Today's Comment: MegaFon/Scartel merger approved.
- Russia's Federal Antimonopoly Service (FAS) has approved the merger between MegaFon and Scartel.
- The FAS said that it has taken into consideration the potential of the two companies to influence the LTE market, and requires Scartel to publish MVNO terms and provide access on non-discriminatory terms.
- The FAS also recommends that Rostelecom and Osnova Telecom grant access to their LTE networks to MVNOs. The deal is now expected to close in one to two weeks.
The merger between MegaFon and Scartel has the air of an acquisition of Scartel by AF Telecom. Under the terms of the agreement, the merged entity will own 50% of the shares in MegaFon and 100% of the shares in Scartel, while the new company will be 80% controlled by MegaFon shareholders and 20% by Scartel shareholders. Alisher Usmanov-controlled AF Telecom holds a 50% stake in MegaFon.
Usmanov's strategy for MegaFon has been to focus solely on Russia, a tactic that Scartel has been increasingly employing: Scartel closed its Belarusian operations on 11 June 2012 following the sale if its Peruvian unit in December 2011, leaving its Nicaraguan operations hovering above the chopping block (see CIS: 7 June 2011: Analyst Commentary).
As the FAS noted, the merger has profound implications for the LTE market in Russia. While Rostelecom and Osnova Telecom also have spectrum in the LTE bands, it is just Scartel that has launched its network, with MegaFon joining as a MVNO. Scartel has already launched its LTE services in Novosibirsk, Krasnodar, Moscow, Sochi and Samara. Meanwhile, IHS Global Insight expects that MegaFon will emerge victorious from the LTE licence tender, controlling even more LTE spectrum. This is one of the reasons that the competition watchdog has imposed MVNO obligations on MegaFon and Scartel to prevent their dominance of the LTE market and allow operators such as Tele2, Summa and TTK, which appear unlikely to win licences, to compete in the LTE market. The four likely winners from the auction are Mobile TeleSystems (MTS), MegaFon, VimpelCom and Rostelecom (see CIS: 15 June 2012: Analyst Commentary).
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