Ukrainian Gambit by VimpelCom

VimpelCom announced the purchase of a 100% stake in Ukrainian Radio Systems (URS; provides services under the WellCom brand). We wrote about the proposed acquisition of the Ukrainian operator back in March. The process of completing the transaction dragged on for 14 months due to the categorical disagreement of Telenor, one of the main shareholders of VimpelCom (26.6% of shares). Initially, the deal was supposed to be concluded in April, the delay was more than six months. Nevertheless, the final decision on the purchase was made at an extraordinary September meeting of VimpelCom's shareholders, and on the evening of November 10, the deal was closed. The total purchase price is US$231.3 million. The price includes an acquisition cost of US$206.5 million plus URS costs of US$24.8 million since Vimpelcom acquired the option. VimpelCom has also committed to URS debt of approximately $23.5 million, according to Vimpelcom CEO Alexander Izosimov, this debt will be restructured.

Sergey Mironov was appointed to the position of General Director of Ukrainian Radio Systems, who since June 2001 worked as a regional director of the Volga region of the VimpelCom group of companies (according to the company's data - 6.2 million subscribers, 36.6% market share ).

Technical aspect

The WellCom network will be virtually rebuilt from the ground up - Ericsson will buy the existing URS equipment and pay approximately $52.6 million for the equipment. In turn, URS will purchase $200 million worth of network infrastructure equipment and services from Ericsson to develop its network over the next three years. According to an Ericsson representative, this amount ($52.6 million) was valued at all current equipment from other suppliers, which will be completely dismantled and replaced with equipment manufactured by Ericsson. Oleksandr Izosimov, General Director of VimpelCom, suggested considering the purchase of someone else's equipment as "Investments that the company makes to gain access to the Ukrainian market", but such a statement is not indisputable - the Swedish company is no longer a newcomer to the Ukrainian cellular market. Quote from Ericsson's November 8 press release:

A lot has been written about the confrontation between Telenor and Alfa Group, those who like to delve into complex multi-way combinations can be reminded of the material published in April, including on this topic. The essence of the confrontation is Telenor's unwillingness to let another strong player into the Ukrainian market. The Norwegian company owns a 56.51% stake in the Ukrainian operator Kyivstar, and any option for VimpelCom to enter the Ukrainian cellular market is unprofitable for the company. Whether Telenor will challenge the acquisition of the Ukrainian operator in court is still unclear, but VimpelCom management considers such a development of events unlikely.

Today's coverage of the URS network is not impressive, although the map on the operator's website looks good. The soft undertones of the "shading" of the existing and planned coverage merge and delight the eye. However, it is enough to make the image more contrast, as the "point" structure of the network becomes obvious: the coverage is present mainly in relatively large settlements and around them. It will be interesting to look at the same map in a year and a half.

The area for competition has been cleared and prepared

Finally, two important events should be noted: the receipt by the Ukrainian Radio Systems company of a license for the 1800 MHz band in the Kiev region (November 10) and a day later - the issuance of a license to the Life:) operator (Astelit LLC) to provide mobile services communications of the GSM-900 standard in 27 regions of the country. Without this, the normal development of both networks would be very problematic, although for different reasons. In the absence of 900 MHz frequencies ("Astelit"), it is unrealistic to provide coverage of the entire country for economic reasons, and without 1800 MHz frequencies in Kyiv ("URS"), the metropolitan network segment would have "choked" from overloads long before the connection of the millionth subscriber. Now both companies have everything in order with the frequency resource and we can hope for an interesting competition. True, WellCom does not yet have 1800 licenses for three or four areas, but this will come soon.

Subscriber base help

  • Total number of subscribers at the beginning of October - 24.5 million
  • Kyivstar as of November 1 - 11.687 million subscribers (0.948 million - contract subscribers, 10.739 million - users of Ace&Base and Djuice prepaid tariffs).
  • UMC as of November 1 - 11.5 million subscribers (1.243 million - contract subscribers, 10.257 million - users of Sim-Sim and Jeans prepaid tariffs).
  • Life:) (LLC "Astelit") - according to official data, only about 1.1 million subscribers.
  • Ukrainian Radio Systems (WellCom and Moby) according to unofficial information serve from 100 to 160 thousand subscribers (no official data).

