Telia in Latvia — The Tar Baby Gets Kicked Down the Road Again?

A study ordered last fall on the future of Latvia’s main telecoms operators, Lattelecom (fixed network, internet and TV) and Latvian Mobile Telephone (LMT) is in the final stages of drafting by KPMG, the consulting and audit firm. KPMG was paid almost EUR 180 000 by the government to do the study after the government decided last year that it would do nothing, keeping Lattelecom and LMT as separate companies owned 51% by the Latvian state and 49% by Sweden’s Telia Company.

As things stand, it looks like the KPMG study is about to become another tar baby to be kicked down the road yet again. If that sounds like a mixed metaphor — it is because the issue of what to do with the telecoms sector in Latvia is something the government seems averse to deciding about (kick it down the road) at the same time as it sees any decision (except doing nothing) as a risk that will “stick” to it at least until the next elections (hence the tar baby).

Still, almost EUR 180 000 have been spent (perhaps to affirm the obvious) looking at what has happened with telco mergers and privatizations in Lithuania, Estonia and elsewhere. By some accounts, the full final report is 100+ pages long, so should be considered thorough if not over researched. What it says is probably that doing nothing — as the government decided in the spring of 2016 — is probably the worst realistic alternative. More later some of the strange ideas said to have been discussed while researching and drafting the KPMG study.

The study will likely say that fixed network, mobile and content (TV and video) services should be merged and have been merged without any dramas in Estonia, Lithuania and Sweden. This will be the recommendation of the study — merge at least at the services/customer facing level. It will also recommend some alternatives for dealing with Telia Company’s impatience to get at least a majority share of both Latvian telcos. For instance, it might say that the Latvian government can list Lattelecom on the stock exchange, emit new shares (while keeping apparent control) and let Telia slowly buy its way up to a majority.

Another thing that could be done is to privatize the service providing companies, and turn over the networks to the state (or keep them state majority owned) as “strategic companies”. This would be hard without money changing hands, as the optical networks, the LMT base stations, etc. were all paid for by Telia in one way or another and it would want to recover its investment. This could be done by a kind of swap of 100 % in the service side of both companies in return for the physical network infrastructure and its supporting equipment, software, etc.

Yet another idea may be to privatize LMT alone (mobile/wireless is the future) and let the state keep all of Lattelecom. But that presents Lattelecom with the necessity of creating a mobile business from scratch (again: mobile/wireless is the future) and it is said there are no mobile frequencies left in Latvia that it could buy. A CDMA network (possibly by buying Triatel) doesn’t sound like a good idea, and buying Bite, the third mobile operator, is no longer possible. It changed hands last year and its new owner Providence Equity Partners of the US, has other plans now that it will soon own a regional package of TV content that it bought from Sweden’s Modern Times Group (MTG).

Perhaps the strangest idea kited to the KPMG researchers for what to do with Latvia’s major telcos was said to have been that Lattelecom’s business should be divided up among the three mobile operators — LMT, Tele2 and Bite. How this would work, no one knows. Reportedly, the idea came from one of the mobile operators, perhaps after a few drinks?

Since 2003, the Swedish owners — called Telia Sonera at the time — have been relentlessly trying to get the Latvian government to take a stance on the future of the telecoms industry. Initially, they offered a LVL 9 million (EUR 12.8 million) closing premium for agreeing to some kind of privatization deal. Later, they offered up to USD 1 billion for the Latvian telcos, but were turned down. The offer to merge both companies was also presented a couple of years ago and has gone nowhere, while pleas for Telia to come to some kind of decision have also fallen on seemingly deaf ears.

Finally, it seems that the KPMG report will be made confidential by the government and sent down a long legislative/bureaucratic path before any final (if at all) political decision is made. There will probably be no discussion of the report before the summer and after the municipal elections in early June, even if it is hard to imagine how say, the bellwether elections in Riga could be affected by a national-level telecoms issue. So, as things look now, the tar baby, kicked down the road, will have rolled to a stop sometime in the fall, at a confidential location.

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