TeliaSonera’s stated ambition is to be the number one or two in all the markets in which it operates in, so what does the latest restructuring say about the company’s strategy?
The Sweden-based operator is present in 17 markets overall, nine of which are grouped into its Eurasian business unit.
Last year this division accounted for 16.5 percent of the group’s total revenue, up from 15.4 percent in 2010.
It has some way to go before it challenges the mobility services division, which accounts for 49.2 percent of the group’s sales, but the growing importance of emerging markets is reflected in some key changes.
Last week, TeliaSonera sold its 18.6 percent stake in Cambodia’s Smart Mobile, but increased its stake in Nepal-based Ncell to just short of 73 percent.
On Wednesday, the company also said it was discussing options around its 43.8 percent stake in Russia’s second largest mobile operator Megafon.
These changes come at a time when TeliaSonera is seeing revenues and profits decline; group revenues fell two percent to €11.8 billion last year while profit declined by 11 percent.
The consolidation of assets in emerging markets makes perfect sense – all operators would prefer to have a majority share so that they can have more control.
The challenge is making sure you pick the right markets to retain an interest in or make an exit from.
Erik Almqvist, who leads Arthur D Little’s Nordic telecoms practice, told European Communications that the Ncell deal was a “natural and logical move [for TeliaSonera] to take control of its holdings”.
The Magafon ownership debate is less clear given that TeliaSonera is the largest shareholder.
However, Gartner analyst Katja Rudd told European Communications that the company was probably looking for an exit.
“Along with Turkcell, Megafon is one of [TeliaSonera’s] problem children,” she said.
“The owners may not be consistently aiming in same direction and if it isn’t performing then it is prudent to look at alternative options.”
Last year the income TeliaSonera received from Megafon fell 12 percent, but the longer term potential in Russia looks positive so the operator will not want to exit at any cost.
Should it exit, the operator will have an important decision to make regarding what it does with the cash.
One option will be to reinvest in emerging markets.
Almqvist said, to date, TeliaSonera’s direct investments in Eurasia have been successful so there is an opportunity for it to continue this strategy.
“If the company can show how to make direct investments in mobile operators in growth markets at a larger scale, with majority stakes, reaping synergies intelligently then they have a highly compelling story to their investors,” he said.
Rudd agrees that such investments are not just a pure financial consideration.
“There is a chance for cross fertilisation of ideas between companies within a group – it’s not about an incumbent telling an emerging market company what to do, you can learn to develop best practice,” she said.
Almqvist warns the cash should not be used as a sop to investors disappointed with TeliaSonera’s performance – its share price has fallen by 14 percent in the last 12 months.
“The current policy of high dividends coupled with low or negative topline growth make the company’s shares look suspiciously similar to a bond from the stock market’s vantage point.
“[CEO] Lars Nyberg should seriously consider lowering the dividend whilst simultaneously presenting a credible growth story. There are great but largely unheard success stories within the group.”