First hand

We invite you to familiarize yourself with the materials of the VimpelCom management press conference held on the occasion of the completion of the deal to acquire Ukrainian Radio Systems. For ease of perception, comments and answers to questions from company representatives are brought together and divided into thematic blocks. The first block is Alexander Izosimov's own statement.

It was not the easiest transaction, or rather the most difficult transaction that we have been working on for a long time. We paid a little over $231 million for the company, which includes the initial price that was presented at the shareholders' meeting. The terms of the acquisition included the possibility for the company to continue to invest during the course of the transaction. We first talked about the acquisition of URS last August, just to illustrate the length of the process. I note with great pleasure that we are entering Ukraine in partnership with Ericsson, which will allow us to move faster and more efficiently, both in terms of costs and in terms of the quality of network building. Anticipating questions about the justification of the transaction - of course, it is justified. I repeat my simple postulate: there are no such markets in Europe. A market where there would be 50 million people and where there would be only two operators who actually divide the market into two. There is a very young operator Astelit, which has recently started working, and even with its network, which is relatively inefficient in terms of frequency resource (they only have a 1800 band), this operator has gained more than a million subscribers in less than a year. Which shows the enormous opportunities for growth in Ukraine. I don't believe in deals that are made for some strategic "higher truth". As a professor at a business school told me: "If they talk about strategy, and not about money, then something is wrong." The price and the business case itself are quite justified and this is confirmed not only by our analysis.

Telenor initially did not agree with this deal and still does not agree. We made every effort and until the very last moment there were intensive negotiations, discussions and attempts to find an acceptable solution. Everything that could be offered was offered: the merger of everyone with everyone, the creation of a divided network, the creation of a united network, a variant of various options ... But - it did not work out. The management of the company was guided by a simple postulate: to execute the decision of the meeting of shareholders. Yes, a large number of threats have been made by Telenor. But I still hope that common sense and respect for other shareholders will prevail, and Telenor will refrain from active litigation. Threat tactics are in some cases justified, and the threat itself is often more effective than the implementation of this threat. I hope this is the case.

About plans. Our plans are clear. We hope to use the experience gained in Russia and Kazakhstan in buying a company and bringing it to the market. First of all, we will intensively build a network. We are well aware that this market needs good quality, so the first task is to maximize coverage and improve the quality of services. By the end of the year, we will prepare Original Megir all contract documentation, network expansion specifications. Investments are sufficient in order to compete with the existing players. Now in Russia the accumulated investments per subscriber slightly exceed $100. Given that we started building the network seven years ago at completely different prices. <...> Focusing on 4-5 million subscribers, we get the final figure of network investments of about half a billion dollars, this estimate looks quite realistic.

By brand. Most likely, we will go the same way that we went in Kazakhstan. We are waiting for the network to become more or less normal, for which there will be no shame, and after that we will introduce the Beeline trademark. The interval between the purchase of a network and the introduction of a trademark can be about five to six months, which seems reasonable to us. In addition to building a high-quality network, we will need to launch all the additional services that are in demand on the market, as well as build a high-quality subscriber service system. After these conditions are met, the Beeline trademark will be brought to the market. In the process of building a business model, we looked at the example of MegaFon: building a good third player. Our business case does not in any way imply leadership aspirations in Ukraine, but we are going to build a good profitable business that would rely on a 15% market share, i.e. 4-5 million subscribers. We consider this to be very real. In terms of the timing of the business plan, it is difficult to say. Based on the experience of St. Petersburg, we can assume about two to three years.

Sergey Mironov was appointed to the position of General Director of Ukrainian Radio Systems, who since June 2001 worked as a regional director of the Volga region of the VimpelCom group of companies (according to the company's data - 6.2 million subscribers, 36.6% market share ).

Technical aspect

The WellCom network will be virtually rebuilt from the ground up - Ericsson will buy the existing URS equipment and pay approximately $52.6 million for the equipment. In turn, URS will purchase $200 million worth of network infrastructure equipment and services from Ericsson to develop its network over the next three years. According to an Ericsson representative, this amount ($52.6 million) was valued at all current equipment from other suppliers, which will be completely dismantled and replaced with equipment manufactured by Ericsson. Oleksandr Izosimov, General Director of VimpelCom, suggested considering the purchase of someone else's equipment as "Investments that the company makes to gain access to the Ukrainian market", but such a statement is not indisputable - the Swedish company is no longer a newcomer to the Ukrainian cellular market. Quote from Ericsson's November 8 press release:

A lot has been written about the confrontation between Telenor and Alfa Group, those who like to delve into complex multi-way combinations can be reminded of the material published in April, including on this topic. The essence of the confrontation is Telenor's unwillingness to let another strong player into the Ukrainian market. The Norwegian company owns a 56.51% stake in the Ukrainian operator Kyivstar, and any option for VimpelCom to enter the Ukrainian cellular market is unprofitable for the company. Whether Telenor will challenge the acquisition of the Ukrainian operator in court is still unclear, but VimpelCom management considers such a development of events unlikely.

