Creation of a JV with Tele2 Russia
The Company’s mobile strategy encompass the following elements:
- The creation of a joint venture with Tele2 Russia (JV) - a national mobile operator to ensure
- Sufficient scale to compete with existing mobile operators;
- Effective and faster utilization of 3G/4G licenses coupled with substantial CAPEX savings and deleveraging;
- Accelerated roll-out of 3G/4G networks nationwide;
- Capitalizing on the mobile broadband opportunity;
- Maintaining a high level of operational efficiency;
- Deliver convergent offerings: mobile as part of 4-Play bundles; and
- Continued usage of Rostelecom`s backbone and backhaul.
In December 2013 Rostelecom`s Board of Directors approved the creation of a JV and the contribution of Rostelecom’s mobile assets into a joint venture with Tele2 Russia. Rostelecom subsequently signed a framework agreement with Tele2 Russia that will see the integration of the two parties’ mobile assets, which will see Rostelecom transfer assets equal to an enterprise value of approximately US$3.5 billion to the JV.
The combination will bring substantial benefits to both parties, as well as to consumers and the entire Russian telecom sector. The JV plans to undertake significant investments in the development of 3G/LTE network as well as in innovative and high-quality mobile services.
The combined mobile assets will allow the JV to capture the imminent data growth opportunity in the Russian telecoms market by capitalising on Tele2 Russia’s know-how of the market and its impressive track record in developing mobile operations, as well as on the breadth of Rostelecom’s next-generation spectrum holdings.
The JV will command superior cash flow generation potential, to the extent that the combination is expected to generate significant synergies over the medium term, particularly with respect to network roll-out and operation, distribution and customer service.
Rostelecom’s contribution to the JV will be implemented in two stages. As a result of completing the first stage of the deal, Rostelecom contributed the shares of its mobile subsidiaries to the JV, including CJSC Sky Link, as well as the assets of its start-up regions which include Moscow and St Petersburg among other regions. Rostelecom is also simultaneously transferring its debt obligations, which amount to RUB 37 billion, to the JV. At the time of closing the first stage of the deal to form the JV, Rostelecom received a 45% voting interest and a 26% economic interest in the JV.
During the second stage, Rostelecom will spin off its integrated mobile businesses into its new wholly owned subsidiary CJSC RT-Mobile, to which Rostelecom’s mobile licenses (including the LTE licenses) will be re-issued to. Upon the completion of the spin-off, Rostelecom will contribute its whole stake in CJSC RT-Mobile into the JV and increase its economic interest to 45%.