Alcatel-Lucent paves the way for Ukraine’s Kyivstar regards next generation GSM & IP networks with all IP network transformation.

Alcatel-Lucent (ALU) today announced that it has been selected by Kyivstar GSM, the largest operator in Ukraine, to design, install, and maintain a country-wide Metropolitan transmission packet based IP/MPLS network as part of its larger IP network transformation.

Alcatel-Lucent will deliver its next generation solution that will enable Kyivstar to pave the way for a fully converged IP network and support its evolution to possible 3G and LTE networks. With this Alcatel-Lucent-powered all-IP network Kyivstar will also be able to offer innovative IP services such as IPTV and enhanced communications services to both its residential and enterprise customers with maximum quality of service while realizing CAPEX and operational savings due to the efficiencies of IP-based technology.

“We will benefit from Alcatel-Lucent‘s worldwide experience in network transformation and state of the art IP networking technologies to smoothly and rapidly migrate to an all IP infrastructure,” said Alexander Dorofiy, Kyivstar Deputy CTO. “Alcatel-Lucent’s solutions and services give us the business and technology tools we need to compete and to offer subscribers a full scope of converged services.”

“By converging all services over a unified IP-based infrastructure, Kyivstar can build new revenue streams as well as customer loyalty while creating the platform to deploy next generation mobile technologies, such as 3G and LTE, as well as the advanced IP services that run over them,” said Alexander Tikhonov, Head of Alcatel-Lucent business in CIS.

Alcatel-Lucent will supply products from its industry leading Service Router (SR) portfolio including the 7750 SR, 7210 Service Access Switch and the 5620 Service Aware Manager to address the access, aggregation and core network layers. To offer a full end-to-end solution, Alcatel-Lucent will also supply its next generation Enterprise product, the Omni Switch 6250, to deliver residential access and 3G backhauling. Alcatel-Lucent will also provide professional services.

The network transformation will be performed in two phases: phase one will cover the needs of end-users services (HSI, VoIP, IPTV) and up-coming 3G mobile traffic. During the second phase 2G traffic will be gradually moved from SDH to the converged IP network.

The cooling of the Romanian economy &  near saturation of the market have resulted in lower earnings for the country’s telecommunications sector. There are signs that competition is about to increase the pressure on sector players even further.

Romania’s GDP fell 6.2% in the first quarter of 2009 compared to the same period in 2008, with household spending down by 12.3%, according to figures released by the National Institute of Statistics on June 9. As with other sectors in the economy, this slowdown has hit the telecoms sector.

All of Romania’s main mobile phone service providers have reported reduced earnings so far this year, with market leader Orange Romania, which has some 10m subscribers, announcing revenues of $366m for the first three months of this year, well down on the four-quarter average of $453m in 2008.

Vodafone Romania has also seen reduced incomes, announcing profits of $731m for the fiscal year ending March 31, down 3.5% on the preceding 12 months. This drop in profits was despite adding almost 670,000 new subscribers over the year, the 7.5% increase taking its customer base to 9.58m.

An additional factor for lower earnings is the highly congested nature of the mobile phone market. Romania has one of the highest penetration rates in the world, 133% as of the end of 2008, according to a report by the National Communications Administration and Regulatory Authority (ANCOM) issued in early June.

With five service providers currently in the market, competition is fierce. Though there was a 44% increase in the amount of mobile minute usage last year, with users racking up 30bn minutes of conversation, along with 4bn text messages sent, up 36.5% on 2007, campaigns by networks to retain customer loyalty reduced earnings, ANCOM said.

According to ANCOM’s president, Catalin Marinescu, it will not be until after summer when the full impact of the economic downturn on the telecoms sector will be felt. “The effect of the current economic climate on telecoms in Romania is to be evaluated only in the autumn of this year, when we have data on the first half” he said in early June  “We expect stagnation in some sectors and maybe even drops, but we will certainly have an increase in broadband penetration.”

