TeliaSonera honcho: it looks like a deal!

Despite a loony-tunes document by the Ministry of Economics that seemed to say all deals surrounding the privatization of Lattelecom and Latvian Mobile Telephone were off, it looks like the deals are going ahead and will be sealed as early as September 12, with closing before the end of the year. Those were the signals coming out after a meeting between TeliaSonera honcho Kenneth Karlberg (who has been at this for around four years or more) and representatives of the Latvian government. I got to sit down and talk to Kenneth after the meeting. Here is my videoblog:

Click To Play

Government waffles again on telecom privatization

LJust when it seemed that agreement had been reached in principle to sell the remaining state holdings in Latvian Mobile Telephone (LMT) to TeliaSonera and to let Lattelecom be privatized by a management/staff buyout, the Latvian government decided July 24 to extend the deadline for preparation of privatization rules for LMT to October 1.

The real shocker is in an explanatory document appended to the decision:

"As, for the time being, no agreement has been reached by the parties involved concerning the future disposition of the state holdings in ...Lattelecom and ...Latvian Mobile Telephone, the draft protocol decision foresees extending the deadline for completing the task to October 1 of this year." (Emphasis mine).

What this seems to say is that all deals are off, or at least it could be understood that way. In fact, both the government and the half-mother TeliaSonera had indicated agreement in principle to a scheme that has been discussed for more than a year, namely, that the Swedes get LMT, and someone else gets Lattelecom (in the latest alternative, the management and staff). The half mother has also given a nod to the management buyout, though it may have hinted at a last minute higher offer for the whole package (TeliaSonera has always wanted to buy 100 % of both Lattelecom and LMT, but given an unavoidable choice, it would take LMT alone).

The whole bizarrely ambiguous statement comes two days before TeliaSonera honcho Kenneth Karlberg is due in Riga for talks with the government. Presumably these would have been about choreographing the deal -- waiving first refusals, detaching the state and half-mother's indirect shares of LMT held by Lattelecom, finalizing the price of everything. In this sense, there was no formal, written agreement -- work should be starting toward this, but certainly there was agreement in the common-sense understanding of the concept.

Certainly, the half-mother has reason to worry -- the half-mother's , as it turned out, half-blood press honcho called me and asked for a copy of the Latvian language documents so he could show them to his mother. This seemed very strange for a man called Niklas Henricson, until it turned out that Niklas' mother is Latvian. That is just a curious aside and a warning -- we are everywhere :). Niklas, alas, has not grown up in Sweden learning Latvian.

Anyway, one way or another, the latest and strangest from the Latvian government should be on Kenneth Karlberg's laptop at his vacation residence pretty soon.

And--one more thing... The Latvian government has ordered a tender for another appraisal of Lattelecom and LMT, even though Minister of Economics Jurijs Strods says he is sure the value of Lattelecom has not diminished. Since both companies are not traded, appraisals, such as were made last year by two different firms, Ernst & Young and Carnegie, are expensive educated guesses at best. Well, it has been a good year for the appraisal business in Latvia, that's for sure.

Whatever is really going on, the whole privatization process has, yet again, been destabilized and dragged on, probably well into 2008, even as Nils Melngailis, Lattelecom's CEO, looks to put together a consortium to finance the MBO (assisted by Lazard). That leaves Lattelecom adrift with, as Bob Dylan said, "no direction home" for at least a year, nor even any idea who home" is or will be.

airBaltic offers pre-paid mobile phone services

air Baltic, the Latvian carrier partly owned by SAS, has quietly started offering prepaid mobile phone cards, including a SIM card and number, to travelers abroad. The service offers free incoming calls from Latvia in 19 countries (including Ireland) and discounted calls from abroad to Latvia.
The service is run for the airline by SIA Telecom Discount, a small alternative Latvian telco. Just how they do it -- whose network is used-- I have still to find out (I want to get this news out ahead of anyone else, as air Baltic hasn't announced this to the press, only put it in a customer newsletter).
Since I don't think I want to get a new mobile number to use just for a weekend in, say Stockholm, mainly because I don't want to SMS like 150+ contacts and get everyone confused, I think this card is mainly aimed at the Latvians in Ireland and UK market. Think about it -- when you let everyone know you are off to O'Leary's mushroom farm, you also announce your airBaltic number and get incoming calls for free.
My sources say that the next step could be the sale of cheap (subsidized) phones by Telecom Discount bundled with the air Baltic card, so that emigrants could have a "call and be called from Latvia" phone when they hit the ground in Ireland or wherever. Sounds like a reasonable business model.

