December 12, 2013 / 5:56 PM / 6 years ago

Rostelecom approves mobile merger with former Tele2 unit

MOSCOW, Dec 12 (Reuters) - Russian state-controlled telecoms group Rostelecom said on Thursday its board had approved a plan to merge its mobile business into rival Tele2 Russia.

The deal, under consideration for several months, will create a stronger rival to compete with Russia’s big three wireless carriers - MTS, Megafon and Vimpelcom - which currently control more than 80 percent of the Russian mobile market.

A former landline monopoly, Rostelecom was reorganised several years ago in an attempt to win a bigger share of fast-growing markets such as mobile, broadband, pay-television and information technology.

Rostelecom said on Thursday it would get a 45 percent voting stake in the new company, T2 RTK Holding, in exchange for its mobile assets and licences. Tele2 Russia, owned by state-controlled bank VTB and Russian businessmen Yuri Kovalchuk and Alexei Mordashov, will have 55 percent.

Tele2 Russia is a former division of Nordic telecoms group Tele2 which sold it in April due to the lack of 3G and 4G data licences, limiting its future growth prospects.

Rostelecom has both 3G and 4G permits but lacks expertise in mobile. A recent decision by Russian regulator to let operators decide which technology to use will also benefit the new player. Analysts have said it remains to be seen whether the merged group will manage to defend its position and grow.

“The potential integration of Rostelecom’s mobile assets with Tele2 Russia will be a strategically logical development for Rostelecom. However, the creation of the JV and, more importantly, the operational integration of the assets will take time and we do not see it challenging the Big Three’s positions at least in the medium term,” Uralsib analysts said.

Rostelecom and Tele2 Russia together have around 38 million mobile subscribers, or a combined market share of 16 percent, and there is little overlap in the companies’ footprint. The merger will be carried out in two stages and is expected to complete in the first half of 2014 when Rostelecom will get a 45 percent economic interest in the venture. (Reporting by Maria Kiselyova. Editing by Jane Merriman)

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