"The Ukrainian Gambit" VimpelCom "

VimpelCom has announced it is buying 100% stake in the operator Ukrainian Radio Systems (URS, provides services under the brand name WellCom). On the proposed acquisition of Ukrainian operator, we wrote back in March. The process of closing stretches for 14 months because of disagreement company Telenor - one of the major shareholders in VimpelCom (26,6% of shares). Originally, the deal was supposed to conclude in April, the delay was more than six months. Nevertheless, the final decision to buy was made at a special September meeting of shareholders of VimpelCom and evening, Nov. 10 deal was closed. The total purchase price amounts to 231.3 million U.S. dollars. Price includes cost of purchase is equal to 206.5 million dollars, plus the costs of URS in the amount of 24.8 million U.S. dollars from the purchase date VimpelCom option. VimpelCom has also accepted the obligation on the debt of URS in the amount of approximately 23.5 million dollars, according to the General Director of VimpelCom Alexander Izosimov this debt will be restructured.

As General Director of "Ukrainian Radio Systems" appointed Sergei Mironov, who in June 2001 he worked as regional director of the Volga region of VimpelCom (according to the company - 6.2 million subscribers, 36.6% market share).

Technical aspect

Network WellCom will actually rebuilt from scratch - the company Ericsson will buy the existing equipment and URS will pay for this equipment is approximately 52.6 million U.S. dollars. In turn, URS purchase from Ericsson's network infrastructure equipment and services worth $ 200 million to develop its network over the next three years. As reported to us, a representative of Ericsson, in this sum (52.6 million dollars) has been evaluated all currently existing equipment from other vendors, which will be completely removed and replaced with equipment manufactured by Ericsson. Alexander Izosimov, CEO of VimpelCom, has offered to consider buying someone else's equipment as "investments, which the company makes to gain access to the Ukrainian market", but this assertion does not no doubt - the Swedish company is no longer a novice in the cellular market of Ukraine. A quote from a press release from Ericsson's 8 November:

Ericsson and Ukrainian national mobile operator Astelit (brand life?) Signed a GSM expansion worth $ 45 million.The expansion will be significantly increased coverage and capacity of the network operator. In accordance with the terms of the agreement, Ericsson will provide a comprehensive solution Astelit band GSM / GPRS radio for the base and "turnkey", which includes switching equipment, radio network, transmission systems, as well as professional services such as project management, implementation of equipment to the network operator and staff training within the expanding network of Astelit. The contract also provides for the integration of 230 new base stations and the introduction of 200 MINI-LINK Traffic Node Hops in an existing GSM network, which will significantly expand the coverage of the operator in Ukraine. Equipment will be supplied and installed in the following cities and regions of Ukraine: Kiev, Odessa, Nikolaev, Chernihiv, Cherkasy, Khmelnitsky, Vinnitsa, Zhitomir, and will ensure mobile coverage to the motorways.

About the confrontation Telenor - "Alpha groups" Much has been written, amateurs to delve into complex multi-path combinations may be recalled, published in April of material including on this topic. The essence of the confrontation - Telenor reluctance to let the Ukrainian market is still a strong player. The Norwegian company owns a 56.51% stake in Ukrainian operator Kyivstar, and any way out to VimpelCom in Ukraine's mobile market is unprofitable company. Will Telenor to appeal against a court acquiring Ukrainian operator - is unclear, but the management of VimpelCom believes such a development unlikely.

Today's network coverage of URS is not impressive, although the map on the operator's website looks pretty good. Soft undertones "paint" the existing and planned coverage merge and pleasing to the eye. But it is enough to make the image contrast, as a "point" structure of the network becomes apparent: the coating is present mainly in relatively large settlements and around them. It will be interesting to look at this same card in a year and a half.

Platform for competitive cleared and prepared

Finally, we should note two important events: get the company "Ukrainian Radio license to 1800 MHz in the Kiev region (Nov. 10) and a day later - issuing operator Life:) (LTD Astelit) licensed to provide GSM mobile -900 in the 27 regions of the country. Without this, the normal development of both networks would be very problematic, albeit for different reasons. In the absence of a frequency of 900 MHz (Astelit) to cover the whole country is unrealistic for economic reasons, and without a frequency of 1800 MHz in Kiev (URS) metropolitan network segment, "drowning" would overload before connecting millionth subscriber. Now, with a frequency resource of both companies are OK and we can hope for an interesting competition. True, there is not WellCom 1800 licenses for three or four areas, but it's come with time.

Help subscriber bases

• Total subscribers at the beginning of October - 24.5 million
• Kyivstar on November 1 - 11.687 million subscribers (0.948 million - contract subscribers, 10.739 million - users of prepaid-tariff Ace & Base and Djuice).
• UMC on November 1 - 11,5 million subscribers (1.243 million - contract subscribers, 10.257 million - users of prepaid-tariff Sim-Sim and Jeans).
• Life:) (LTD Astelit) - according to official figures a total of about 1.1 million subscribers.
• Ukrainian Radio Systems "(WellCom and Moby), according to unofficial information service from 100 to 160 thousand subscribers (there is no official data).