Endgame for the half-mother

A delegation from TeliaSonera, the half-mother of Lattelecom, will meet with the Latvian government on July 26 to, in all likelihood, start working out the details of the management/staff buyout of the Latvian fixed-network operator.
The delegation will be headed by Kenneth Karlberg, currently head of TeliaSonera's Mobility business area, but formerly (before the switch from regional to services-based organization) in charge of business in the Baltics. For Kenneth, it will be the beginning of the end of a seemingly neverending story that started in 2003, when TeliaSonera first declared its interest in buying all of Lattelecom and Latvian Mobile Telephone (LMT). Now, as a corollary to the Lattelecom MBO, Kenneth will be getting 100 % of LMT. LMT will be integrated into TeliaSonera's regional mobile strategy, but there are some things to learn from the Latvian subsidiary, which was first to launch HSDPA mobile broadband, something even Telia Mobil still doesn't offer (?).
The July 26 meeting, presumably, will be to discuss the choreography of how each partner will waive first refusal rights on the other's holdings in Lattelecom and LMT, as well as on how to divest the 23 % of LMT formally owned by Lattelecom.
At the same time, people from Lazard Freres are busily doing due diligence at Lattelecom so as to present the company to potential financiers of the MBO. CEO Nils Melngailis is in London talking to banks and private equity companies.
Look for Lattelecom to strengthen its senior staff in the next few weeks as the company prepares to become a small independent player, without the backing of its ex-half mother. I will mourn having to discard that favorite bizarre term:).

Bite Group honcho speaks

Kenneth Campbell, the new CEO of the Bite Group talked to journalists in Riga on July 4 after a couple of months easing into his new job. I did the usual videoblog (see below), but some stuff was said off camera that is noteworthy.
1) Bite Group expects Latvia to be its fast growth, high opportunity market (Lithuania is mature and steady).
2) Bite will try to push the pace of network build-out in Latvia beyond the present 10 base stations/towers per month.
3) In the medium term, there will be more bundled services (XYZ minutes included in the basic fees) and a drift toward flat rate for everything as HSDPA mobile internet and its next generations become ubiquitous.
4) Mid Europa, the private equity company that bought Bite has an investment horizon of five years plus (remember, they are not a telco seeking to permanently have a network presence in Latvia).

My own guess -- no one told me this -- is that Bite is being fattened for a friendly sale to Vodafone in 6 to 8 years. It makes sense and Bite has had a favorable roaming and data roaming deal with Vodafone.

Here is the video, this time from YouTube. BlipTV was OK for a while, it took some longer videos but now screwed up, refusing to open a page where I can copy paste the code for putting a video window on the page, as I have done in some earlier posts.

Tele2 to expand 3G/HSDPA coverage in Latvia

Tele2 is going to expand 3G and HSDPA mobile broadband coverage to the towns of Liepaja and Daugavpils by fall, according to the company's chief honcho Petras Kirdeika. He talks about this and other matters, including the new "slant" on the corporate logo, in this video:

Click To Play

A Swedish student networking presentation in Riga

I recently went to an event sponsored by the local affiliate of the Connect network, a non-profit organization that brings together internet and high-related startups (or just innovators with ideas) to face a panel of potential early stage investors and industry experts.  Here is a short video of a Connect event in Riga, where some Swedish entrepreneurs came over to present a student interaction and job-seeking platform, AcademiaLive (Swedish only).

Click To Play

A happy, safe Midsummer (Jāņi) to all

I just want to wish all my readers (very many of whom are in Latvia) a happy, safe Jāņi holiday with beer, cheese, merriment, līgo songs, bonfires and the whole business :).  At the same time, I want to share a thought that came to mind at an informal lunch with some people from a Latvian state agency (telecoms-related). We talked about the upcoming Jāņi and I said my best Jāņi were in the US, at the Piesaule camp in New Hampshire owned by the Latvian Lutheran Church. Some 60 (?) summer houses have been built over the years (since 1954?) in Piesaule and a number were owned by people named Jānis. So what happened was that there was a procession (two, actually) to all the cottages of Jānis(es) with singing, cheese and beer served by the respective hosts and finally a big gathering at a bonfire, dancing in the barn etc.

