TeliaSonera faces tougher times in emerging markets

OvumTeliaSonera’s full-year results, announced February 11, are certainly better than those of its direct competitors.
The carrier posted a 3% decline in full-year revenue while Tele2 achieved just 3% growth – approximately half the growth achieved by TeliaSonera in 2009. TeliaSonera claimed that it achieved its highest ebitda ever thanks to a combination of cost reductions in its Nordic and Baltic markets and tighter cost controls in emerging markets.
Group revenues were Skr109.2 billion €11.1b) for the year to 31 December 2009, up 5.4% over 2008, while group ebitda lifted 11% to Skr36.7 billion, leading to a 50.3% jump in its free cash flow. However, sales in its top three emerging country markets declined, reflecting intensifying competition in these markets.
Key engines for this growth are emerging markets, which are reported under the Eurasia label. This segment presently includes ten countries (in descending order of 2009 revenues): Kazakhstan, Russia, Azerbaijan, Turkey, Georgia, Uzbekistan, Tajikistan, Nepal, Moldova and Cambodia.
This segment represented about 13% of its 2009 revenue, but delivered almost 30% of revenue growth achieved in Swedish kroner terms. Revenue in six of these countries showed high growth, although it fell in previously fast-growing Kazakhstan, Russia, Turkey and Georgia, warning of challenges that await TeliaSonera in all of its emerging markets.

Tougher competition
Sales fell in Kazakhstan, Russia and Turkey – three of the top five emerging markets by revenue for TeliaSonera. Turkey was hit hardest with a massive 23% revenue drop. Is this indicative of TeliaSonera’s inability to protect its revenue base when other competitors circle in?
TeliaSonera is being tested in most of its growth markets. Vodafone Turkey acquired Borusan Telekom in December 2009, reinforcing its focus and intent to grow in Turkey. To add to TeliaSonera’s woes in Turkey, Avea, mobile arm of Turk Telekom, is on an aggressive growth path, building on Turk Telekom’s strong fixed-line customer base. Tata Communications is also showing signs of competing in Turkey following its sign-offs of network-to-network interface (NNI) arrangements in 2009.
Tele2 is eyeing all the key growth markets for TeliaSonera, following an acquisition spree in 2H09 in which it acquired a majority share in NEO, Kazakhstan and a 100% share in Udmurtia Cellular Communication, Russia.
Telenor is also turning up the heat in Russia, Georgia and Cambodia. Telenor reached an agreement with Altimo to combine their assets in VimpleCom and Kyivstar, with an explicit intent to dominate the emerging markets that are vital to TeliaSonera’s future growth.
It is important to recognize that both TeliaSonera’s Mobility and Broadband Services business lines experienced overall revenue growth in 2009, when many of its competitors faced declining top lines. Mobility Services represented nearly 47% of its 2009 revenues (up 5%), whereas Broadband Services represented almost 40% (up 2%).
TeliaSonera is betting on the launch of 4G networks in Sweden and Norway in December 2009 to ensure that its Mobility and Broadband Services divisions continue to grow in 2010 and beyond.
Protecting the growth markets in Central Asia is critical for TeliaSonera in 2010. It is essential that it grows ARPU in Azerbaijan, Uzbekistan and Tajikistan while continuing to grow its customer base. Acquiring local telcos is not enough; TeliaSonera should seriously consider using them to launch targeted offerings for the currently underserved enterprise customers in the energy and banking sectors.