Rostelecom approves merger of mobile unit with Tele2

Russian operator Rostelecom approved the merger of its mobile assets into a joint venture with Tele2 Russia, confirming previous reports that the state-owned fixed-line operator would join forces with its rival in order to better compete with mobile heavyweights MTS, VimpelCom and MegaFon.

In a statement, Rostelecom said it had approved the contribution of its mobile assets into a joint venture called T2 RTK Holding with Tele2 Russia, which is equally owned by VTB Capital, the private equity arm of Russian bank VTB, and a consortium of investors. The transaction will take place in two stages and is subject to regulatory approval.

The first stage will see Rostelecom contributing its standalone mobile subsidiaries and assets, including SkyLink, into T2 RTK Holding. During the second stage, Rostelecom will spin off its integrated mobile businesses into its new wholly owned subsidiary CJSC RT-Mobile, which will be expected to have Rostelecom's mobile licences, including the LTE licences, reissued to it. The first stage is set to complete in the first quarter of 2014 and the second stage in the latter half of next year.

Once both stages are completed, Rostelecom will own 45 per cent of T2 RTK Holding, which will have a pro forma subscriber base of approximately 38 million (as of the third quarter of 2013) and pro forma 2012 revenues of around 101 billion roubles (€2.23 billion or $3.07 billion). Perhaps more important is the expected access to Rostelecom's Russian LTE licence, which was something Tele2 Russia did not possess.

As things stand, Rostelecom controls around 6 per cent of the Russian mobile market and is present in 34 regions, while Tele2 Russia has a 10 per cent share and covers 41 regions. Rostelecom added that T2 RTK Holding plans to undertake significant investments in the development of 3G/LTE network and would be able to offer converged fixed/mobile products across the country.

Analysts see the move as positive for Rostelecom, but do not foresee an immediate impact on the three leading mobile operators, which together control over 80 per cent of the market.

"The potential integration of Rostelecom's mobile assets with Tele2 Russia will be a strategically logical development for Rostelecom," Uralsib analysts told Reuters. "However, the creation of the JV and, more importantly, the operational integration of the assets will take time and we do not see it challenging the Big Three's positions at least in the medium term."

VTB bought the Russian unit of Sweden's Tele2 in April for $3.55 billion (€2.59 billion) including debt.

For more:
- see this Rostelecom release
- see this Reuters article

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