Telekom Austria Set to Challenge Russia's MTS in Belarusian Mobile Market

Press reports indicate that Belarus is the next target of Telekom Austria.

Global Insight Perspective


Belarus' second-largest mobile operator, MDC, which was recently fully acquired by SB Telecom Ltd, is rumoured to be a target of Telekom Austria.


The entrance of the Austrian group would challenge the leadership of Russia's MTS in Belarus.


Telekom Austria already has an asset portfolio in Central and Eastern Europe, so expansion into the growing market of Belarus would be a sound strategic move.

Austrian telco Telekom Austria has confirmed that it is in talks for the purchase of a Belarusian mobile operator, according to numerous press reports. No official indication of the targeted operator or the likely purchase price has been disclosed. However, reports citing unnamed financial sources suggest that Telekom Austria's mobile arm, Mobilkom Austria, is considering directing around 1.6 billion euro (US$2.2 billion) towards the project. At the end of the first half of 2007, there were around 6.4 million mobile subscribers in Belarus, equating to a penetration level of 67%.

Outlook and Implications

* MDC a Potential Target for Telekom Austria: There are a number of possible targets for the Austrian group. Last month the Belarusian government sold its directly and indirectly held 51% stake in mobile operator Mobile Digital Communications (MDC), also known as Velcom, to Cypriot group SB Telecom Ltd, thereby increasing the latter's stake to. The price of the deal was unspecified, but believed to be US$300-500 million. It is possible that SB Telecom may now divest a stake, with Reuters citing an unnamed source as suggesting that an auction for MDC is already under way. At the end of the first half of 2007, MDC had 2.685 million subscribers, up from 2.6 million at the start of the year. Other possible targets are CDMA operator BelCel, and BeST, the country's newest GSM operator, which is 100% owned indirectly by the state, with around 149,000 subscribers at the end of the first half of 2007.

* A Challenge to MTS Leadership in Belarus: It is even possible that Austria Telekom may target Mobile TeleSystems Belarus (MTS Belarus), the Belarusian unit of Russia's leading mobile operator Mobile TeleSystems (MTS). This is currently 51% owned by the state, with the remainder owned by MTS in Russia. MTS Belarus had 3.48 million subscribers at the end of the first half of 2007, up from 3.21 million at the end of 2006. With the Belarusian government facing severe economic problems, it has undertaken selective privatisation of certain assets-including MDC-so more divestments cannot be ruled out. If the government decided to sell its 51% stake in MTS Belarus, Russia's MTS would be an obvious contender, but Belarusian President Alexander Lukashenka is unwilling to allow increased Russian influence in the Belarusian economy. This may prove to be a stumbling block to any future efforts by MTS to up its stake, but may benefit Telekom Austria. It appears that one way or another, the Russian operator is set to face a challenge in Belarus from Telekom Austria.

* Expansion into Belarus Fits into Telekom Austria's Expansion Strategy: Telekom Austria's strategy has seen it expand into a number of markets across Eastern and Central Europe. The operator has operations in Serbia, Croatia, Slovenia, and Bulgaria, and has recently announced a 50 million euro (US$68.4 million) investment package in FYR Macedonia. A move into Belarus would therefore help it to consolidate its presence further. With healthy penetration and strong competition, Belarus is a market with some appeal for investors. The most obvious candidates for expansion into Belarus are Russian operators such as VimpelCom and MegaFon, but given the anti-Russian economic and political sentiment of the country, Telekom Austria must be considered a strong contender for acquisition in the country.