prevent market dominance in both fixed and mobile), but also agrees that a modern telco cannot compete unless it can offer both fixed and wireless services. As Ovum analyst Angel Dobardziev points out, the model for telcos is customer and not product driven, so customers will go where they can get as many services in one stop as possible, thereby avoiding operators who can only offer fixed services. De-linking Lattelekom from LMT will knock down the value and attractiveness of the wireline operator.
It seems to me that the government is taking its cues from the Competition Council, which has signaled its opposition to the deal based on a static market-dominance model (yes, Lattelekom has 90 % of wireline and LMT some 50 % of wireless) rather than a dynamic analysis driven by strong regulatory initiatives. In other countries, this has allowed operators to maintain the broadest possible spectrum of services while remaining competitive.

5 comments:

Anonymous said...

I can hardly disagree with the article as the future of an incumbant is a sad one without a "mobile leg". A separate sale of the two means good news for LMT and bad news for LTK.

ZBH said...

Why Latvia must sell LTK to someone at all? Why not to simply build a WiFi infrastructure atop of existing wired infrastructure after a year or two or three (depends on equipment costs and maturity)? IMHO it would not cost too much for them and will resolve problems with wireless access, including both voice and data services, at whole Latvia.

ZBH said...

My fault, WiMax not WiFi.

dfs said...

The Government cannot run the country, what chance Lattelekom ? Dont seem to hear this argument in rest of Europe - To the government I say take the money, and release the funds to your underpaid professionals - teachers, nurses etc. Let the market decide what it needs. Anyhow the real question is Who is going to acqire Telia-Sonera ?

konrads said...

All these operations with swaps and sales should be aimed at the customer: removing the disadvanatges of a monopoly. Ideally, there should be 3 operators, each with fixed and GSM/UMTS network. This would create a rather fierce competition in such a small country and customers will benefit.
However, right now, government is in a sorry plight: Telia-Sonera would pay the most attractive price, but then market will be fucked; on the other hand if government would sell to someone else, as the author correctly pointed out, sales would yield lower profit and government will be bashed sensless by media.