Today's coverage of the URS network is not impressive, although the map on the operator's website looks good. The soft undertones of the "shading" of the existing and planned coverage merge and delight the eye. However, it is enough to make the image more contrast, as the "point" structure of the network becomes obvious: the coverage is present mainly in relatively large settlements and around them. It will be interesting to look at the same map in a year and a half.

Competition ground cleared and prepared

Finally, two important events should be noted: the receipt by the Ukrainian Radio Systems company of a license for the 1800 MHz band in the Kiev region (November 10) and a day later - the issuance of a license to the Life:) operator (Astelit LLC) to provide mobile services communications of the GSM-900 standard in 27 regions of the country. Without this, the normal development of both networks would be very problematic, although for different reasons. In the absence of 900 MHz frequencies ("Astelit"), it is unrealistic to provide coverage of the entire country for economic reasons, and without 1800 MHz frequencies in Kyiv ("URS"), the metropolitan network segment would have "choked" from overloads long before the connection of the millionth subscriber. Now both companies have everything in order with the frequency resource and we can hope for an interesting competition. True, WellCom does not yet have 1800 licenses for three or four areas, but this will come soon.

Subscriber base help

  • Total number of subscribers at the beginning of October - 24.5 million
  • Kyivstar as of November 1 - 11.687 million subscribers (0.948 million - contract subscribers, 10.739 million - users of Ace&Base and Djuice prepaid tariffs).
  • UMC as of November 1 - 11.5 million subscribers (1.243 million - contract subscribers, 10.257 million - users of Sim-Sim and Jeans prepaid tariffs).
  • Life:) (LLC "Astelit") - according to official data, only about 1.1 million subscribers.
  • Ukrainian Radio Systems (WellCom and Moby) according to unofficial information serve from 100 to 160 thousand subscribers (no official data).

First hand

We invite you to familiarize yourself with the materials of the VimpelCom management press conference held on the occasion of the completion of the deal to acquire Ukrainian Radio Systems. For ease of perception, comments and answers to questions from company representatives are brought together and divided into thematic blocks. The first block is Alexander Izosimov's own statement.

It was not the easiest transaction, or rather the most difficult transaction that we have been working on for a long time. We paid a little over $231 million for the company, which includes the initial price that was presented at the shareholders' meeting. The terms of the acquisition included the possibility for the company to continue to invest during the course of the transaction. We first talked about the acquisition of URS last August, just to illustrate the length of the process. I note with great pleasure that we are entering Ukraine in partnership with Ericsson, which will allow us to move faster and more efficiently, both in terms of costs and in terms of the quality of network building. Anticipating questions about the justification of the transaction - of course, it is justified. I repeat my simple postulate: there are no such markets in Europe. A market where there would be 50 million people and where there would be only two operators who actually divide the market into two. There is a very young operator Astelit, which has recently started working, and even with its network, which is relatively inefficient in terms of frequency resource (they only have a 1800 band), this operator has gained more than a million subscribers in less than a year. Which shows the enormous opportunities for growth in Ukraine. I don't believe in deals that are made for some strategic "higher truth". As a professor at a business school told me: "If they talk about strategy, and not about money, then something is wrong." The price and the business case itself are quite justified and this is confirmed not only by our analysis.

Telenor initially did not agree with this deal and still does not agree. We made every effort and until the very last moment there were intensive negotiations, discussions and attempts to find an acceptable solution. Everything that could be offered was offered: the merger of everyone with everyone, the creation of a divided network, the creation of a united network, a variant of various options ... But - it did not work out. The management of the company was guided by a simple postulate: to execute the decision of the meeting of shareholders. Yes, a large number of threats have been made by Telenor. But I still hope that common sense and respect for other shareholders will prevail, and Telenor will refrain from active litigation. Threat tactics are in some cases justified, and the threat itself is often more effective than the implementation of this threat. I hope this is the case.