(According to "Interfax-Ukraine)

First-hand

Requested to consult the press conference, leadership, VimpelCom, held to mark the completion of the acquisition of "Ukrainian Radio Systems." For convenience, comments and questions to the company brought together and grouped into thematic clusters. The first block - the actual statement by Alexander Izosimov.

This was not the easiest transaction, or more precisely - the most complicated transaction on which we have long worked. We paid for a company with some 231 million, which includes the originally marked price, which was presented at the meeting. In terms of the acquisition was stipulated opportunity for the company to continue to invest in the process of passing trade. For the first time we're talking about the acquisition of URS in August last year - just as an illustration of the duration of this process. With great pleasure I note that we enter into Ukraine, in partnership with Ericsson, which will allow us to move faster and more efficient: in terms of both costs and in terms of quality networking. Anticipating questions about the justifiability of the transaction - of course it is justified. Repeat my simple postulate: in Europe, these markets do not. Market, where would the 50 million population and where it would be only two operators that actually divide the market into two. There is a very young operator Astelit, which has recently started to work and even with its network, which is relatively inefficient in terms of frequency resources (they only have a range of 1800), the operator is less than a year gained more than a million subscribers. That shows tremendous potential for growth in Ukraine. I do not believe in deals that are made for the sake of some strategic "higher truth". As I said a professor in business school: "If we talk about strategy, not about the money - then something is wrong." Price and the business case itself is quite justified and it is confirmed not only by our analysis.

Telenor did not initially agree with the deal and still do not agree. We have made every effort until the very last moment were intensive negotiations, discussions and attempts to find an acceptable solution. It was suggested that all that we could offer: a merger of all against all, the creation of shared networks, creation of a unified network, the option of different options ... But - did not succeed. The company's management was guided by a simple postulate: execute a decision meeting of shareholders. Yes, part of Telenor's made a lot of threats. But I still hope that common sense will prevail and respect for other shareholders, and Telenor will refrain from taking legal action. The tactics of threats, in some cases justified, and the threat itself often operates more efficiently than the realization of this threat. I hope that this is the case.

About plans. Our plans are clear. We hope to draw on in Russia and Kazakhstan buying experience of the company and launch it on the market. The first thing we will actively build a network.Well aware that this market needs a good quality, so the first problem - the maximum expansion of coverage and improve services. Until the end of the year we will prepare all contract documentation, specifications for network expansion. Investment - enough to compete with existing players. Russia now has accumulated investment per subscriber slightly more than $ 100. Given that we started to build a network of seven years ago for very different prices. <...> Focusing on the 4.5 million subscribers get the final figure of net investment of nearly half a billion dollars, this estimate appears to be quite real.

According to the brand. Most likely we will go the same route, which went to Kazakhstan. We are waiting until the network becomes more or less normal, for which will not be ashamed, and after that we will introduce brand Beeline. The interval between the purchase and commissioning of the network brand may be about five or six months, which seems to us reasonable. In addition to constructing high-quality network, we will need to run all the popular market additional services, as well as to build a quality system of customer service. After these conditions are a trademark of "Beeline" will be injected into the market. In the process of building a business model we looked at the example of a megaphone: build a good third player. Our business case in any case does not involve leadership aspirations in Ukraine, but we're going to build a good profitable business, which would have relied on the 15% market share, ie 4-5 million subscribers. We believe it's real. Time-bound implementation of business plan - it's hard to say. If you rely on the experience of St. Petersburg, we can assume the order of two to three years.

The simultaneous introduction of new technologies and services across the network - a fundamental principle of VimpelCom. Naturally, it will take some time out to build a network level is not worse than the Russian, but after that the speed to market for new products will be comparable. I do not think that Ukraine will be a problem, as we soon will build a unified, rather than a fragmented network.

Ericsson Why? We recently conducted two large tenders - Moscow and Sakhalin. And now we are very aware of the cost structure and offers all players. By comparing offers and prices, we have chosen Ericsson. Perfectly normal process and approach, nothing unexpected here. Yes, Huawei probably hurt, but the current level of prices does not justify the continuation of business with them in Ukraine. In this case, the VimpelCom Group has a contract with Ericsson, under the contract with additional cost advantages we have received 200 million to Ukraine. That price level, which was proposed by Ericsson, will allow us to build a network for less money than we originally laid in the business case. For us, saving quite a serious, we are talking about the level of more than 10% of the total contract value. Ericsson buys our equipment, and Huawei puts his own. A typical procedure for the cellular market. The concept of a unified communication network equipment of two different suppliers creates certain difficulties. With the introduction of new platforms and services is always an additional headache. " Also from the perspective of those. support additional testing and maintenance. The concept is quite clear: for example, Vodafone has already moved on to the structure of "one vendor in one country."The company works with several suppliers to ensure a competitive environment, but within a holistic network object we aim to the homogeneous structure. Ericsson has won a tender to swap in Moscow and partially replaces the Alcatel equipment, this is a normal business process.