At many other places in North America, the centerpiece of the Jāņi celebration has been some kind of show by the local folk dance/singing organization showing a more or less traditional Jāņi celebration so that all present would see "this is Jāņi in (olden days, traditional) Latvia." It was more or less the Skroderdienas Silmačos scene.

I said it is time to update this to show Jāņi in 21. century Latvia. The scene opens on a stage with a flatscreen TV, a couple of couches and a grill. In the background, an SUV pulls up and the first Jāņubērni emerge carrying Rimi or Maxima bags filled with special Jāņi packages--six packs of Aldaris or Cēsu beer, buckets of shašlik meat and shrink-wrapped, heart-shaped Jāņu cheese. They fire up the grill, have a few beers and turn on the TV. It is too early for the Maestro (Raimonds Pauls) to take the the stage at the Līgo Lejasvaimanas 2008 mass event, so the camera crane zooms over the crowd of thousands gathering by the outdoor stage and listening to a Latvian country band in cowboy hats. 

The Jāņu bērni in the couches (except for the grillmaster) start channelsurfing. They stop for a few seconds at a 1980s recording of an outdoor performance of Skroderdienas (a Latvian classic about tailors,  a mismatched wedding in a country farmstead and a Jāņi celebration where all gets set right). Then they channel surf to a blond babe in a bikini being carried uphill by an older man (or maybe she is asking to be driven to the Estonian hill, Munamegi) -- this is from the film A Limousine the Color of Jāņu Night. Finally they hit a channel with the alternative to the Maestro's Līgo Lejasvaimanas for a younger audience with the comedians Ufo and Fredis and some people rapping in the Latgallian dialect, followed by some folk/punk rock band, or at the very best, Ilģi. And so the show goes on, more or less like a happening or installation rather than a performance. The Jāņu celebrants drop off one by one as the beer and šašliks run out. One staggers to the SUV to get some more at the all-night Statoil down the road. There is a loud simulated crash after the SUV drives away. But our hero is unhurt, we see him staring pathetically out the window of a Latvian police prisoner transport bus that drives by, ending the performance.

OK, this was to entertain my Latvian readers. Back on topic after the holiday. 

Vista goes Latvian (in Latvian)

Here is a videoblog of a rather strange (for non-Latvians) presentation of the Windows Hen (that's Vista in Latvian) in Latvian featuring the Suitu district female burdoon singers (Suitu sievas). Daiga Jace, the marketing manager for Microsoft in Latvia talks about the new Latvian Vista and Office.

Click To Play

Nick Henny on UMG's royalty system, made in Latvia

Universal Music Group (UMG) vice chairman and CFO Nick Henny talks about UMG's new royalty transaction system, being built by Exigen in Latvia and St. Petersburg, Russia. This is a project aimed at saving tens of millions of USD for UMG as royalty-generating transactions grow rapidly in number but fall greatly in value (99 cent iTunes purchases instead of USD 19.99 CDs). Ultimately, UMG wants to offer the system (when completed in late 2008) to the entire entertainment industry. Warner Music, originally a partner in the project along with UMG and Exigen (it has headquarters and legal personality in the US, but all software development is done in Latvia and, of late, in Russia)

Here is the video interview:

Click To Play

Microsoft honcho speaks on Dynamics

I filled in for a colleague whose kid was graduating from high school and attended a Microsoft Dynamics press/analyst seminar in Copenhagen June 14-15.

My impression was that Microsoft's Dynamics assortment of ERP and related software is heading for some kind of de-facto convergence and will be a single, highly scalable SOA-based solution ready to compete with Oracle and SAP in the enterprise market. Many hints, but no official confirmations were dropped about this. The road map looks like this will happen after 2010.

I spoke to Henrik Brorsen, an MBS and Dynamics honcho for EMEA about this in this somewhat glitchy video (the sound screwed up on the transitions, time to learn iMovie HD.

Click To Play

Government supports Lattelecom MBO

The Latvian government has approved a management buy-out of the fixed network operator Lattelecom, in which it holds a 51 % stake. 49 % of Lattelecom is owned by Sweden's TeliaSonera.
The MBO will net the government around LVL 290 million.
Lattelecom's management proposed the MBO to break a deadlock in privatization talks between the Latvian state and the Swedish telecommunications group. TeliaSonera initially wanted to buy 100 % in both Lattelecom and Latvian Mobile Telephone(LMT), but the government said last year it would not sell Lattelecom to the Swedes. Valuations were then made of both Lattelecom and LMT in the hopes of a deal where TeliaSonera would swap its 49 % share of Lattelecom plus cash for 100 % of LMT. It currently controls just over 60 % of the mobile operator. That would have left the government holding 100 % of Lattelecom, but the proposed deal stalled.
Unbelievable, but the government --so says my Lattelecom source, this ain't on the wires yet -- has finally made a decision.