Though profit margins may have shrunk and the market is approaching saturation point, there is still some overseas interest in the sector, with Turkish fixed-line service provider Turk Telekom considering buying into the market. In mid-May, Hakam Kanafani, the development director for Oger Telecom, the Dubai-based majority shareholder of the Turkish firm, said Turk Telekom had built up a $1bn acquisitions fund, some of which could be used to gain a stake in an existing Romanian telecoms operator.

“I’m not sure whether it will be spent or not but these are sort of opportunities we’re looking at in 2009 and 2010,” Kanafani said in an interview with the Reuters news agency.

It is not the first time the Turkish firm has floated the idea of expanding into the Romanian market. In mid-2007, Turk Telekom’s chief executive officer, Paul Donay, was quoted by local media as saying the company was examining fixed and mobile telephone business opportunities in Romania, along with other countries in Central Europe, though nothing came of the proposal at the time.

Interestingly, just as Turk Telekom was again talking up the possibility of buying into Romania, its parent company Oger was finalising a deal to sell its Romanian mobile service provider Telemobil, the owner of Zapp, to Greek telco Cosmote and its subsidiary Cosmote Romania.

The $277m buyout is a strategic move by Cosmote, which is the only mobile service provider in the Romanian market that does not have a 3G licence that would allow it to offer internet access to its customers. Cosmote missed out on winning a 3G licence in the last round of tenders and was not expected to have another chance to obtain one before 2011 at the earliest.

By acquiring Zapp’s operations, which run on a CDMA platform, the company will put itself on an equal footing with the two market leaders in the domestic market, Orange Romania and Vodafone Romania, along with the relatively small RCS&RDS. Currently, neither Oger or Cosmote are publicly commenting on the sale, though industry analysts expect it to be sealed in the second half of this year.

Equipped with fast next-generation data services, Cosmote is expected to step up efforts to rein in the big subscriber gap between itself and Orange and Vodafone, though with an estimated 6m registered customers it has a long way to go before Romania’s mobile phone sector becomes a real three-horse race

Magyar Telekom expects 2010 sales may drop at the same rate as in 2009 as rising unemployment levels sap consumer spending on telecoms.

CFO Thilo Kusch told Bloomberg in an interview that the company will need a surge in sales over the Christmas period to meet its 2009 forecast of a 2% decline in revenue.

“We are expecting a similar decline for next year as we have for this year,” Kusch said. “It seems that the worst is still ahead of us and the recovery is more towards the end of next year.”

Magyar Telekom (NYSE: MTA)  has started developing new sources of revenue, including domestic acquisitions of information technology companies and by launching a satellite television business. The diversification is part of a multi-year plan to find engines of growth away from the “declining old industry” of voice, Kusch said.

“This is our challenge and it’s a mammoth task,” he said. “This will take three to five years and creates quite an uncertainty around the stock, something that no investor likes.”

By the end of this transformation, voice revenue will fall below 50% of total sales, while information technology and TV together may reach 20% of group revenue, Kusch said.

Until the company develops new revenue streams, it plans to continue providing “attractive” dividends to draw investors “even if our business should deteriorate further during this transitory period,” Kusch said.

Magyar Telekom may make international acquisitions in 2011 “at the earliest” as governments including Slovenia have scrapped telecom privatizations during the financial crisis. New tenders typically take 12 to 18 months from start to finish, Kusch said.

The company previously considered acquisitions in Ukraine, Slovenia, Bosnia and Kosovo. Magyar Telekom already has units in Montenegro and Macedonia.

Russian telecommunication operators have been expanding aggressively in the CIS since the early 2000s, but no major deals were recorded in 2008 or 2009.

The move on the part of Russian operators toward business diversification into adjacent areas, uncertainty over the fate of Svyazinvest, the national state-run fixed-line holding, the high cost of telecommunication assets, and, of course, the more restrictive investment opportunities amid the financial crunch, have all contributed to the break which Russian operators took during the process of intensifying their expansion into the CIS markets. Nevertheless, investment activity is likely to resume in the near future, and a number of deals can be expected in 2010-2011.

