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Latvia Telecommunications Report 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: December 2007 Product Code: R302-1867 Description Based on an evaluation of the subscriber data published by Latvia’s regulator and by the sector’s mobileoperators, BMI estimates that the number of cellular subscribers increased by 5.2% in the first half of2007. Subscriber growth in Q107 amounted to 2.7%, while in Q207, the sector grew by 2.5%; this growthwas on the back of a 14.7% increase in subscribers during 2006. By the end of 2006, there were 2.184mnmobile subscribers in Latvia, giving the country a penetration rate of 95.8%. In addition to changes to our Latvian mobile forecast figures, which predict that penetration will rise toabove 140% by the end of 2012, in this report we have updated and extended our forecasts for thedevelopment of Latvia’s fixed-line and broadband markets. We anticipate that the fixed-line market willgrow by around 1.4% in 2007 and by 1.2% in 2008. Recent data shows that the number of fixed linesactually increased by 1.5% in 2006 and by 1.7% in 2005; this growth followed several consecutive yearsof decline. The number of fixed-lines operated by Lattelecom continued to fall in 2006, affected, amongby mobile substitution and by increased fixed-line competition. Meanwhile, all of the most recent growthappears to have come from alternative fixed-line operators such as Latvenergo and cable operatorBaltkom. We predict that these operators will generate further, albeit gradual growth in the years ahead.One of the most significant developments within Latvia’s telecoms sector in the past few months was theannouncement, in August 2007, that TeliaSonera had signed a Memorandum of Understanding with theRepublic of Latvia and a Lattelecom management buyout consortium, in order to increase its stake inmobile operator, LMT, from 60.27% to 100%. Under the agreement, TeliaSonera will acquire theRepublic of Latvia's 28% stake and Lattelecom's 23% stake in LMT. The MoU also contains plans forTeliaSonera to divest its 49% stake in Lattelecom to the company’s management buyout consortium; theRepublic of Latvia will also sell its 51% stake in Lattelecom to the company’s management. Followingthe August announcement, it was revealed in September 2007 that private equity firm Blackstone hadbeen chosen to back the Lattelecom management buyout offer. The total takeover is worth LVL290mn(US$575mn), with Blackstone and a consortium of banks providing financing for the deal. Blackstonewill invest LVL90mn (US$178mn) for a 51% stake in Lattelecom, while the remaining 49% of the firmwill be held by Lattelecom management and employees. Once the purchase is complete, Blackstone will,among other things, help finance the expansion of Latvia's broadband infrastructure. Latvia is the lowest ranked of the three Baltic States in BMI’s telecoms business environment ranking,and currently sits at the mid-point of our table. The country scores relatively well on competition andregulation issues, although there is room for improvement in these areas. Furthermore, although strongmobile and broadband growth has helped to push Latvia further up our rankings table, the country suffersfrom limited growth opportunities which stem from its small population and relatively poor economiclong-term risk. Table of Contents
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