About plans. Our plans are clear. We hope to use the experience gained in Russia and Kazakhstan in buying a company and bringing it to the market. First of all, we will intensively build a network. We are well aware that this market needs good quality, so the first task is to maximize coverage and improve the quality of services. By the end of the year, we will prepare Original Megir all contract documentation, network expansion specifications. Investments are sufficient in order to compete with the existing players. Now in Russia the accumulated investments per subscriber slightly exceed $100. Given that we started building the network seven years ago at completely different prices. <...> Focusing on 4-5 million subscribers, we get the final figure of network investments of about half a billion dollars, this estimate looks quite realistic.

Simultaneous introduction of new technologies and services throughout the network is the fundamental principle of VimpelCom's work. Naturally, it will take some time to create a network of a level no worse than the Russian one, but after that the speed of bringing new products to the market will be comparable. I do not think that there will be problems in Ukraine, since we will immediately build a single, not a fragmented network.

Why Ericsson? We recently held two large tenders - in Moscow and on Sakhalin. And now we understand very well the structure of costs and proposals of all players. After comparing offers and prices, we chose Ericsson. Absolutely normal process and approach, nothing unexpected here. Yes, Huawei is probably offended, but the current level of their prices does not justify the continuation of business with them in Ukraine. In this case, the Vimpelcom group of companies has a contract with Ericsson, within the framework of this contract with additional price advantages, we received 200 million for Ukraine. The price level proposed by Ericsson will allow us to build a network for less money than we initially included in the business case. For us, the savings are quite serious, we are talking about a level of more than 10% of the total contract value. Ericsson buys Huawei equipment from us and installs its own. A typical procedure in the cellular market. Within the concept of a single network, the interaction of equipment from two different suppliers creates certain difficulties. With the introduction of new platforms and services, this is always an additional "headache". Also from the point of view of support, additional testing and maintenance. The concept is quite transparent: for example, Vodafone has already switched to a "one vendor per country" structure. The company works with several suppliers to ensure a competitive environment, but as part of a holistic network facility, we strive for a homogeneous structure. Ericsson has won a tender for a swap in Moscow and partially replaces Alcatel equipment, this is a normal business process.

Ukrainian Gambit by VimpelCom

VimpelCom announced the purchase of a 100% stake in Ukrainian Radio Systems (URS; provides services under the WellCom brand). We wrote about the proposed acquisition of the Ukrainian operator back in March. The process of completing the transaction dragged on for 14 months due to the categorical disagreement of Telenor, one of the main shareholders of VimpelCom (26.6% of shares). Initially, the deal was supposed to be concluded in April, the delay was more than six months. Nevertheless, the final decision on the purchase was made at an extraordinary September meeting of VimpelCom's shareholders, and on the evening of November 10, the deal was closed. The total purchase price is US$231.3 million. The price includes an acquisition cost of US$206.5 million plus URS costs of US$24.8 million since Vimpelcom acquired the option. VimpelCom has also committed to URS debt of approximately $23.5 million, according to Vimpelcom CEO Alexander Izosimov, this debt will be restructured.

Sergey Mironov was appointed to the position of General Director of Ukrainian Radio Systems, who since June 2001 worked as a regional director of the Volga region of the VimpelCom group of companies (according to the company's data - 6.2 million subscribers, 36.6% market share ).

Technical aspect

The WellCom network will be virtually rebuilt from the ground up - Ericsson will buy the existing URS equipment and pay approximately $52.6 million for the equipment. In turn, URS will purchase $200 million worth of network infrastructure equipment and services from Ericsson to develop its network over the next three years. According to an Ericsson representative, this amount ($52.6 million) was valued at all current equipment from other suppliers, which will be completely dismantled and replaced with equipment manufactured by Ericsson. Oleksandr Izosimov, General Director of VimpelCom, suggested considering the purchase of someone else's equipment as "Investments that the company makes to gain access to the Ukrainian market", but such a statement is not indisputable - the Swedish company is no longer a newcomer to the Ukrainian cellular market. Quote from Ericsson's November 8 press release:

Eriksson and Ukrainian national mobile operator Astelit (trademark life?) have signed a US$45 million GSM network expansion agreement. As a result of the expansion, the coverage area and capacity of the operator's network will be significantly increased. In accordance with the terms of the agreement, Ericsson will supply operator Astelit with a turnkey GSM/GPRS standard solution for the basic and radio networks, including switching equipment, radio networks, transmission systems, as well as professional services such as project management, equipment integration into the network operator and training of the customer's personnel as part of the expansion of the Astelit network. The contract also provides for the integration of 230 new base stations and the introduction of 200 MINI-LINK Traffic Node Hops into the existing GSM network, which will help to significantly expand the operator's coverage in Ukraine. The equipment will be delivered and implemented in the following cities and regions of Ukraine: Kyiv, Odessa, Nikolaev, Chernihiv, Cherkasy, Khmelnitsky, Vinnitsa, Zhytomyr, mobile coverage will also be provided on highways.

A lot has been written about the confrontation between Telenor and Alfa Group, those who like to delve into complex multi-way combinations can be reminded of the material published in April, including on this topic. The essence of the confrontation is Telenor's unwillingness to let another strong player into the Ukrainian market. The Norwegian company owns a 56.51% stake in the Ukrainian operator Kyivstar, and any option for VimpelCom to enter the Ukrainian cellular market is unprofitable for the company. Whether Telenor will challenge the acquisition of the Ukrainian operator in court is still unclear, but VimpelCom management considers such a development of events unlikely.

Today's coverage of the URS network is not impressive, although the map on the operator's website looks good. The soft undertones of the "shading" of the existing and planned coverage merge and delight the eye. However, it is enough to make the image more contrast, as the "point" structure of the network becomes obvious: the coverage is present mainly in relatively large settlements and around them. It will be interesting to look at the same map in a year and a half.

Competition ground cleared and prepared

Finally, two important events should be noted: the receipt by the Ukrainian Radio Systems company of a license for the 1800 MHz band in the Kiev region (November 10) and a day later - the issuance of a license to the Life:) operator (Astelit LLC) to provide mobile services communications of the GSM-900 standard in 27 regions of the country. Without this, the normal development of both networks would be very problematic, although for different reasons. In the absence of 900 MHz frequencies ("Astelit"), it is unrealistic to provide coverage of the entire country for economic reasons, and without 1800 MHz frequencies in Kyiv ("URS"), the metropolitan network segment would have "choked" from overloads long before the connection of the millionth subscriber. Now both companies have everything in order with the frequency resource and we can hope for an interesting competition. True, WellCom does not yet have 1800 licenses for three or four areas, but this will come soon.

Subscriber base help

  • Total number of subscribers at the beginning of October - 24.5 million
  • Kyivstar as of November 1 - 11.687 million subscribers (0.948 million - contract subscribers, 10.739 million - users of Ace&Base and Djuice prepaid tariffs).
  • UMC as of November 1 - 11.5 million subscribers (1.243 million - contract subscribers, 10.257 million - users of Sim-Sim and Jeans prepaid tariffs).
  • Life:) (LLC "Astelit") - according to official data, only about 1.1 million subscribers.
  • Ukrainian Radio Systems (WellCom and Moby) according to unofficial information serve from 100 to 160 thousand subscribers (no official data).

First hand

We invite you to familiarize yourself with the materials of the VimpelCom management press conference held on the occasion of the completion of the deal to acquire Ukrainian Radio Systems. For ease of perception, comments and answers to questions from company representatives are brought together and divided into thematic blocks. The first block is Alexander Izosimov's own statement.

It was not the easiest transaction, or rather the most difficult transaction that we have been working on for a long time. We paid a little over $231 million for the company, which includes the initial price that was presented at the shareholders' meeting. The terms of the acquisition included the possibility for the company to continue to invest during the course of the transaction. We first talked about the acquisition of URS last August, just to illustrate the length of the process. I note with great pleasure that we are entering Ukraine in partnership with Ericsson, which will allow us to move faster and more efficiently, both in terms of costs and in terms of the quality of network building. Anticipating questions about the justification of the transaction - of course, it is justified. I repeat my simple postulate: there are no such markets in Europe. A market where there would be 50 million people and where there would be only two operators who actually divide the market into two. There is a very young operator Astelit, which has recently started working, and even with its network, which is relatively inefficient in terms of frequency resource (they only have a 1800 band), this operator has gained more than a million subscribers in less than a year. Which shows the enormous opportunities for growth in Ukraine. I don't believe in deals that are made for some strategic "higher truth". As a professor at a business school told me: "If they talk about strategy, and not about money, then something is wrong." The price and the business case itself are quite justified and this is confirmed not only by our analysis.

