Russian VimpelCom Announces Ukraine Merger and 3G Network Launch

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Apr. 16 – Russian VimpelCom will finalize its amalgamation with Kiev-based ZAO Kyivstar GSM provider of wireless telecommunications services within a week, said the company’s executive vice president Martin Furuset.

The stock-swap transaction is valued at US $5.516 billion.

“The merger has yet to go through. It will be decided in about a week or so,” Mr. Furuseth said. “I’ve just spent two weeks traveling throughout Europe and the United States. talking to shareholders and investors and the deal was very positively received.”

Owned by Norway’s state-owned Telenor ASA with 33.6 percent stake, and Altimo, Alfa Group’s telecom unit who own a 37 percent stake, VimpelCom operates under the Beeline brand and is the largest mobile carrier in the former Soviet Union, with a total subscriber base of 64.6 million users. VimpelCom merger with Kyivstar will create a $26 billion corporation with 340 million subscribers scattered across Russia and Asia.

Current minority shareholders in VimpelCom have until April 15 to exchange their current American Depositary Receipts in OJSC VimpelCom for shares in the new consolidated company VimpelCom Ltd., which will be established after the merger with Kyivstar. The offer will expire on April 20 for Russian minority shareholders.

Under the terms of the merger, VimpelCom Ltd. must acquire 95 percent of OJSC VimpelCom’s shares, meaning that it must buy up at least 22.3 percent of the shares currently freely floated. If after two 25-day periods VimpelCom Ltd. is not able to buy out enough of the minority shareholders, OJSC VimpelCom’s shares will be delisted and it will continue negotiations with minority shareholders.

Furuseth said Kyivstar’s high margins and debt-free balance sheet would strengthen the consolidated company’s position. “And I think that’s why our shareholders decided to join forces. It will basically strengthen the balance sheet of the new consolidated company and opens up lots of new interesting opportunities,” he told The Moscow Times.

Last October, Altimo and Telenor came to an agreement to merge their VimpelCom and Kyivstar assets after settling a shareholder dispute that had dragged on for 6 years. VimpelCom Ltd., which will hold the firms’ merged telecoms assets, will be 43.9 percent owned by Altimo while Telenor will have a 35.4 percent stake.

While the Russian market is already saturated, with 1.4 SIM cards for every person in the country, there is still room to grow in terms of expanding its range of services.”When it comes to services and usage … we can do a lot. And that is why we’re seeing continued investments,” he said. “We hope that with the introduction of new services, people will be less inclined to have several SIM cards from different operators.”

Building a solid 3G network throughout the country will be a priority in providing new services for the next few years, he said, and the company is slated to bring 3G into small towns as well.

“We now have all the licenses we need, and the only problem is the rollout speed. You can see all operators rushing to expand their 3G networks as fast as they can,” he said. “But what we will also see from VimpelCom is that we will be able to go to these third-tier cities with populations of 10,000 to 50,000, places where fixed broadband connection is not yet available.”

However, providing a full set of 3G services, such as mobile television, may take time, as the operator has yet to sell proper handsets for that.

“One of the challenges is not only the network. The key to 3G is that you offer a portfolio of handsets that make it easier for customers to access your services,” he said. “We only sell one handset providing mobile television now, but we hope that we will be able to offer a portfolio of four to five handsets by the end of the year.”

It was not until President Dmitry Medvedev personally demanded last October that 3G networks be set up in Moscow that mobile operators got the green light to do so. Previously, security services had reserved the rights to use the necessary frequencies, and the process for gaining permits to operate a 3G network had been drawn out for 3 years.

But getting a license to develop 3G networks in neighboring Ukraine may be an even harder task, said Furuseth, who was vice president of Kyivstar until the beginning of the year.

“In Ukraine, you have a situation where there are no 3G licenses for big mobile operators like Kyivstar at all,” he said. “So getting one will be the biggest driver behind the investment in Ukraine, as well as building the networks and services.”

“Going from Ukraine to Russia, I can say that there is a notable improvement,” he said. “We are closely related to some of the new technology initiatives driven by Prime Minister Vladimir Putin and President Dmitry Medvedev. So I see a very constructive interest from the political authorities to introduce new services.”

VimpelCom net income was US$283 million after a net loss of $816 million a year earlier, while revenue declined 9.6 percent to US$2.31 billion, Reuters reported in March. The company will earmark 15 percent to 20 percent of sales for capital expenditure this year after spending US$814.1 million, or just above 9 percent of its US$8.7 billion revenue, in 2009.

Kyivstar’s wireless network operates using the GSM standard and provides coverage accessible by approximately 99 percent of the Ukrainian population. The first call within the Kyivstar network was made on 9th December 1997.

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