Friday, February 29, 2008

Record revenue, earnings dip for Lattelecom

Lattelecom, the incumbent Latvian fixed network operator posted record revenue of 153.5 million LVL in 2007, up 5 %, while earnings dropped 2.4 % to LVL 38 million.
Revenues were the highest amount posted since the company was founded in 1994.
A preliminary report released by the company said Lattelecom's revenues from internet and data transmission services rose 22 %, but did not give exact figures. IT services and the network building business increased revenues by 17 %, while revenues from customer care services provided to third parties (outsourcing) were also up 22 %.

The financial results, despite a small drop in earnings, are not such as would normally merit the resignation of the CEO (Nils Melngailis announced his departure effective April 1 for what was widely seen as political pressure from the government, which owns 51 % of Lattelecom.) Companies such as Ericsson have suffered far more severe financial turbulence without losing their top management.

Thursday, February 28, 2008

TeliaSonera offers, yet again, to buy, split Lattelecom

TeliaSonera sent a letter to the Latvian government dated February 25 offering, yet again, to buy all remaining state shares in Lattelecom and mobile operator LMT for LVL 500 million, but promising to split the fixed network operator into a wholesale and a retail operation.
The wholesale operator would offer network services to all other operators, including LMT and the Lattelecom retailer, on equal terms under strict regulatory supervision. Telia, the Swedish unit of the group, earlier founded a seperate network wholesaler under the Skanova brand it used previously for selling such services.
The Swedish telecoms group apparently sweetened the deal in the letter by saying it would also base some of its research and development (R&D) operations in Latvia if the transaction went through. This blogger was allowed to read a copy of the letter by informed sources.
The letter, signed by Kenneth Karlberg, TeliaSonera's head of Mobility who has been conducting negotiations with the Latvian government for several years, also states that "selling our stake in Lattelecom is not a solution we prefer and if it is the only way we would appreciate your detailed suggestion on how such a transaction would be structured." This would be done in the context of getting 100 % control of Lattelecom, where TeliaSonera now directly or indirectly holds just over 60).
Karlberg also tries to sooth concerns by the Latvian government that ownership of both companies by TeliaSonera would dampen competition. "In all the markets where TeliaSonera is active, there is no evidence of lacking competition, " he writes, adding that telecommunications services prices offered by the Swedish group's subsidiaries were "among the lowest in Europe".
Lattelecom could be considered a company in crisis since its CEO, Nils Melngailis resigned under what was, in effect, political pressure. If acquired quickly by TeliaSonera, Lattelecom would probably get a new top manager appointed from Stockholm.

Now the half-mother should worry

Nils Melngailis has resigned as CEO of 49 % TeliaSonera-owned Lattelecom effective April. TeliaSonera should be worried.
Whatever problems the half-mother may have had with Nils, he at least kept the company growing and profitable. Maybe they saw him as a bit of a loose cannon, pushing into the Eastern markets that half-mommy wanted for herself and into the outsourcing space. But every year, the cannon fired almost half a golden cannonball into the Swedes' pockets.
OK -- growing a fixed line business in the age of convergence would have hit a wall in any case, but Melngailis departure, leaving Lattelecom with no one at the helm, should accellerate and amplify the inevitable decline, or at best, stagnation. After all, the company added only around 2000 new fixed subscriber lines last year (while DSL subscribers rose to over 150 000 out of 620 000 customer lines). But the mobile market had more than 2 million users.
About the only ray of hope is that Melngailis is still sticking to his offer (now as a private investor?) to buy out TeliaSonera's share together with the Blackstone Group and then run the company on an ironclad management sets policy deal with the Latvian (loonie-tunes) government keeping 51 % as hitherto.
If you ask me, the owl's tail will blossom (pūcei aste ziedēs), as Latvians say, before the government goes for this deal, which means that Melngailis would come back as the top honcho at Lattelecom. His leadership and his team were the reason the giant US investor agreed to the original MBO and continued to hope for a stake in Lattelecom even after that was rejected on January 17.
So where does that leave the half mother? Holding a leaking bag, if you ask me. It has been told that it will never be allowed to buy the rest of Lattelecom, and now it cannot easily sell its current holding, since there are no realistic buyers. We might go back to the swap of 49 % of Lattelecom for the rest of Latvian Mobile Telephone (LMT). That deal could have been done in late 2006, but wasn't.
Without Melngailis and given the rapid pace of change on the telecoms market, the value of Lattelecom will start to decline very rapidly. The Swedes could try to renegotiate a management agreement (there was one until 2004, with Sonera and later TeliaSonera executives running the company) to at least protect their interests, but it will be difficult to let their CEO invest in any significant new projects, since the half-mother's position is one of hold until you can divest.
If a politicized CEO is appointed by the government (as is likely), Lattelecom could start losing significant business customers, creating an opportunity for LMT and others to jump in with an offering of nearly-full-spectrum services (mobile, fixed mobile, wireless broadband). That would put the half-mother in the bizarre position of luring away the fattest cats (you expected rats?) from its own sinking boat. This, of course, has been happening in the context of mobile for fixed substitution without anyone sinking.
The best outcome might be to go back to Plan B 1.0, swap the 49 % plus a big cash payment for the remaining LMT shares, and let the government amuse itself with 100 % ownership of Lattelecom. It would also make the case for finding a new CEO easier, since the mandate would be to run a state-owned company with politicians breathing down one's neck. There are people who have done that in Europe and elsewhere.