TeliaSonera ousts Anders Igel

TeliaSonera announced on June 12 that it was searching for a new group CEO. The present CEO, Anders Igel, will leave the company on July 31. This was a pleasant way of saying, Anders, you're fired! There had been mutterings about this in the Swedish press for some time.

How does this affect Latvia? First, it gives the government an opportunity to, yet again, procrastinate on any decision to privatise Lattelecom and to finally sell all of Latvian Mobile Telephone (LMT) to TeliaSonera.
The other aspect is not so obviously obvious. TeliaSonera needs a new group CEO, probably an international manager, not necessarily a Swede (for who knows who will own TeliaSonera in a few years), as well as someone familiar with its growing Baltic and former USSR markets.
Perhaps TeliaSonera need look no further than Nils Melngailis, the 40-ish, Latvian-American, internationally-experienced (IBM Business Intelligence, Coopers & Lybrand) CEO of Lattelecom. After all, with the company mired by the government in indecision about who will own it, the role of Melngailis and other talent at Lattelecom is being reduced to uncertain short-term stewardship rather than nimble, strategic management. The management buy-out idea did not come out of nowhere, it was, in one aspect, a pressure tactic to get the government to act.
We may see a miracle and actually get a decision, but more likely, we will get procrastination. So don't ask them to take your name off the short list in Stockholm, Nils (and Stockholm, do look at your own 49 % owned talent).

Lattelecom privatization may be decided June 12

The issue of Lattelecom's privatization may be decided at the regular meeting of the Latvian government on June 12. Nothing has appeared on the agenda, as yet (evening, June 11), but there appear to be three choices before the Cabinet of Ministers.

1) To approve the management/staff buy-out proposed by Lattelecom's management and, apparently, having the tacit approval of the half-mother, TeliaSonera.

2) to hold a closed auction (by invitation) to sell Lattelecom to a major international telco (assuming any show up) in the hopes of getting the maximum price.

3) to sell both Lattelecom and Latvian Mobile Telephone (LMT) to TeliaSonera after all, reversing the government's previous position that Lattelecom would never be sold to the Swedes.

Right now, the government is said to favor 2), the closed auction, claiming that the management buy-out (MBO) would contravene Latvian law. Strange, where was that law when the a government commission tentatively approved the MBO idea some weeks ago. One wonders...

Offtopic--March for Equality in Riga

Although it is of little relevance to the discussion here, I am politically a libertarian and, therefore, support unfettered freedom of speech, assembly and lifestyle. Last year I posted an angry videoblog when the 2006 Riga Gay Pride March was banned. This year, after a court decision overturning last year's ban, the same event, called a March for Equality, took place. I shot some video, not put together as best I had hoped, on my other blog in English, the rarely updated Thoughts From Latvia. Please have a look if this interests you.

The half-mother Agonistes in Riga

Anders Igel, top honcho of TeliaSonera, the half-mother of Lattelecom, and Kenneth Karlsson, head of Mobilty services, were in Riga to make a donation to the Stockholm School of Economics in Riga. They took some time to sit down with both of my identities (Latvian language blogger for nozare.lv and Englis-language videoblogger for this blog). As I a pressed for time -- I have to go to my summer house and attempt to rig some wireless internet there as well as resupply a friend of my mother-in-laws who is watching the place while my wife, kid and mother-in-law are in Malaga-- I have linked to the Latvian audience version of the videoblog. So the intro titles and subscripts are in Latvian, but the interview is in English;

A Latvian race for user-generated mobile content?

Just a short note before I fly off to the States: Amigo, the virtual operator using Latvian Mobite Telephone's (LMT) network, has launched a feature that pays users for their multimedia content (MMS images, video, ringtones, etc.) Payment is up to LVL 0.20 per item downloaded (presumably as Amigo pre-paid credit for use when calling). Launched amid some fanfare, the Amigo service pays more than a similar user-generated deal on Bite (which pays only up to LVL 0.04 per download). Apparently, both services believe that a critical mass of multimedia capable phones has appeared among Latvia's nearly 2 million mobile phone users (including large numbers of pre-paids). The Bite offer has not been widely publicized.

