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State-backed Giant Rostelecom to Consolidate Tele2, the Fastest Growing Mobile Operator in Russia

28.11.2019
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The Federal Antimonopoly Service of Russia (FAS) allowed Rostelecom to buy 55% of T2 RTK Holding LLC (operating under the Tele2 brand), the service’s website reported. 


Parties to the Transaction - Major Players of Russia’s Telecom Industry


Rostelecom a is partially state-owned telecom service provider with a 48.7% stake of the Russian Federation in its share capital, another 36.5% in free float, and two minorities - Mobitel with a 10.49% and State Development Corporation VEB.RF holding 4.29%.
Rostelecom is a vertically-integrated incumbent operator controlling nearly all key elements of the broadband value chain (access, although to a lesser extent in the biggest cities; backbone; and international connectivity). The company has approximately 500,000 km of backbone infrastructure and controls the basic capacities in six international fiber-optic cable systems . Moreover, Rostelecom is the sole operator of the universal communication service, providing broadband access for remote underpopulated regions of Russia .


T2 RTK Holding LLC (hereinafter - Tele2 Russia) is the fastest growing mobile operator in Russia and the only provider in the country that managed to substantially increase its market share in the last three years to 17% (+ 2 p.p.) . Tele2’s subscriber base stands at 44 million , while its Net Promoter Score ranks as the best in the sector. The revenue of Tele2 Russia in 2017 amounted to 123 billion rubles, which is 16.2% more than a year earlier. According to the results of the third quarter of 2018, the company's revenue grew by 15.4%, to 37.3 billion rubles, net profit amounted to 1.6 billion rubles.


Rostelecom currently owns 45% of Tele2 Russia. Another 55% of the company is owned by Tele2 Russia Holding AB, in which 50% belongs to VTB, 40% - to Invintel B.V. of Alexey Mordashov, and 10% - to the Bank Rossiya of Yuri Kovalchuk and partners.
As a result of the transaction, the share of Rostelecom in Tele2 Russia will be increased to 100%.


Transaction Highlights


➔ Rostelecom gains 100% control over the strategically vital asset. That said, Tele2 Russia is expected to remain an independent company with existing management.
➔ Rostelecom plans to buy 17.5% of Tele2 Russia for its own 42 billion rubles. Another 27.5% will be received from VTB - the state bank will redeem the additional issue of Rostelecom at a price of 93.21 rubles per ordinary share, totaling 66 billion rubles. The remaining 10% Rostelecom will receive in exchange for its quasi-treasury shares (24 billion rubles). Thus, the total transaction amount will be 132 billion rubles with approximately 70% non-cash component of the deal.
➔ As a result of the transaction, Rostelecom group will be able to extract operational synergies that are expected to enable the company to create new services, strengthen cross-selling potential, as well as reduce operating costs.
➔ Benefits include also joint involvement in the development of a 5G infrastructure: Rostelecom’s technologically complimentary network (backbone and last mile) can be merged with Tele2’s mobile infrastructure and promote the joint company in upcoming rollout of the 5G network.


Closing of the transaction is expected in the 1st quarter of 2020. The combined company will become the largest telecom company in Russia in terms of revenue (about 500 billion rubles) and potentially a leading Russian integrated digital provider of fixed-line and wireless solutions.


Sources: 

https://br.fas.gov.ru/ca/upravlenie-regulirovaniya-svyazi-i-informatsionnyh-tehnologiy/37250d47-987c-4826-a660-95fe4cd707f4/

Digital Era Competition: a BRICS View. 2019. P. 953. URL: http://bricscompetition.org/upload/iblock/6a1/brics%20book%20full.pdf