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. Last Updated: 07/27/2016

VimpelCom Dispute Escalates

bloombergVimpelCom, Russia's No. 2 mobile firm, operates under the BeeLine brand.
No. 2 mobile phone firm VimpelCom will be better off if its two key shareholders stopped wrangling in court over strategy in Ukraine and merged their Russian and Ukrainian assets instead, analysts say.

Norway's Telenor won a tactical victory on Monday when Russia's Supreme Court blocked a lower court ruling that VimpelCom's board should make decisions by a simple majority rather than a so-called supermajority.

Telenor owns 26.6 percent in VimpelCom, so the Supreme Court staying order means it can continue to veto strategic decisions, blocking the ambitions of Russian conglomerate Alfa Group, which owns 32.9 percent.

The pair are tussling over whether VimpelCom should expand into Ukraine, where Telenor already controls one of its leading mobile firms, Kyivstar. Alfa owns the rest of it.

Alfa wants to call an extraordinary shareholders meeting, hoping that other VimpelCom shareholders will vote to acquire the small Ukrainian mobile firm Ukrainskiye Radiosystemy, which operates under the Wellcom brand.

But most analysts said they were not sure that entry costs into a market with penetration of 34 percent, two strong current operators and another big one preparing to launch were worth the market share VimpelCom would get.

"I doubt very much this is the best way of spending shareholders' money," a Western bank analyst said.

Ukraine's other big mobile firm is UMC, owned by Russia's top mobile operator, Mobile TeleSystems. Turkey's No. 1 mobile services firm, Turkcell, is getting ready to launch operations in Ukraine.

Alfa, owned by billionaire Mikhail Fridman, has a history of shareholder battles and said last month it had outbid Nordic telecoms giant TeliaSonera for a stake in Turkcell.

Ukrainskiye Radiosystemy has only 70,000 subscribers in a country of 45 million, and analysts said VimpelCom would have to spend half a billion to a billion dollars to install equipment.

"It is too late for a greenfield project in Ukraine now," the Western bank analyst said.

Uralsib analyst Konstantin Chernyshov said that VimpelCom could only grab 15 percent to 17 percent of the market: "It is not obvious to me that VimpelCom should embark on this venture. The entrance ticket may be too expensive."

But another analyst at a Western bank said VimpelCom should expand in Ukraine at any cost as the Russian market is becoming saturated, while other states in the ex-Soviet Commonwealth of Independent States show little promise.

"Ukrainian expansion would add value to VimpelCom under any scenario," he said. "I do not see many other opportunities for VimpelCom to acquire new markets."

Companies and analysts expect Russian penetration to reach 80 percent by the end of 2005. Apart from Russia, VimpelCom has operations in Central Asia in Kazakhstan -- the only other large and relatively wealthy CIS state.

Analysts said the best solution for VimpelCom would be a merger between Kyivstar and VimpelCom.

But Chernyshov said Telenor, which consolidates Kyivstar's results into its balance sheet, would not agree to the merger as it would not have a controlling stake in the new firm.

Another option could be Alfa selling its VimpelCom stake to Telenor, analysts said, although the time may not be right.

"Alfa is a financial investor, and they would sell sooner or later," the Western analyst said. "But rather later than sooner. It can only be sooner if it spoils relations with the Kremlin and wants to withdraw assets from Russia."