Friday, May 11, 2007

Baltcom's Pēteris tosses a little wrench into the works

Pēteris Šmidre, in his capacity as board chairman of Alīna, the holding company that owns the Baltcom electronic communications group (internet, cable/digital TV and fixed telecoms), has tossed a wrench into the works of plans for a management/staff buyout of Lattelecom.
Alīna has sent a letter to the Latvian government expressing interest in acquiring a piece of Lattelecom. One reason, according to the news agency LETA, is that Lattelecom should be held to its committment to provide services to unprofitable customers. Otherwise, there are few details as to what Alīna would do as an investor in Lattelecom. Certainly, it is doubtful that Šmidre could buy the whole company (at LVL 290 million if its 23 % share in Latvian Mobile Telephone/LMT is discounted, otherwise LVL 450 million) alone, and saying that you are buying a company that you intend to force into unprofitable businesses is not the best way to get co-investors.
But that is not the problem. Pēteris is pounding on an open door on this issue, since the Latvian regulatory authority has always insisted that Lattelecom, as a market dominant operator, has a duty to provide universal service. Currently a government working group is studying how to fund universal service provision and who should be eligible. Raimonds Bergmanis, the head of the Communications Department of the Ministry of Transport, is inclined to favor a system of open regional tenders for utilizing the fund, that is, allowing all service providers to bid for providing subsidized universal service. More likely than not, the fastest and cheapest solution will be wireless. So Lattelecom is unlikely to be deeply involved in any of this.
So why all this? One simple theory is the bad blood between Baltcom and Lattelecom. Šmidre has always maintained that Lattelecom did everything to delay competition on fixed line telephony by dragging out interconnect negotiations and asking for, to his mind, unreasonable fees after the fixed telecoms monopoly was lifted in 2003. Since then, Lattelecom has implemented what amounts to fixed-fee domestic telephony (but feels like unlimited free calling) as part of its Mājas komplekts (Home Package) of DSL internet and phone service (with IPTV tacked on recently).
As Šmidre sees it, Baltcom (now facing cut-throat competition on foreign calls, with Skype looming over everything) was screwed out of a couple of good years building up its fixed telephony business and is now paying back the villain, Lattelecom, by tossing a wrench into the works. The government may well have to treat the Alīna letter as a legitimate request to privatize, complicating any decision on the Lattelecom management/staff buy-out proposal.
On this issue, the Latvian government is officially sending TeliaSonera the proposal and will decide what to do based on the half-mother's response. But as far as I know, that is pretty much a done deal. Lattelecom CEO Nils Melngailis, in Stockholm for a conference a couple of weeks ago, strolled 300 meters to TeliaSonera headquarters where he got an informal, but definite nod of approval from the half-mother. Who else is going to get TeliaSonera out of a 49 % no-future holding in Lattelecom that also holds the whole Latvian company hostage to uncertainty?
The logic of much of this has not deterred my former employer, Dienas bizness, from publishing some bizarro interpretations of what is going on, but that is another story. My Latvian readers know what I am talking about.
I should be writing more on this blog, but my usual evening writing hours have been ruined by the Latvian premier of the TV series Jericho. No, there is not an episode every night. There are informal sources for the original US series, almost all of it, so I am watching several episodes a night :).


mxz said...

Alīna. What a great name for a company.

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