The full report is accessible here : Investments of Russian telecoms in CIS countries – current state and prospects for the future

Polkomtel which operates across Poland under the mobile brand Plus, is looking to make a debut on the Warsaw Stock Exchange as early as next year, according to media sources.

This comes after a flurry of rumours about Poland’s largest telecoms company in the last month, with Polish online media outlet Gazeta Prawna running a recent story that Polkomtel will launch an issue of Eurobonds to fund acquisitions, surmising that an obvious target would be Netia, the countrys leading alternative carrier.

This is tied in with a recent ratings review by Standard & Poors on Polkomtel,in which it was assigned its ‘BBB+’ long-term and ‘A-2′ short-term corporate credit ratings.

“The ratings on Polkomtel reflect its modest leverage, intermediate financial risk profile characterized by strong credit metrics, and solid cash flow generation” said Standard & Poor’s credit analyst Helen O’Toole “In our view, Polkomtel will continue to generate strong operating cash flow while maintaining its profitability and market position.

Which is good news for the carriers Polish shareholders who have been looking to exit from there stakes for some time & are expected to sell off in any IPO. Polkomtel is owned by Polish state-controlled companies; power company PGE -21.85%, oil refiner PKN Orlen -24.39% & copper miner KGHM -24.39% in Polkomtel.

Not necessarily good news for Polkomtel’s 4th shareholder, Vodafone (NYSE: VOD) which holds the balance of 24.4%. It is expected that Vodafone will be keen to up it’s stake to a minimum controlling margin, however there will be significant interest from other European carriers in an open auction. The list of bidders should not be surprising to anyone, with Telefonica, France Telecom & Deutsche Telekom all expected to throw their hats into the ring.

• Telefonica (NYSE: TEF) has been on an acquisition spree in Central Europe over the last 5 years, having acquired assets in the Czech Republic & Slovakia, which have subsequently been rebranded to the O2 brand.
• France Telecom (NYSE: FTE) already has a major interest in Poland, as it has a 47% stake in Polish national carrier Telekomunikacja Polska & is sure to defend it’s stake & also it’s share of TPLs €2Bn revenue.
• Deutsche Telekom (NYSE: DT) has a chequered history in Poland, as it has held an interest in affiliate network Era for quite some time. This has been subject to a long & prolonged fight for control with France’s Vivendi since 2004, in September an Austrian court ruled in favour of Vivendi & it remains unclear regards DT’s further appetite for the Polish market.
• Oh & one surprise for the market, Egypt’s Orascom according to telecoms portal TMCnews.

So, the tables are open, place your bets ladies & gentlemen …. I would be placing some chips on Vodafone as the consolidation of a single market under one opco is very appetising for the UK company, more so as both fixed & mobile assets are involved, which ties very heavily in with corporate strategy.

In the latest version of the plan to privatise Ukrtelecom, an open joint-stock company that holds a 70% market share of local landline operations, the government has proposed selling off it’s block stake of 67.79% of Ukrtelecom’s shares. Currently, the state has a 92.79% stake in the company, with the company’s employees holding a further 7.14%.

The government’s plan, announced in February by the State Property Fund (SPF), initially foresaw the privatisation process beginning in March, though this did not take place, casting some doubt on the timeframe for the sale.

Although it did not meet its own deadline to start the process, the government has recently put Ukrtelecom back on the agenda. During a visit to South Korea in mid-July, Prime Minister Yulia Tymoshenko called South Korean firms to place a bid for Ukrtelecom,as she pushes to attract Asian investment into the Ukrainian economy. This is part of a wider drive by Timoshenko to privatise a number of state owned assets, including 5 regional energy companies.

However, the government may have missed the boat if it is hoping for a substantial cash windfall from the sale of Ukrtelecom, with the company’s overall value having slipped badly in the past year. The stake in the company that is to be sold off was estimated to be worth around $3bn in 2008; current pricing puts it at around $940m, mainly due to the sharp fall in the local currency.