Tuesday, February 26, 2008

Lattelecom honcho quits -- it's official

Nils Melngailis, the Latvian-American CEO of Lattelecom, has resigned his position effective April 1.
The resignation comes on the heels of a drawn-out attempt to organize a management buy-out of Lattelecom that was rejected by the government in January. 
His departure also puts and end to a "Plan B" under which The Blackstone Group, one of the major investors in the proposed and rejected MBO, offered to buy out TeliaSonera's 49 % holding in Lattelecom.
The Latvian government has also rejected a bid by TeliaSonera valued at more than USD 1 billion to gain control of both Lattelecom and mobile operator LMT (said to be the true jewel in the crown, the most profitable of all of the Swedish group's mobile holdings with over 1 million subscribers).
The Latvian government has been signaling Melngailis that he was not wanted since failing to support his re-election as chairman of the board of Lattelecom last December. Melngailis was also an uncomfortable figure for TeliaSonera because of his plans to independently develop Lattelecom as a regional player in both telecommunications and related services, such as outsourcing and IT systems integration. However, the Swedes had no grounds to criticize the financial performance of the company and approved the first MBO proposal that would have seen Lattelecom purchased by its management and staff  with financing from a consortium that included  Blackstone and four banks. TeliaSonera had already been told in 2006 that it would not be permitted to acquire all of Lattelecom and, although it has persisted in making offers for both companies, it was apparently resigned to getting only LMT.  The MBO offered it a way to get out of its ownership of Lattelecom and get 49%  of around LVL 290 million in the process.
What happens now is that the Latvian government, unless it changes its mind about TeliaSonera, has no buyer for the Swedish company's stake in Lattelecom and few prospects of selling its own 51 % to anyone other than TeliaSonera. It has also lost a well-qualified, internationally experienced and connected CEO and will have a very hard time finding an equivalent replacement in view of the politicized climate in which Melngailis was driven to resign.
Another negative consequence is that the "gentle hounding" of Melngailis from his post also drives away one of the world's largest international investors, the Blackstone Group, which was willing to risk buying 49 % of Lattelecom with Melngailis at the helm (and covenants ensuring management control). Privately, Blackstone officials will see Latvia as a banana republic unable to see its own best interests (unless they are some kind of special interests) and will probably advise the international investment community to steer clear. This may be the most serious consequence of Melngailis' resignation.