Telenor initially did not agree with this deal and still does not agree. We made every effort and until the very last moment there were intensive negotiations, discussions and attempts to find an acceptable solution. Everything that could be offered was offered: the merger of everyone with everyone, the creation of a divided network, the creation of a united network, a variant of various options ... But - it did not work out. The management of the company was guided by a simple postulate: to execute the decision of the meeting of shareholders. Yes, a large number of threats have been made by Telenor. But I still hope that common sense and respect for other shareholders will prevail, and Telenor will refrain from active litigation. Threat tactics are in some cases justified, and the threat itself is often more effective than the implementation of this threat. I hope this is the case.

About plans. Our plans are clear. We hope to use the experience gained in Russia and Kazakhstan in buying a company and bringing it to the market. First of all, we will intensively build a network. We are well aware that this market needs good quality, so the first task is to maximize coverage and improve the quality of services. By the end of the year, we will prepare Original Megir all contract documentation, network expansion specifications. Investments are sufficient in order to compete with the existing players. Now in Russia the accumulated investments per subscriber slightly exceed $100. Given that we started building the network seven years ago at completely different prices. <...> Focusing on 4-5 million subscribers, we get the final figure of network investments of about half a billion dollars, this estimate looks quite realistic.

By brand. Most likely, we will go the same way that we went in Kazakhstan. We are waiting for the network to become more or less normal, for which there will be no shame, and after that we will introduce the Beeline trademark. The interval between the purchase of a network and the introduction of a trademark can be about five to six months, which seems reasonable to us. In addition to building a high-quality network, we will need to launch all the additional services that are in demand on the market, as well as build a high-quality subscriber service system. After these conditions are met, the Beeline trademark will be brought to the market. In the process of building a business model, we looked at the example of MegaFon: building a good third player. Our business case does not in any way imply leadership aspirations in Ukraine, but we are going to build a good profitable business that would rely on a 15% market share, i.e. 4-5 million subscribers. We consider this to be very real. In terms of the timing of the business plan, it is difficult to say. Based on the experience of St. Petersburg, we can assume about two to three years.

Simultaneous introduction of new technologies and services throughout the network is the fundamental principle of VimpelCom's work. Naturally, it will take some time to create a network of a level no worse than the Russian one, but after that the speed of bringing new products to the market will be comparable. I do not think that there will be problems in Ukraine, since we will immediately build a single, not a fragmented network.

Why Ericsson? We recently held two large tenders - in Moscow and on Sakhalin. And now we understand very well the structure of costs and proposals of all players. After comparing offers and prices, we chose Ericsson. Absolutely normal process and approach, nothing unexpected here. Yes, Huawei is probably offended, but the current level of their prices does not justify the continuation of business with them in Ukraine. In this case, the Vimpelcom group of companies has a contract with Ericsson, within the framework of this contract with additional price advantages, we received 200 million for Ukraine. The price level proposed by Ericsson will allow us to build a network for less money than we initially included in the business case. For us, the savings are quite serious, we are talking about a level of more than 10% of the total contract value. Ericsson buys Huawei equipment from us and installs its own. A typical procedure in the cellular market. Within the concept of a single network, the interaction of equipment from two different suppliers creates certain difficulties. With the introduction of new platforms and services, this is always an additional "headache". Also from the point of view of support, additional testing and maintenance. The concept is quite transparent: for example, Vodafone has already switched to a "one vendor per country" structure. The company works with several suppliers to ensure a competitive environment, but as part of a holistic network facility, we strive for a homogeneous structure. Ericsson has won a tender for a swap in Moscow and partially replaces Alcatel equipment, this is a normal business process.

Ukrainian Gambit by VimpelCom

VimpelCom has announced the purchase of a 100% stake in Ukrainian Radio Systems (URS; provides services under the WellCom brand). We wrote about the proposed acquisition of the Ukrainian operator back in March. The process of completing the transaction dragged on for 14 months due to the categorical disagreement of Telenor, one of the main shareholders of VimpelCom (26.6% of shares). Initially, the deal was supposed to be concluded in April, the delay was more than six months. Nevertheless, the final decision on the purchase was made at an extraordinary September meeting of VimpelCom's shareholders, and on the evening of November 10, the deal was closed. The total purchase price is US$231.3 million. The price includes an acquisition cost of US$206.5 million plus URS costs of US$24.8 million since Vimpelcom acquired the option. VimpelCom has also committed to URS debt of approximately $23.5 million, according to VimpelCom CEO Alexander Izosimov, this debt will be restructured.