Things to watch for while I am gone

I'm off to the US via Sweden. After stopping off in Stockholm overnight, I will be flying to Boston on May 19 and back again on May 27 (I'll be in Riga again May 29). In the meantime, there are some things to look for in Latvia. The half-mother (TeliaSonera) was due to officially respond to the management/staff buy-out proposal from Lattelecom. Unofficially, they have said OK some weeks ago. Nobody else is seriously looking to buy the half-mother's 49 %.
The only stumbling block is, to my mind, a bizarre demand by TeliaSonera that Lattelecom refrain from entering the mobile services market for two years (this, according to unofficial sources). The strange thing is, that if this is intended to protect TeliaSonera's forthcoming 100 % holding in Latvian Mobile Telephone (LMT), it is aimed at the wrong threat. Tele2 and, to a lesser extent, Bite (as well as Triatel with its "out of the box" wireless services) are more of a challenge to LMT than a hypothetical and, most likely, virtual Bite-based mobile service launched by Lattelecom at some point in the future. Tele2, especially, is aggressively pursuing business customers. To ban Lattelecom from going mobile is sort of like getting a chastity pledge from wolves so that their unborn cub won't come hunting while at the same time, a crocodile (Tele2) is chewing on one of your legs. End this craziness, TeliaSonera, and let's get on with the deal...L

Bite talks about mobile entertainment

I recently did an e-mail interview with Šarunas Čomentauskas, marketinga manager of the BITĖ Group regarding their plans for mobile entertainment. This was research for an article I did for Kapitāls, the Latvian language business magazine that is part of the LETA group of information services companies that I work for. It is interesting enough to publish here (also easy, since our correspondence was in English).

Meanwhile, Zetcom, the company behind virtual operator Amigo (phone cards of the same name, use Latvian Mobile Telephone/LMT's network) announced a scheme to pay up to LVL 0.20 for downloads of user-generated content for mobile phones. This tops what Bite offers for its Foto Bazaar -- LVL 0.04. The Amigo platform is called Multivide.

Due to a copy-past from a Windows Word file, this could look a little strange...

What are the user statistics for Bite Plus, your mobile entertainment portal?

We have about 25 thousand unique users per month. Each of them opens up on average 59 pages per month.

What is the most frequently purchased service?

We have our own content and provided content. In total draugiem.lv and one.lv services (social networks for Latvian and Russian speakers, respectively) are absolute leaders. Concerning BITE content – games and polyphonic melodies are the most popular products, and they are 3 times more popular then true tone melodies.

Is it true that ringtones and games sales are not doing well (across the industry in Latvia/Baltics) because of piracy?

One.lv has largely left this kind of business and is using mobile for transactions and access related to its social network.

Popularity of games is growing significantly. Since the start of the year the usage of games has grown by more then 3 times. Certainly it is partly connected to BITE customers’ base growth, but people still like games on their phones.

What is the future trend -- mobile TV, mobile/online communities. a shift to user rather than commercially generated content?

Certainly there is a recent trend for user generated content. We have just recently introduced Foto Bazaar service – gallery with user’s generated pictures, where users can upload their pictures and share them publicly. New service is a unique possibility for TOXIC users which can even earn money 0.04 Ls for each picture downloaded by other Foto Bazaar user.

However we think commercial content will not disappear at all, it might become more localized. We also observe a new trend in the market - free content, which is supported by advertisement.

What will be the impact of eventual flat rate or near flat rate service?

BITE already offers flat rate services and we see that the customers like this approach. Flat rate allows to users have easier control on their expenses and they feel more secure when paying a certain fee monthly.

When most phones are HSDPA capable, will there be any boundaries between mobile entertainment and commercialized internet entertainment generally? That is, if I have paid a subscription (maybe by mobile banking) to "Sports TV" does it matter if I watch it over flat rate DSL on my PC, flat rate HSDPA on my laptop or the same HSDPA on my mobile (OK, maybe the system detects the device and adjusts the stream and/or download format to the screen).

We think that there is a big opportunity for services specially designed for mobile usage. Not just internet copy-paste services, but specially designed services for mobile phones. Certainly, mobile and internet integration will continue to grow, but in mobiles can gain more by providing unique mobile based services.

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 :).