Monday, February 25, 2008

LMT sees commercial DVB-H in 2009

Latvian Mobile Telephone (LMT) sees a commercial launch of broadcast mobile TV (DVB-H) in early 2009, company officials said on Monday, February 25.
LMT and the Latvian State Radio and Television Center (LVRTC) are testing DVB-H broadcasts of four commercial channels for the rest of the year. The broadcasts can be viewed on any DVB-H device, regardless of what operator network it is on.
There are presently very few DVB-H capable phones available in Latvia. LMT showed test broadcasts on a Nokia N-77 (not yet on sale in Latvia), LG and Samsung phones and a Quantum portable digital TV (a palm-sized device).
LMT officials indicated that a commercial package would include on-demand content that could be downloaded at night over the DVB-H network, essentially using it as a datacasting network. That would also put the LVRTC in new role, since datacasting has other applications (updating the video loops in shopping center video systems and the like). Among other downloadable files will be applications for interactive TV (using a back channel through the LMT mobile data network).
LMT president Juris Binde believes that once phones are available, DVB-H broadcasts will see "strong demand" and be watched by many LMT subscribers.
LMT's mobile TV project manager Ervins Kampans indicated that the future commercial model will probably include a number of free channels and several pay options, including monthly subscriptions to channel packets and the possibility to make "impulse purchases" of individual broadcasts as well as purchases of "accompanying content" to be downloaded in datacasts.

Endgame for Nils Melngailis of Lattelecom?

There are press reports citing reliable sources that a search process will be started for the vacant position on the Lattelecom board that opened when CEO Nils Melngailis was not re-elected as chairman. As things look now, the point of this exercise is to find a de facto replacement for Melngailis, who did not take the hint after his politically motivated expulsion from the chairmanship. There are no compelling objective (financial results-related) reasons for asking Melngailis to leave. Lattelecom has been doing as well as any fixed-line-only operator can do.
The government apparently wants Melngailis out because as an independent-thinking, Western-educated, experienced manager (a background with IBM Business Intelligence and Coopers & Lybrand), he proposed a management buy-out of Lattelecom to break the interminable indecision about the ownership of the company. Melngailis sees the interests of Lattelecom and increasing its value and competitiveness as his primary task and loyalty (had their been a clear ownership direction, this could have been different, for example, to make the company an integral part of TeliaSonera or whatever).
Look for Melngailis to leave once the government drags out its indecision about the half-assed MBO he still hoped for (The Blackstone Group buys 49 % of Lattelecom from TeliaSonera and waits for a chance to get the rest from the government?!). This could happen by April. Then some lackey will be found to formally run the company (unless the Swedes get worried about having their 49 % run into the ground) while whatever happens...
This whole black humor laced series of events should also be a warning to serious foreign investors to stay away from anything that has to do with Latvian government interests. Getting into any business with a government stake in Latvia is like rolling in the hay with a tar baby. You end up inextricably stuck to the thing and covered in itchy hay for your efforts.

Saturday, February 23, 2008

Yahoo Go! or getting the pong to my ping :)

Strangely, I have actually made practical use of the mobile application Yahoo Go!. I used it, just for fun, to check e-mail and look at news (have to fine tune that part) while in Paris at the  Alcatel-Lucent Enterprise Forum. It looks very neat and is simple to use. 
Then on Friday I had started a bit of e-mail ping pong with a former colleague from my workplace to meet for a short drink (I also had to pick up some tickets to see a film with my son and drop my rather heavy road warrior backpack at my apartment). So I suggested a choice of places (my ping), place confirmed (the ex-colleague's pong) and a time (my ping again :) )  ... and then it was either go from the office (with e-mail on my PC)  or miss the proposed time. After getting my movie tickets, I clicked on Yahoo Go! on my phone in the street and saw that the time had been confirmed in a return mail. So I owe a mojito and an interesting chat to this little mobile app.  One writes about them, but this was the first practical use :)

Friday, February 22, 2008

Latvians - 1, Space Junk - 0

Blasting apart the hydrazine drooling, brain-dead monster piece of space junk (intended once to be a surveillance satellite) over the Pacific was a deed that must in part be credited to two Latvians -- one the "godfather" of the Latvian IT industry, Janis (yes, a male name) Gobins and the late (I hope I am not wrong) Visvaldis Mangulis.
Janis Gobins, a software specialist, designed the methods by which the software driving the AEGIS naval anti-aircraft missile defense system was written in the mid-1970s (based on the mainframe= today's entry level handheld computer technology of the time). It would be wrong to say that The Godfather (as some in Latvian IT circles affectionately call him) wrote the hyper-complex AEGIS target tracking and management system, but he did prove that a) it could be designed and written b) described how the task to be done. Teams of software engineers took it from there.
The other Latvian-American, recently deceased, was Mangulis, who was behind the design of the phased-array radar that is still a feature of all AEGIS cruisers. He apparently got the idea from earlier work with sonar.

