TeliaSonera backs Megafon's Yota acquisition

Russian operator Megafon has announced that it is to acquire domestic competitor Scartel, which operates an LTE network under the Yota brand, for $1.18bn. TeliaSonera, which holds 25.2 per cent of Scartel described the deal as “strategically attractive and value enhancing” for Megafon.

Scartel is currently owned by Garsdale, a holding company of Russian billionaire Alisher Usmanov, who also controls more than 50 per cent of Megafon.

TeliaSonera’s stance moves the acquisition plan along as Megafon’s proposal to acquire Scartel was approved by the competition watchdog last month.

Yota was originally positioned as a WiMAX operator but switched to LTE when it became clear that WiMAX would struggle to gain traction. The firm holds 2x30MHz of spectrum in the 2.5 – 2.6GHz band.

In December 2011 Yota became the debut LTE operator in the Russian market, stealing a March on the three leaders, MTS, Megafon and Vimpelcom, which did not win LTE licences until July 2012. Megafon launched LTE services through an MVNO deal with Yota in September 2012, at the time MegaFon and Yota signed an agreement on the joint development of an LTE network in Russia based on MVNO business-model. MegaFon provides LTE services through Yota’s equipment and Yota is able to use MegaFon’s network infrastructure.

The acquisition will give Megafon dominance in the Russian LTE space, with 1.81 million of the 1.86 million LTE customers in the market, according to Informa estimates for Q2 this year.

““TeliaSonera has done a thorough review, analyzing the merits and potential risks of this transaction during the past few months. The fact that the seller is also MegaFon’s largest shareholder has made it even more important to look at it from the perspective of all shareholders,” said Per-Arne Blomquist, president and CEO of TeliaSonera. “TeliaSonera has concluded that an acquisition of Scartel and Yota would be strategically attractive and value enhancing for MegaFon. We therefore intend to vote in favor of the transaction at the extraordinary general meeting in September.”

Bengt Nordstrom, CEO of industry consultancy Northstream, recently suggested that in-market consolidation offers far greater chances for success than cross-border deals. “An acquisition in a local market is much more likely to be a good strategic fit with an operator’s own organisation,” he said. “There is less risk that the integration could be impacted by any problems with cultural fit. The buying operators will also completely understand the market the target company is working in and its mobile customers. Moreover, the company is in the same geography and culture and this means that billing, customer care and operations will scale much more smoothly.”

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