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TELECOMS AND SOFTWARE NEWS
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From Russia with concern
Emeka Obiodu
From Russia with concern
Russia's two largest MNOs took giant steps in October to reposition themselves in Russia and the CIS region. For MTS, a strategic partnership with Vodafone followed a two-phase attempt to place 20 billion roubles in bonds. VimpelCom has also sought to raise funds and has scooped a 49.9% stake in Russia's largest mobile handset retailer. However, despite these concerted attempts to reposition themselves, the effect of the global economic downturn and political exigencies could wreck havoc.
For MTS and VimpelCom, the Russian mobile market is fast maturing. Mobile penetration is running at about 130% and Ovum forecasts that it will exceed 150% by 2013. Both companies are still growing and are advancing their vision for Russia and the wider CIS region. Speculation is rife that either of them could even expand beyond their regional Eurasian footprint to target markets in Africa and Asia. While those visions may remain attainable, the events of October 2008 could have implications for the Russian giants.Partnering for growth
In their quest for dominance in the region, both MTS and VimpelCom took major steps to reshape their current business strategy. Firstly, MTS signed a 'strategic, non-equity partnership' deal with Vodafone, under which MTS will be able to draw on Vodafone's expertise in building and developing 3G networks and mobile broadband products. The Russian company will also have exclusive access to a range of products, services and devices from Vodafone. But we have our doubts as to whether Vodafone Live! over MTS will work. Meanwhile, VimpelCom pursued a different strategy, snapping up 49.9% of the stake in Euroset, Russia's largest handset retailer for $226 million, with the option of increasing its stake by 25% after three years. Euroset generated $3.14 billion in revenues for 2007 and operates approximately 5,100 stores in Russia, Ukraine, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Uzbekistan and Armenia.But Russian MNOs need funds
While the strategic partnerships by both MTS and VimpelCom hit the headlines in October, the bigger underlying news is the effort of both companies to raise substantial funds from the financial markets. MTS has launched its second and third bond placements, hoping to raise a total of 20 billion roubles. In a statement, MTS said it is relying on a group of Russian banks - Gazprombank, Raiffeisenbank, Sberbank and Troika Dialog - for the bonds placement, and the proceeds will be used for general corporate needs. VimpelCom, on the other hand, is seeking to raise up to €600 million and is relying on a multinational consortium of banks from France, Germany, Japan and the UK for an unsecured loan facility. VimpelCom said it intends to use the proceeds from the loan to continue the development and expansion of its networks, including possible acquisitions or investments in existing operators, and crucially, to repay 'indebtedness'.Raising funds, in today's economic climate, will present challenges Despite their well laid out plans, the unique fusion of economics and politics in Russia presents a huge challenge. The Russian government, like its counterparts around the world, has pledged to shore up Russian businesses struggling to meet their debt repayments, especially to Western institutions. And so, when VimpelCom's majority owner, Altimo, ran into problems, the government stepped in to prevent VimpelCom's falling share price triggering a margin call by Deutsche Bank. But that action only succeeded because a Russian court controversially froze all the shares in VimpelCom, exacerbating the tension between the company's two leading owners - Altimo and Telenor. Certainly, foreign investors have taken note and with the falling price of oil, financial problems in the Russian economy may intensify. In this climate, MTS is now hoping on local banks to place its bonds and there is little hope of a potential tie-up with Russian broadband operator, Comstar. VimpelCom has gobbled up Euroset, itself a victim of the economic downturn, and will be hoping that the government's timely intervention saves it from further problems in the near term. But with the increasing demands from different segments of Russia's economy, government's continued assistance in telecoms is not guaranteed.
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