Thursday, February 21, 2008

Latvian Mobile Telephone to sell DVB-H capable phones

Latvian Mobile Telephone (LMT), will announce next week that it is offering "digital broadcast television"  to its customers. After launching mobile TV streaming (over the GSM/UMTS network) a couple of years ago, the planned announcement on February 25 can only mean that LMT will start selling and supporting DVB-H capable handsets and broadcasting DVB-H over its network (and/ or through the Latvian  national television broadcast system via the Latvian State Radio and Television Center/LVRTC ?).
The key to it, as I see it, is to put DVB-H capable handsets (LG, Nokia and others have a few) into the hands of customers/subscriber and create a viewer base for this service. The service also has to be reasonably priced. Pricing of streamed mobile TV at the outset was close to what it would cost to see the same movie at a cinema on a far bigger screen. 

Alcatel-Lucent and SMEs

I talked to Dany Jenneve, the Alcatel-Lucent honcho in charge of small and mediun business (SMB) solutions while at the Enterprise Forum in Paris recently. Here is the video, edited also for use on my Latvian-language blog.

Pat Russo's keynote, other stuff from Alcatel-Lucent Enterprise Forum 2008

First some tidbits of local news from the Alcatel Lucent Enterprise Forum 2008 where I just spent a couple of days (strangely springlike Paris, daffodils blooming!). The interesting rumor is that TeliaSonera may be among a number of Nordic mobile operators looking at Alcatel Lucent's OmniAccess 3500 Laptop Guardian, which has now been launched in a European version (it operates on GSM/UMTS networks).
The idea of the gadget is that it remotely updates, monitors and protects corporate laptops, even if they are turned off. If stolen, the laptop can be encrypted rendering any confidential data useless to thieves. The Laptop Guardian is also a 3G/HSPDA modem. The gadgets can be installed and managed by a large corporation's IT department or sold as a service by mobile operators, opening it to a broader range of users.
However, that is not the story for me-- if TeliaSonera is testing this as a service (one way it can be used by small and medium businesses) it is also in the pipeline for all of the TeliaSonera owned Baltic operators, including Latvian Mobile Telephone (LMT). This would be a nice complement to its iBirojs (iOffice) HSDPA service. It would also allow TeliaSonera to deploy and support the service regionally.

Not to deceive with the headline, I also include my video excerpt (sorry about the occasional camera drift) of Alcatel Lucent CEO Pat Russo's keynote at the Enterprise Forum:

Thursday, February 14, 2008

Lattelecom to offer mobile e-signature

Lattelecom Technology is offering a mobile e-signature that may finally get this dead horse of a e-government/e-services project going at last. In order to use their mobiles as e-signature devices, users will pay around LVL 5 to have the specialized program burned into a new SIM card for their mobile phones. It should work on most phones available on the market. It will also function on all of Latvia's mobile phone networks.
According to a spokesman for Lattelecom Technology, the mobile e-signature will allow secure identification of users of online government services, internet banks, e-mailed documents and the like. It may even enable card-free use of ATMs (bankomats) such as is said to be possible in Turkey. The mobile user will send an SMS to the bankomat and recieve cash without needing to insert a card and punch in a PIN code (forget it, and your card is often swallowed).
Lattelecom Technology helped to develop Latvia's e-signature, which has hitherto been distributed to several thousand government and municipal officials (at government expense). Uptake of the service (a gadget one attached to a PC, if I am not mistaken) by the private sector has been rather limited, perhaps a few thousand users (because of the expense). It has also been sold mainly through Latvia's shambolic (LV readers, think bardaks) postal service.
The mobile offering may finally make a widely-used product of the e-signature, which is actually a rather progressive and convenient way of secure dealing with government and private service providers.

The "bee"stings with a shorter stinger..

