Nordic telecoms post growing profits in controversial Uzbek operations

By bne IntelliNews March 1, 2015

Jacopo Dettoni in Almaty -

 

Nordic telecom groups Telenor and Teliasonera are both posting fast growing profits in their controversial Uzbek operations but are now gearing up to face increasing competition. They will also be hoping that international legal probes do not hamper their ambitions.

Telenor is present in Uzbekistan through its 43% voting stake in Vimpelcom of Russia. Unitel - Vimpelcom’s local subsidiary under the Beeline brand – achieved $461mn earnings before interest, tax and depreciation (ebitda) in 2014, up 33% from a year earlier, by far the best performance among the group’s Central Asian assets, according to the company’s year-end results statement. Its total revenues increased by 7% to $718mn in the period.

At the same time, Ucell, Teliasonera’s Uzbek unit, increased its 2014 ebitda by 15.7% y/y to SEK1.94bn ($233.3mn), according to the group’s preliminary 2014 results. Ucell’s net sales grew by 15.9% y/y to SEK3.61bn in the given period and the subscriber base increased by 0.9% y/y to 8.574mn clients. The Swedish group’s other local units all experienced net sales drops in 2014, and only Azercell in Azerbaijan, alongside Ucell, were able to post growing operating profits. 

Telenor is majority owned by the Norwegian goverment. Vimpelcom’s other major shareholder is Altimo, the telecom arm of Alfa Group, a Russian investment company controlled by oligarch Mikhail Fridman, which owns 47.9% of total voting rights. The Swedish and Finnish governments hold a combined 49% majority stake in Teliasonera.

Both Nordic companies have been under increasing scrutiny by prosecutors in Europe and the US investigating bribery allegations regarding their entry in the Uzbek market. The two companies are suspected to have made payments of hundreds of millions of dollars to a shell company linked to Gulnara Karimova, the daughter of president Islam Karimov, to acquire local licenses.

In January Telenor requested more information from Vimpelcom on how it won the Uzbek licence. Vimpelcom has always denied wrongdoing.Teliasonera has admitted making payments to the shell company but has denied bribery or any wrongdoing.

However controversial, Vimpelcom’s and Teliasonera’s Uzbek operations are proving very profitable and the two groups are well positioned to generate additional dividends in the coming years. Currently they are the two largest players in the domestic mobile market and the Uzbek economy grew by more than 8% last year, according to government figures, and is expected to continue growing between 7% and 8% in the coming years.

With a population of over 30mn, mobile penetration reached over 91% in 2012, whereas mobile broadband penetration was around 25% in 2013, according to figures from BuddeCom, an Australian research and consultancy company. On the other hand, fixed-line penetration and fixed broadband subscriber penetration are still lower than 10%, BuddeCom figures show. The government has now established a specific ministry in charge of developing information and communications infrastructure and services across the country and state telecom operator Uzbektelecom is rolling out new fibre-optic infrastructure.

Yet as the market expands, competition will intensify with the re-entry of Russian telecom MTS, which resumed local operations in December. “The entrance of the third mobile operator in the market is expected to impact results in 2015,” Teliasonera wrote in its year-end results statement.

The government threw the market into chaos back in 2012, when it revoked the mobile licenses held by MTS through local subsidiary Uzdunrobita on a range of different charges, including alleged tax evasion and use of unlicensed infrastructure.  MTS held 40% of the subscriber base at the time and the revocation of its licence caused a decline in the mobile market from 25mn subscribers to below 20mn by the end of 2013, according to BuddeCom figures.

Both the government and MTS eventually settled the issue in 2014, and new operator UMS, in which MTS holds a 50.01% stake, the remainder being in the hands of the Uzbek government, launched operations in December.

With MTS back in the game, Vimpelcom and Teliasonera are focusing on maintaining their local profit margins by retaining their client base and adding high value customers through upgrading their offer. Both Beeline and Ucell launched 4G mobile services in the second half of 2014 in the capital city Tashkent, and will expand them across the country in 2014. 

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