Tele2 and Kazakhtelecom to form mobile JV in Kazakhstan

Tele2 and Kazakhtelecom agreed to bring their respective mobile businesses in Kazakhstan into a joint venture to strengthen the position of both companies in this highly competitive Central Asian market.

Tele2 has operated in Kazakhstan for six years and is currently the market's third-largest player. It plans to combine its existing operations with Kazakhtelecom's mobile business, Altel, which is the fourth-largest player. It said the new business would have more than 5.6 million subscribers and a market share of around 22 per cent.

The Sweden-headquartered operator added that it would contribute KZT97 billion (€313 million/$342 million) of existing shareholder loans into the joint venture, while Altel would be brought in on a debt free basis.

Allison Kirkby, president and CEO of the Tele2 Group, said the partnership would enable its customers to gain access to Altel's 4G network and benefit from its accelerated rollout across Kazakhstan.

Altel is currently the only operator in Kazakhstan to hold a 4G licence, Reuters noted. TeliaSonera's Kcell is the market's largest mobile player, followed by VimpelCom-owned Beeline.

According to Reuters, the CEO expects to see savings of 4-6 per cent of combined opex over two years and 17-20 per cent in combined capex savings. She also estimated that the integration costs would amount to between SEK130 million (€13.8 million/$15 million) and SEK170 million.

Tele2 will control the joint venture, holding 51 per cent of the voting rights and a 49 per cent economic interest. The transaction will also see the Sweden-based company acquire Asianet's existing 49 per cent stake in Tele2 Kazakhstan for an upfront payment of SEK128 million and a future earn out equivalent to an 18 per cent economic interest of the joint venture.

Tele2 recently reported a strong operating performance in Kazakhstan for the third quarter of this year. Service revenue increased by 36 per cent year-on-year to SEK348 million, driving an increase in EBITDA from SEK22 million in the third quarter of 2014 to SEK50 million in the recent quarter.

Tele2's presence in Kazakhstan has not been without controversy, however. In October 2014, then president and CEO Mats Granryd was forced to deny a report by a Swedish newspaper accusing the company of under-handed dealing in Kazakhstan. He said the article did not reveal anything the company hasn't already investigated itself.

The company's move to bolster its operations in the Central Asian market also comes at a time when other Nordic operators are planning to exit the region. For example, TeliaSonera said it ultimately plans to leave the Eurasia region and Telenor also intends to sell its entire 33 per cent stake in VimpelCom.

However, that sale has been complicated by the fact that VimpelCom is currently under investigation over its business in Uzbekistan. It recently took a provision of $900 million (€824 million) in relation to the investigation. This caused further alarm at Telenor, which has already lost its chairman Svein Aaser following a dispute with the Norwegian government over its handling of the case.

For more:
- see the Tele2 release
- see this Reuters article on VimpelCom
- see this Reuters article on Tele2 in Kazakhstan
- see this separate Reuters article

Related articles:
Telenor CEO hands VimpelCom probe over to external lawyers
Jefferies analysts remain positive on Tele2, despite near 50% drop in Q3 net profit
Telenor plans to sell 33% VimpelCom stake worth $2.3B
TeliaSonera's Eurasia exit opens M&A opportunities for others
Tele2 CEO denies Kazakhstan corruption claims

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