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Vimpel Makes Move in Ukraine

The country's No. 2 mobile phone firm, VimpelCom, entered Ukraine's fast-growing market Friday by buying a mobile operator for $231.3 million, despite opposition from Norway's Telenor, one of VimpelCom's key shareholders.

The acquisition of Ukrainian RadioSystems marks a victory for Alfa Telecom, VimpelCom's largest shareholder, over Telenor, VimpelCom's second-biggest investor.

Alfa Telecom, which owns 32.9 percent of the company, has pushed for VimpelCom to expand into Ukraine, where subscriber growth rates are faster than in the company's home market.

Although a shareholder meeting approved the purchase of Ukrainian RadioSystems, or URS, Telenor had opposed the deal, which has been under discussion since August 2004, at board meetings, saying the price was too high.

Telenor owns 26.6 percent in VimpelCom, which operates under the Bee Line brand in Russia and Kazakhstan.

Under the terms of the deal, VimpelCom also assumed debt of $23.5 million, it said.

"As CEO, I could not have failed to fulfill a shareholders meeting's decision," Alexander Izosimov told a news conference. "There are no other such markets in Europe like Ukraine."

With a population of 47 million, Ukraine's mobile services penetration is 50 percent, compared with 80 percent in Russia.

There are two major mobile services firms in Ukraine. Mobile TeleSystems -- VimpelCom's key rival in Russia -- has been operating in Ukraine for several years and has the biggest market share of any company. The second-largest company is Telenor-controlled Kyivstar, where Alfa is a minority shareholder.

VimpelCom's board has never approved the deal with the required majority because Telenor's representatives have voted against it.

Telenor said the purchase of URS, a company that controls less than 1 percent of the market, would require major investments and put VimpelCom's own future at risk.

Telenor promised to consider taking legal action against the acquisition, but added it would not sell its stake in Vimpelcom as it had once said it might.

Telenor will "consider carefully what steps we need to take to defend VimpelCom's future value," spokesman Dag Melgaard said in the company's statement. "This might include legal steps."

On the sale of its stake, Melgaard said: "We do not want to be intimidated out of such a good company."

Telenor's stated long-term strategy for its mobile units abroad is to win control or pull out.

In terms of its plans for URS, Izosimov said VimpelCom wanted to have at least 15 percent of the Ukrainian market within 18 months to two years.

He promised that the company would spend no more than $100 to $110 per subscriber in Ukraine, the same amount it spends in Russia.

But Morgan Stanley said it was less optimistic about the amount of spending needed to expand in Ukraine and the amount of time required to win a 15 percent market share.

"We believe the execution on the Ukrainian expansion will be challenging for VimpelCom, given an already high penetration level and well-established competition," it said in a note.

"Potentially disruptive behavior from Telenor on the ... board ... could hinder the implementation of the business plan. As a result, there is a possibility of a further escalation of conflict between Telenor and Alfa, leading to an increased risk premium for the stock," Morgan Stanley said.

Also Friday, VimpelCom said that Sweden's Ericsson had won a $200 million contract to supply equipment to newly purchased URS.

Izosimov said that under the deal with Ericsson, the Swedish company would buy URS's old equipment provided by Chinese firm Huawei for $52.6 million in cash and supply its own equipment worth $200 million.

The URS deal follows an earlier $300 million deal between VimpelCom and Ericsson in Russia.

(The Moscow Times 14.xi.05)

 
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