Rinat Akhmetov
Turkish telecommunications holding Turkcell has begun the process of purchasing Ukrtelecom's subsidiary, Trimob.
Three independent market participants reported this to EP.
Ukrtelecom Director Yuriy Kurmaz preferred to leave this issue without comment.
SCM press service representative Evgeny Buzykin (SCM owns Ukrtelecom) first suggested that EP contact Ukrtelecom.
Upon learning that the conversation with the company's head had already taken place, he issued the standard SCM comment for such cases: "We do not comment on rumors, nor on hypothetical transactions or intentions."
Turkcell's International Media Relations Specialist, Hande Asik, stated that the company is not prepared to discuss this matter. "We will keep you updated on further developments," she assured.
According to one of EP's sources, Trimob has already undergone a pre-sale due diligence audit. However, Kurmaz says he is only aware of Ukrtelecom's recently completed general scheduled audit.
Trimob launched in 2007 as the first 3G (UMTS) operator in Ukraine. The company covers all major Ukrainian cities, but serves a smaller number of customers than GSM operators.
In 2011, during privatization, it was acquired by the Austrian investment fund EPIC, along with Ukrtelecom. Control of the company was later transferred to SCM.
Incidentally, Rinat Akhmetov's group of companies has long been a partner of Turkcell. Together, they own Astelit's third-largest subscriber base, life:), with the Turks holding 55% and the Donetsk company 44%.
Money down the drain?
Just recently, in February 2015, life:) also received a 3G (UMTS) license.
A full delegation from Turkey attended the competition organized by the National Commission for Regulation of Communications and Information Technology. They were the most active in the spectrum bidding.
"Everyone was puzzled at the time why the Turks overpaid UAH 650 million for the first lot," one of the publication's sources noted. As is well known, MTS had the highest bid for this lot, but Turkcell raised it several times, increasing it from UAH 2,7 billion to UAH 3,35 billion.
"It turned out that the lot's frequencies are located extremely close to Trimob's existing bands. The operator will be able to combine both bands and guarantee higher-quality mobile internet," the source continues.
However, MTS-Ukraine CEO Ivan Zolochevsky stated that for the Turks, purchasing a second 3G license would be a waste of money.
Technical experts interviewed by EP share this opinion. Two-thirds of each license's bandwidth is sufficient to ensure peak speeds of 42 Mbps. Therefore, the only prospect for doubling the bandwidth is the future development of 4G (LTE), which requires significantly more spectrum.
How the 3G spectrum is divided, MHz
Bottom stripe
We found a way out
Another source told the publication that the Trimob deal will be a compromise of sorts between SCM and Turkcell. He added that disagreements between the partners had already emerged before the 3G tender.
At that time, to be on the safe side, Turkcell even planned to submit a separate application for participation through its Ukrainian subsidiary, Ukrtower, which builds towers for housing telecommunications equipment.
This company managed to contact the National Commission for State Regulation of Communications and Informatization (NKRSI) in early 2015 for a detailed explanation of the tender terms. However, just before the competition began, things changed dramatically, and Astelit decided to participate in all three lots independently. Apparently, the Turks succeeded in strengthening their influence over the mobile business in Ukraine.
"Trimob could have served as a bargaining chip. Turkcell agreed to buy it. Ukrtelecom had been negotiating the sale of this asset for a long time, and after three mobile operators purchased 3G licenses, the number of potential buyers for Trimob clearly decreased," the source told the publication.
The question of whether SCM will also part with its minority stake in Life remains unanswered. There's no information yet. It's possible that this asset will be sold to the Turks in exchange for operating debts.
As previously reported, in 2012, Astelit and its affiliates suffered a series of defaults on debts to banks and a subsidiary of the Turkish holding company Financell. As a result, Turkcell, which owns 55% of life:), received all of the operator's assets, including bank accounts, as collateral.
The situation was further complicated by the fact that life:) suffered record losses of UAH 5,6 billion in 2014. These losses were due to the fact that debts were indexed to foreign currency, and the hryvnia had significantly devalued.
Slow conversion
Once Turkcell receives two 3G licenses in Ukraine, its strategy will likely become more aggressive. With this radio frequency advantage, life:) can focus on mobile data as its primary revenue driver.
In a recent interview with Interfax-Ukraine, life:) Acting CEO Erdal Yayla stated that the company will try to launch 3G as soon as possible—as early as early summer. Perhaps the second license and the existing network will help.
Moreover, it's still unclear when operators will begin building networks under the new 3G licenses. They have yet to sign agreements with the Ministry of Defense to release frequencies from the use of special users' communications equipment using funds from the winners of the 3G tenders.
"The military is demanding UAH 2,480 million instead of UAH 1,660 million for the three of them. The operators are insisting on complying with the Cabinet of Ministers' resolution," Zolochevskyi says.
Alexander Sklyarov, a member of the National Commission for State Regulation of Communications and Informatization (NKRSI), adds that the Ministry of Defense has not yet submitted a new conversion plan, although the entire contract signing process only takes just over a week. According to the tender terms, companies must submit written funding for the rearmament by April 27.
If this does not happen, new 3G licenses will be suspended, and the regulator will have grounds to cancel the tender results.
This is unlikely to happen, but the fact remains: while negotiations with the military are ongoing, the Ukrainian State Center of Radio Frequencies will not issue permits for any new base stations.
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