VimpelCom Talks Expansion as Kyivstar Merger Approaches

VimpelCom will finalize its merger with Kyivstar within a week, after a deadline expires Thursday for minority shareholders to exchange their stock for shares in the new consolidated company, the company's vice president said.

"The merger has yet to go through. It will be decided in about a week or so," said Martin Furuseth, executive vice president of VimpelCom. "I've just spent two weeks traveling throughout Europe and the U.S. talking to shareholders and investors and the deal was very positively received."

VimpelCom, which operates under the Beeline brand, is the largest mobile operator in the Commonwealth of Independent States, with a total subscriber base of 64.6 million users. It is owned by Norway's Telenor, which currently has a 33.6 percent stake, and Altimo, Alfa Group's telecoms unit, which holds a 37 percent stake.

Current minority shareholders in VimpelCom have until Apr. 15 to exchange their current American Depositary Receipts in OJSC VimpelCom for shares in the new consolidated company VimpelCom Ltd., which will be established after the merger with Kyivstar. The offer will expire Apr. 20 for Russian minority shareholders.

Under the terms of the merger, VimpelCom Ltd. must acquire 95 percent of OJSC VimpelCom's shares, meaning that it must buy up at least 22.3 percent of the shares currently freely floated. If after two 25-day periods VimpelCom Ltd. is not able to buy out enough of the minority shareholders, OJSC VimpelCom's shares will be delisted and it will continue negotiations with minority shareholders.

Furuseth said Kyivstar's high margins and debt-free balance sheet would strengthen the consolidated company's position.

"And I think that's why our shareholders decided to join forces. It will basically strengthen the balance sheet of the new consolidated company and opens up lots of new interesting opportunities," he told The Moscow Times.

Last October, Altimo and Telenor came to an agreement to merge their VimpelCom and Kyivstar assets after settling a shareholder dispute that had dragged on for 6 years. VimpelCom Ltd., which will hold the firms' merged telecoms assets, will be 43.9 percent owned by Altimo while Telenor will have a 35.4 percent stake.

VimpelCom plans to invest 15 percent to 20 percent of its revenue in Russia and new markets in 2010, Furuseth said.

While the Russian market is already saturated, with 1.4 SIM cards for every person in the country, there is still room to grow in terms of expanding its range of services.

"When it comes to services and usage … we can do a lot. And that is why we're seeing continued investments," he said. "We hope that with the introduction of new services, people will be less inclined to have several SIM cards [fr om different operators]."

Building a solid 3G network throughout the country will be a priority in providing new services for the next few years, he said, and the company is slated to bring 3G into small towns as well.

"We now have all the licenses we need, and the only problem is the rollout speed. You can see all operators rushing to expand their 3G networks as fast as they can," he said. "But what we will also see fr om VimpelCom is that we will be able to go to these third-tier cities with populations of 10,000 to 50,000 — the places where fixed broadband connection is not yet available."

However, providing a full set of 3G services, such as mobile television, may take time, as the operator has yet to sell proper handsets for that.

"One of the challenges is not only the network. The key to 3G is that you offer a portfolio of handsets that make it easier for customers to access your services," he said. "We only sell one handset providing mobile television now, but we hope that we will be able to offer a portfolio of four to five handsets by the end of the year."

It was not until President Dmitry Medvedev personally demanded last October that 3G networks be set up in Moscow that mobile operators got the green light to do so. Previously, security services had reserved the rights to use the necessary frequencies, and the process for gaining permits to operate a 3G network had been drawn out for 3 years.

But getting a license to develop 3G networks in neighboring Ukraine may be an even harder task, said Furuseth, who was vice president of Kyivstar until the beginning of the year.

"In Ukraine, you have a situation wh ere there are no 3G licenses for big mobile operators like Kyivstar at all," he said. "So getting one will be the biggest driver behind the investment in Ukraine, as well as building the networks and services."

A bitter feud between former President Viktor Yushchenko and ex-Prime Minister Yulia Tymoshenko had complicated the process for getting the licenses.

"We met in mid-November [2009] with local regulators to carry out an auction [for 3G licenses], and suddenly officials turned up with a letter from the president saying the auction would not take place," he said. "We hope that with the new political situation, incidents like that are less likely to happen."

By comparison, Russia's political climate is much more amenable for doing business.

"Going from Ukraine to Russia, I can say that there is a notable improvement," he said. "We are closely related to some of the new technology initiatives driven by Prime Minister Vladimir Putin and President Dmitry Medvedev. So I see a very constructive interest from the political authorities to introduce new services."

With a saturated subscriber base in Russia, VimpelCom has set its sights on Southeast Asia, wh ere there is still a possibility for large-scale growth, he said.

"Being in that area is taking a ticket to work in the last growth areas that are left on the planet," he said. "Apart from Southeast Asia there are of course China and India, but it is unlikely that you will see VimpelCom Ltd. there. And then there are just parts of Africa left, which are not so attractive right now."

VimpelCom has more than 370,000 active subscribers in Cambodia operating 3,000 points of sale and a network that covers 70 percent of the population. In Vietnam, the company serves 1.1 million subscribers, with 20,000 points of sale and a network covering 32 percent of the population. The company has also entered the Laotian market by buying a 74.1 percent stake in the Millicom Lao mobile operator last September for $65 million.