Its attractiveness as an asset has not been helped by Ukrtelecom recording a $194m loss last year, compounded by a further $32m worth of red ink in the ledger for the first quarter of 2009, a turn around from a net profit of $33m at current rates in 2007.

More likely to give potential suitors pause than the telco’s financial statements is the political cloud that hangs over the proposed privatisation, with President Viktor Yushchenko staunchly opposed to the sale. In February, after the plan to privatise Ukrtelecom was unveiled, a senior official of the president’s office said Yushchenko would do everything possible to block the sale.

Yushchenko and Tymoshenko, formerly close allies, are at loggerheads over numerous issues, including management of the faltering economy, combating corruption & ties with Russia. Having repeatedly blamed the Tymoshenko-led government of failing to protect the economy and the Ukrainian people from the fall out of the global financial crisis, it is no surprise that the president has opposed the sale of Ukrtelecom.

According to the SPF, there are at least 10 companies interested in bidding for the Ukrtelecom stake, though this assessment was made in March, and could be optimistic given the present variable political and economic climate. “Climate change” notwithstanding, one interested party is Turkey’s largest mobile phone operator, Turkcell (NYSE:TKC) which already has a presence in the Ukrainian telecoms sector, owning a controlling interest in Astelit, the country’s third-largest mobile services provider, which services 20% of the mobile market.

In mid-February, as discussions over the privatisation of Ukrtelecom again gained momentum, Turkcell’s chief executive officer, Sureyya Ciliv, said his firm was considering making a bid for the landline operator.

“It is an interesting situation but we need to understand the terms of the deal, and our teams are studying that. Based on the study, we will make a decision if we are a serious interested party who is willing to bid.”

What could be of more interest for Turkcell & the Ukrainian goovernment, is TeliaSonera looking at gaining a greater stake in Turkcell. The Swedish multi-national is eager to penetrate new markets in Eurasia & already has a growing fibre network building out in Ukraine. My view is that this has a greater chance of success than courting Asian investors to come into the Ukranian market, time will tell.

Turkcell   recently managed to outbid global giant Vodafone  for the fastest 3G licence in an auction that looks as though it will realise a total of $1Bn for the Turkish government.

Although a far cry from the 3G auctions that occurred in Western countries in the mid 90’s, this will be a welcome fillip for the Turkish economy.

The government had made regulatory changes to induce Turkcell’s competitors to bid, including the introduction this month of portability reform – allowing customers to switch mobile operators while keeping the same phone number. Turkcell agreed to pay €358m for the first 3G licence, which is for spectrum at the 40 megahertz band. Vodafone offered the minimum price of €250m for 35MHz. Avea, owned by Turk Telekom, offered €214m, also the minimum price, for €30MHz.

During the 3rd Quarter of 2008, Turkcell (TKC) reported a year on year growth of 19.3%, comfortably breaking many analysts estimates. With the acquisition of the 3G licence bringing increased coverage levels, it is expected that Turcell will acheive some strong customer acquisitions in its homeland, where it has a track record of eliciting above average ARPU from its users base. Currently sitting at $13.91, the ADR has attracted a number of buy ratings, with a  6 month target of $16.22.

Meanwhile, Turkcell is looking abroad for even further expansion, its relative financial muscle in the region could see it picking up Macedonian operator Cosmofon within the next three months, although there is competition from Telekom Austria & also Slovenjie Telecom, both of whom are also looking to secure further business in the Balkans & Black Sea Basin. It already has holdings in Azercel (Azerbaijan), Geocell (Georgia). K’cell (Khazakhstan) & Moldcell (Moldovia) through its international joint venture Fintur.  In Ukraine, Turkcell operates the third largest mobile operator Life :), through its Astelit operation. Life:) has been making some serious inroads into the Ukrainian market, more than doubling its subscribers in 2007.

Standard & Poors upgraded Turkcell’s foreign currency rating from BB to BB+ in early November, which can only bring encouragement for investors.

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