Wednesday, December 12, 2007

Lattelecom honcho's next-to-last letter

Nils Melngailis, the deposed board chairman but still managing director of Lattelecom has written a letter to the company's owners (Latvian government 51 %, TeliaSonera 49 %) stating that the present state of affairs presents commercial and legal risks. Lattelecom does not have a fully functional management structure in the absence of a permanent board chairman. The government has not named anyone despite effectively firing Melngailis.
As I see it, this letter is the next to last before Nils resigns and the MBO collapses. The government will then get letters from The Blackstone Group and the bank consortium stating that they have withdrawn as financiers of the deal. That will be the end of it.
What the government does afterwards is hard to predict, except that whoever replaces Nils will face all the same problems exacerbated by almost a year of indecision. Put simply, the mobile operators are capable of starting to eat Lattelecom's lunch by offering flat rate deals and quality of service guaranteed wireless broadband (at least at select locations) that is as fast as Lattelecom's DSL (10 Mbps).
Until a final resolution of Lattelecom's ownership is reached (this may take a few more years, seriously! ) the new CEO will face the same issues as Melngailis -- limited opportunities to expand outside of Latvia and no possibility to go into mobile services.
It may all end in 2010 with TeliaSonera or TeleNordica (TeliaSonera + Telenor) or Telefonica Norte or whatever buying Lattelecom at a firesale and making it the fixed network internet and IP TV division of Latvian Mobile Telephone (LMT).

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