Bite (bee in Latvian) has cut its previously "privileged" interconnect tariff in order to prod the two major operators, Latvian Mobile Telephone (LMT) and Tele2 into cutting what it considers excessive charges for calls from the other networks to Bite numbers.
Fred Hrenchuk, the chief honcho of Bite Latvija, says that the 0.08 LVL interconnect tariff Bite has been charging will be cut to 0.062 LVL (what the incumbents charge each other) to remove any basis for arguing that calls to Bite "cost more". He says that LMT and Tele2 have been overcharging their own customer for call to Bite by up to 0.09 LVL per minute compared to the charge for a call to either Tele2 or LMT. Bite was granted a higher interconnect in 2005 as a third, "underdog"entrant to the market.
Tele2 has recently (consciously or not) pre-empted Bite's move in its ZZ Postpaid tariff plan, where calls to all other operators, including Bite, are charged at 0.15 LVL per minute. In othe Tele2 plans, there is still a differential of several santims between calls to LMT and Bite.
Hrenchuk explained that the two incumbents have been making money from calls to Bite in two ways -- the net amount Bite pays on interconnect clearing (more calls are made by Bite customers to the incumbents than from LMT and Tele2 to Bite) and the excessive charge for calls to Bite compared to calls to other operators. Thus an operator whose customers make 100 000 minutes of calls to Bite and take 150 000 minutes from Bite would be owed (by netting out or clearing) around 3100 LVL (at the new lower rate) from Bite. However, assuming that calls to Bite cost an average LVL 0.06 more per minute, the calling volume would also generate 6000 LVL in extra revenue compared to what calls to other operators generate.
Bite Latvija hopes cutting the interconnect charges and publicizing the tariff differentials will prod or shame the major operators into bringing tariffs for calls to Bite in line with other tariffs. A letter urging such steps has been sent to Tele2, LMT and Lattelecom.

Monday, February 11, 2008

Rumors of LBS and an unhappy "bee"

This from the rumor circuit - Latvian Mobile Telephone (LMT) is getting closer to launching location-based services (LBS). At least some of them would be based on Google Maps - showing mobile phone users nearby shops, restaurants and the like.
All mobile operators in Latvia have to do some degree of locating in order to meet EU requirements for emergency calls, but LMT appears to be the first to be developing a commercial platform.  The business model is that LMT will set up the necessary IT infrastructure and then partner with location-related third-party content providers on some kind of revenue-sharing basis.
While location for emergency purposes is compulsory, any commercial LBS will be by consent, although it is likely that LMT and other operators will market these rather aggressively, stressing that one or the other has the "locally-smartest"  phone.
LBS gaming may be another feature of the LMT offering, but just what that is I am unsure :).

Bite rebrands
Meanwhile Bite presented its rebranded image -- springlike colors, a different logo (a leaf? a balloon?) minus the weird Lithuanian ė -- as well as the abolition of one-off call connection charges, so-called asterisked (*) clauses and fine print as well as charges for switching or turning on and off of certain services (incoming call numbers, etc.). All of this is based on some intensive customer surveys, focus groups, etc. and one can reasonably say it is what most or many customers want. It is something that Bite hopes will increase customer loyalty more than it will have folks stampeding from other operators.

Peeved about charges
Bite is also upset that Tele2 and LMT seem to be charging their customers more for calls to Bite numbers than for calls to each other and related pre-paid services. Bite will probably make a public issue of this, although the wholesale tariff structure (so-called termination charges which operators clear with each other) and its relationship to the tariffs customers pay is somewhat complex and non-obvious. More, perhaps, on this later.  

Friday, February 08, 2008

In bed with the loonies?

Lattelecom management as represented by CEO Nils Melngailis and The Blackstone Group have officially expressed their interest in buying 49 % of Lattelecom from Sweden's TeliaSonera. This comes on the heels of a USD 1 billion bid by TeliaSonera to buy 100 % of both Latvian telcos (Lattelecom and Latvian Mobile Telephone/LMT).
The Latvian government has already repeatedly declared that it will not let the Swedish group own both companies, citing competition worries.
If Melngailis proposal is accepted, it would leave TeliaSonera free to execute its "Plan B", to acquire 100% of LMT and develop it as a full-spectrum operator (wireless & fixed wireless voice, wireless broadband, maybe even TV). Against this, Lattelecom will have to compete (despite any formal agreements on management and strategic decision making) with one arm tied behind its back. 
Over the next three years, Latvia faces both municipal and national parliamentary elections in a time of political turbulence and the possible rise of new populist political movements. One can hardly expect to have the government as a rational partner. Already, the government has changed its mind several times in the last couple of months about what to do with Lattelecom -- sell, keep, sell again, auction, etc...
All I can say is -- good luck!

