Saturday, September 18, 2004

TeliaSonera keeps proposing

A couple of press conferences will be competing for attention with the keynote speakers at the Baltic Sea Communications Forum starting September 20. One will be Exigen, the US IT solutions company that does most of its "smart work" in Latvia. Exigen will announce its stock for stock acquisition of Dati, one of Latvia's largest IT companies. There will be some news coming out of that, since the only official announcement has been that both companies will be "cooperating" in some sense. Some details of the acquistion will be disclosed and we will see Dati getting the role of doing custom work for its present customer base, while Exigen's solution builders in Latvia will concentrate on research and development and on making commercial software solutions for their customers in insurance, banking and telecommunications.
Right on the heels of Exigen/Dati will come Kenneth Karlberg, TeliaSonera's Vice President in charge of Denmark, Norway and the Baltic. Karlberg's press conference will yet again bring up the subject of TeliaSonera's desire to take a majority, if not 100 % share of Lattelekom, where it currently holds 49 % (the remaining 51 % is owned by the state)and in Latvian Mobile Telephone (LMT), where it also holds 49 % directly, plus a proportionate share of the 23 % owned by Lattelekom. The remaining shares of LMT include 23 % formally held by the Digital Latvian Radio and Television Center (DLRTC), but under dispute in the courts, and 5 % owned by the Ministry of Tranport. TeliaSonera already consolidates LMT in its financial reporting, providing an interesting "back door" to the Latvian company's finances, which does not
Buying out the state's share of Lattelekom and LMT has been an ambition of TeliaSonera since early 2003 when Karlberg first mentioned it in an interview with this blogger. At that time the Swedish-Finnish telecommunications group and the Latvian government were locked in an arbitration dispute started by Sonera in 2000 to demand compensation for the planned ending of Lattelekom's monopoly in 2003. For a considerable time, it was rumored (and later confirmed by documents seen by this blogger) that a privatization deal was part of a possible settlement of the dispute. The dispute was settled in March 2004 without resolving the privatization issue.
Since the government of Indulis Emsis, the Green/Farmer Alliance prime minister, took power shortly after the arbitration settlement was signed, Karlberg has become the snubbed suitor of the Nordic/Baltic telecommunications market. Emsis has declared that neither Lattelekom nor LMT will be privatized as long as his government sits. He has also said he wants to "regain and assert control" over telecommunications in Latvia. How this is to be done is not clear – the government already holds 51 % of Lattelekom, so it appears that "control" of LMT, Latvia's most profitable company, is at issue. The government's claim to 51 % of LMT is a direct challenge to TeliaSonera's consolidation of the company.
It is not clear that the minority coalition government is entirely behind the "nay-saying father of the potential bride(s)" Emsis. While Emsis looks ready to "stonewall the Swedes" at all costs, sources tell this blogger that Minister of Transport Ainars Slesers (who will be speaking at the Forum) is favorably inclined to selling both Lattelekom and LMT to TeliaSonera. Despite harsh criticism and media suspicion directed against him, Slesers has so far proven to be a "can do" minister by bringing two low cost airlines (Ryanair and Easyjet) to Latvia and shaking up the aviation market. Perhaps Slesers can be persuaded to cut the Gordian knot tangled around both telecommunications companies.
Critics charge that letting TeliaSonera take 100 % shares in LMT and Lattelekom will create a "supermonoply". These claims ignore the fact that there are few real alternative international buyers for the Latvian telecommunication companies, and that those few that can be imagined make even the "giant" Swedish/Finnish group look like a midget. Such remotely thinkable buyers as Vodafone and T-Mobile are orders of magnitude larger than TeliaSonera. However, a scenario in which Vodafone buys
Alone or with a minority holding that TeliaSonera grudgingly holds, it is difficult to see how Lattelekom can develop, although it has made a fair try of it by marketing its data transmission services regionally – in Sweden, Finland and neighboring Estonia and Lithuania.Together with TeliaSonera, the company would at least be part of a middle-weight regional operator with considerable synergies and purchasing clout for equipment and transmission capacity. A regional group could also redistribute business functions internally to reduce costs and take advantage of moderately priced, highly-skilled knowledge workers in the Baltics.
This blogger has heard that TeliaSonera may outsource many or all of its accounting functions to a Baltic partner and that it would more readily do so if the partner was "family" – majority or wholly owned. The same has been said of other technical and IT related functions both for fixed network and wireless services.
Watch this space for more sporadic comment, analysis and background rumors/information about the Latvian/Baltic telecommunications scene.

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