Sergey Mironov was appointed to the position of General Director of Ukrainian Radio Systems, who since June 2001 worked as a regional director of the Volga region of the VimpelCom group of companies (according to the company's data - 6.2 million subscribers, 36.6% market share ).

Technical aspect

The WellCom network will be virtually rebuilt from the ground up - Ericsson will buy the existing URS equipment and pay approximately $52.6 million for the equipment. In turn, URS will purchase $200 million worth of network infrastructure equipment and services from Ericsson to develop its network over the next three years. An Ericsson representative told us that this amount ($52.6 million) was valued at all current equipment from other suppliers, which will be completely dismantled and replaced with equipment manufactured by Ericsson. Oleksandr Izosimov, General Director of VimpelCom, suggested considering the purchase of someone else's equipment as "Investments that the company makes to gain access to the Ukrainian market", but such a statement is not indisputable - the Swedish company is no longer a newcomer to the Ukrainian cellular market. Quote from Ericsson's November 8 press release:

Eriksson and Ukrainian national mobile operator Astelit (trademark life?) have signed a $45 million GSM network expansion agreement. As a result of the expansion, the coverage area and capacity of the operator's network will be significantly increased. In accordance with the terms of the agreement, Ericsson will supply operator Astelit with a turnkey GSM/GPRS standard solution for the basic and radio networks, including switching equipment, radio networks, transmission systems, as well as professional services such as project management, equipment integration into the network operator and training of the customer's personnel as part of the expansion of the Astelit network. The contract also provides for the integration of 230 new base stations and the introduction of 200 MINI-LINK Traffic Node Hops into the existing GSM network, which will help to significantly expand the operator's coverage in Ukraine. The equipment will be delivered and implemented in the following cities and regions of Ukraine: Kyiv, Odessa, Nikolaev, Chernihiv, Cherkasy, Khmelnitsky, Vinnitsa, Zhytomyr, mobile coverage will also be provided on highways.

A lot has been written about the confrontation between Telenor and Alfa Group, those who like to delve into complex multi-way combinations can be reminded of the material published in April, including on this topic. The essence of the confrontation is Telenor's unwillingness to let another strong player into the Ukrainian market. The Norwegian company owns a 56.51% stake in the Ukrainian operator Kyivstar, and any option for VimpelCom to enter the Ukrainian cellular market is unprofitable for the company. Whether Telenor will challenge the acquisition of the Ukrainian operator in court is still unclear, but VimpelCom management considers such a development of events unlikely.

Today's coverage of the URS network is not impressive, although the map on the operator's website looks good. The soft undertones of the "shading" of the existing and planned coverage merge and delight the eye. However, it is enough to make the image more contrast, as the "point" structure of the network becomes obvious: the coverage is present mainly in relatively large settlements and around them. It will be interesting to look at the same map in a year and a half.

The area for competition has been cleared and prepared

Finally, two important events should be noted: the receipt by the Ukrainian Radio Systems company of a license for the 1800 MHz band in the Kiev region (November 10) and a day later - the issuance of a license to the Life:) operator (Astelit LLC) to provide mobile services communications of the GSM-900 standard in 27 regions of the country. Without this, the normal development of both networks would be very problematic, although for different reasons. In the absence of 900 MHz frequencies ("Astelit"), it is unrealistic to provide coverage of the entire country for economic reasons, and without 1800 MHz frequencies in Kyiv ("URS"), the metropolitan network segment would have "choked" from overloads long before the connection of the millionth subscriber. Now both companies have everything in order with the frequency resource and we can hope for an interesting competition. True, WellCom does not yet have 1800 licenses for three or four areas, but this will come soon.

Subscriber base help

  • Total number of subscribers at the beginning of October - 24.5 million
  • Kyivstar as of November 1 - 11.687 million subscribers (0.948 million - contract subscribers, 10.739 million - users of Ace&Base and Djuice prepaid tariffs).
  • UMC as of November 1 - 11.5 million subscribers (1.243 million - contract subscribers, 10.257 million - users of Sim-Sim and Jeans prepaid tariffs).
  • Life:) (LLC "Astelit") - according to official data, only about 1.1 million subscribers.
  • Ukrainian Radio Systems (WellCom and Moby) according to unofficial information serve from 100 to 160 thousand subscribers (no official data).