Thursday, February 07, 2008

Bedding down with da Latvian guvmint??!

I was in Stockholm at a seminar for a couple of days, listening to some well-reasoned arguments as to why TeliaSonera would be a great owner (100%) for both Lattelecom and LMT. I missed covering the meeting between TeliaSonera's Kenneth Karlberg (who gave the presentation in Stockholm and went to Riga the next day). But the Latvian media are reporting that:

Lattelecom CEO Nils Melngailis and The Blackstone Group are willing to buy 49 % of Lattelecom from the Swedes for a proportionate share of the LVL 290 million that the original MBO consortium (including four banks putting up LVL 200 million) were willing to pay for all of Lattelecom.
I am still trying to get details, but this looks a little wacko at first glance. The questions I have are:

1) Are the banks out of the picture and Blackstone is willing to up its stake to just over LVL 142 million? I would think the banks breathed a sigh of relief once the prime minister torpedoed the MBO and they could redraw their credit budgets for the year.

2) Is Blackstone crazy? Do they have any idea what presenting business plans, etc. to the largely (and understandably) ignorant-on-these-matters Latvian government means? Do they know what will happen if all state procurement procedures are applied to Lattelecom for any and all major investments? It seems they may have some management independence agreement in mind, but still...
Latvian governments have been twisting and turning around the issue of privatization of Lattelecom since 1998. There is no reason why they can't continue for another 10 years. A new spasm of what has been called (in Latvian) "the wandering of cattle" has started in Latvian politics, two parties, one in the government, one in opposition, are cracking apart, and at least two new political organizations/parties are being formed, one of them by the former minister (Aigars Stokenbergs) who told TeliaSonera in 2006 that they would never get to buy Lattelecom. My old friend and neighbor from when I lived in Stockholm, Atis Lejins of the Latvian Foreign Policy Institute says he will drag the splintered and damaged Latvian Social Democratic Workers' Party back from the political Phantom Zone (where evil superheros were banished in the Superman comic?). Do I hear the bellowing of the baboons and the w00-haahaahaahaa of the toucan down at the zoo (which is, I kid you not, where they picked the current president of Latvia, at a cafe in the Riga Zoo). There is going to be a political zoo in this country, so let the politicians control 51 % of Lattelecom??

3) Do management and staff get anything out of this? I suppose it would have to be approved by both shareholders. Even under 100 % TeliaSonera ownership, at least some of management might be able to participate in group level share options.

If this proposal succeeds, then at least TeliaSonera comes out with some folding money and the ability to work on their self-admitted plan B, to make the mobile operator LMT a strong competitor to all other service providers, expanding into mobile broadband, fixed wireless business and home services, even TV .

Tuesday, February 05, 2008

TeliaSonera may bid over USD 1 billion for Latvian telcos

TeliaSonera may bid substantially more than LVL 500 million, or well over USD 1 billion for 100 % control of both the Latvian mobile operator Latvian Mobile Telephone (LMT) and fixed network operator Lattelecom
Kenneth Karlberg, the TeliaSonera executive who will be negotiating with the Latvian government in Riga on February 6, declined to name a figure, but the sum of more than LVL 500  million is considered a reasonable "guesstimate" of what the Swedish group may be ready to pay.
Karlberg said he will present a written offer to Latvian prime minister Ivars Godmanis who has hitherto rejected an LVL 290 million management buy-out bid and has flatly refused to allow the Swedish group to own both Latvian telcos, citing competition fears.
Karlberg, speaking to Latvian journalists in Stockholm, said that economies of scale were the most important factor in the competitiveness of telecommunications companies. The larger the customer base, the more efficient and effective the use of investment capital and the greater the purchasing clout of the company on international telco equipment and IT systems markets.
The Swedish executive indirectly suggested that Lattelecom, with just over 600 000 customers, compared to more than 109 million for TeliaSonera and its subsidiares, could never achieve the same level of competitiveness and efficiency alone.
He also spoke of large telecommunications companies such as Vodafone and Orange, which have left the Nordic/Baltic region, selling out to Nordic operators, indirectly expressing skepticism about Latvia's plans to auction 51 % of Lattelecom to operators other than TeliaSonera.