Norway's Telenor accuses Russia?s Alfa Group of being an unreliable partner
What once was a lucrative telecom partnership is turning sour,as Alfa Group and Telenor clash over another of their jointly owned mobile operators – Ukrainian giant Kyivstar GSM.
On Dec. 7, in response to a lawsuit filed by Russia’s Alfa Group, which owns 43.5 percent of Kyivstar through a company called Storm, a Kharkiv court suspended operations of Kyivstar’s board of directors.
In response, Norwegian Telenor, a majority owner (56.51 percent) in Kyivstar, called Alfa Group an unreliable partner.
At a press conference held Dec. 8, Torstein Moland, acting board chairman of Kyivstar and an advisor to Telenor’s CEO, explained that Alfa and Telenor had a history of cooperation and that all votes had been unanimous until last year, when Storm representatives abruptly and without explanation stopped attending board meetings.
According to Ukrainian law, at least one representative from each of the shareholders must attend board meetings to achieve quorum. When Storm representatives stopped attending, quorum was denied and Kyivstar’s board was unable to act in its official capacity.
Then on Dec. 7 Storm filed a complaint in a Kharkiv court and obtained an injunction that prohibited Kyivstar from holding board meetings, including one scheduled for that day. Officials from Kyivstar determined that the order was unlawful and went ahead with the Dec. 7 board meeting, saying they plan to appeal the injunction.
Moland said that Alfa’s tactics belonged “in the stone age.” He added that he hoped that the government would note that national laws were being abused in an effort to cripple the country’s largest mobile operator. He sent a letter Dec. 8 to Supreme Court Chief Justice Vasyl Maliarenko, asking him to consider the situation.
Moland also suggested that Alfa’s actions were connected with its attempt to buy Telenor’s share in Kyivstar.
Earlier, news outlets reported that Alfa wants Vimpelcom, a Russian mobile operator it owns with Telenor, to merge with Kyivstar, forming a regional service giant. Telenor opposes the plan.
Bad blood
This is not the first controversy between Telenor and Alfa Group. The two also jointly own Vimpelcom, which became the center of controversy back in November.
That’s when Vimpelcom purchased Ukrainian Radiosystems (URS) for $231 million, a fourth-tier mobile phone company that operates the Wellcom and Mobi brands. Telenor complained that Vimpelcom paid too much for URS.
Dag Melgaard, Telenor’s chief press spokesman, said that developing a fourth-tier mobile operator will require significant investment beyond the initial price.
Meanwhile, Vimpelcom’s general director, Alexander Izosimov, has already said that his company is prepared to invest more than $400 million into URS as part of a plan to boost its market presence to about 15 percent within several years – the equivalent of four million new customers.
In a Dec. 12 letter to Vimplecom board chairman David Haines, Telenor hinted that it would not ratify Vimpelcom’s 2006 budget if Vimplecom did not explain its planned expenditures on URS.
“For the board to be able to approve capital expenditures on URS, it must understand the details of the purchase of URS and how the money will be spent,” reads the letter.
‘Illogical situation’
Roman Himich, an expert at the consulting company Netton CG, says that having bought URS, Vimpelcom created a “fairly illogical situation on Ukraine’s mobile communications market.”
Telenor and Alfa Group now jointly own three assets in Ukraine: Kyivstar, Golden Telecom and URS. All three compete with one another on the Ukrainian market, and analysts say this configuration is unstable.
Industry experts speculate that Alfa intends to end its partnership with Telenor in Vimpelcom and Kyivstar. In such a scenario, Alfa’s stake in Kyivstar would likely be exchanged for Telenor’s stake in Vimpelcom. Alfa would then own Vimpelcom, and Telenor would own Kyivstar. If that happens, Vimpelcom would still have a presence on the Ukrainian market through URS.
Analysts are not surprised by such conflicts. Ukraine’s mobile communications market is one of the fastest-growing and competitive sectors of the economy.“The profitability of companies like Kyivstar and UMC has increased by 50-60 percent during the last few years,” Himich says.