First hand

We invite you to familiarize yourself with the materials of the VimpelCom management press conference held on the occasion of the completion of the deal to acquire Ukrainian Radio Systems. For ease of perception, comments and answers to questions from company representatives are brought together and divided into thematic blocks. The first block is Alexander Izosimov's own statement.

It was not the easiest transaction, or rather the most difficult transaction that we have been working on for a long time. We paid a little over $231 million for the company, which includes the initial price that was presented at the shareholders' meeting. The terms of the acquisition included the possibility for the company to continue to invest during the course of the transaction. We first talked about the acquisition of URS last August, just to illustrate the length of the process. I note with great pleasure that we are entering Ukraine in partnership with Ericsson, which will allow us to move faster and more efficiently, both in terms of costs and in terms of the quality of network building. Anticipating questions about the justification of the transaction - of course, it is justified. I repeat my simple postulate: there are no such markets in Europe. A market where there would be 50 million people and where there would be only two operators who actually divide the market into two. There is a very young operator Astelit, which has recently started working, and even with its network, which is relatively inefficient in terms of frequency resource (they only have a 1800 band), this operator has gained more than a million subscribers in less than a year. Which shows the enormous opportunities for growth in Ukraine. I don't believe in deals that are made for some strategic "higher truth". As a professor at a business school told me: "If they talk about strategy, and not about money, then something is wrong." The price and the business case itself are quite justified and this is confirmed not only by our analysis.

Telenor initially did not agree with this deal and still does not agree. We made every effort and until the very last moment there were intensive negotiations, discussions and attempts to find an acceptable solution. Everything that could be offered was offered: the merger of everyone with everyone, the creation of a divided network, the creation of a united network, a variant of various options ... But - it did not work out. The management of the company was guided by a simple postulate: to execute the decision of the meeting of shareholders. Yes, a large number of threats have been made by Telenor. But I still hope that common sense and respect for other shareholders will prevail, and Telenor will refrain from active litigation. Threat tactics are in some cases justified, and the threat itself is often more effective than the implementation of this threat. I hope this is the case.

About plans. Our plans are clear. We hope to use the experience gained in Russia and Kazakhstan in buying a company and bringing it to the market. First of all, we will intensively build a network. We are well aware that this market needs good quality, so the first task is to maximize coverage and improve the quality of services. By the end of the year, we will prepare Original Megir all contract documentation, specifications for network expansion. Investments are sufficient in order to compete with the existing players. Now in Russia the accumulated investments per subscriber slightly exceed $100. Given that we started building the network seven years ago at completely different prices. <...> Focusing on 4-5 million subscribers, we get the final figure of network investments of about half a billion dollars, this estimate looks quite realistic.

Simultaneous introduction of new technologies and services throughout the network is the fundamental principle of VimpelCom's work. Naturally, it will take some time to create a network of a level no worse than the Russian one, but after that the speed of bringing new products to the market will be comparable. I do not think that there will be problems in Ukraine, since we will immediately build a single, not a fragmented network.

Why Ericsson? We recently held two large tenders - in Moscow and on Sakhalin. And now we understand very well the structure of costs and proposals of all players. After comparing offers and prices, we chose Ericsson. Absolutely normal process and approach, nothing unexpected here. Yes, Huawei is probably offended, but the current level of their prices does not justify the continuation of business with them in Ukraine. In this case, the Vimpelcom group of companies has a contract with Ericsson, within the framework of this contract with additional price advantages, we received 200 million for Ukraine. The price level proposed by Ericsson will allow us to build a network for less money than we initially included in the business case. For us, the savings are quite serious, we are talking about a level of more than 10% of the total contract value. Ericsson buys Huawei equipment from us and installs its own. A typical procedure in the cellular market. Within the concept of a single network, the interaction of equipment from two different suppliers creates certain difficulties. With the introduction of new platforms and services, this is always an additional "headache". Also from the point of view of support, additional testing and maintenance. The concept is quite transparent: for example, Vodafone has already switched to a "one vendor per country" structure. The company works with several suppliers to ensure a competitive environment, but as part of a holistic network facility, we strive for a homogeneous structure. Ericsson has won a tender for a swap in Moscow and partially replaces Alcatel equipment, this is a normal business process.