Another Fight Brewing in the Caucasus

Vimpelcom has bought 51% of a shell-company which holds an 1800MHZ GSM licence in Georgia for $12.6M and has a call option for the rest of the equity.

Georgia is a relatively poor country with GDP per head of US$3,300 and a population of around 4.5 million. It currently has cellular penetration of around 30% and has two operators, Geocell and Magticom with 55% and 45% market share respectively.

Personally, I think a 3^rd entrant would have a lot of trouble gaining enough traction to provide big returns in the long run. Therefore, I think Vimpelcom is gaming another “Scorched Earth” strategy in its’ drive for total domination of the Russia/CIS cellular market. Vimpelcom is currently finessing this tactic in the Ukraine and causing some severe migraines to Telenor, who has the dubious pleasure of being Alfa’s partner in Vimpelcom.

The majority owner of Geocell with 83.2% is Fintur, which is a joint venture between TeliaSonera (58.55%) and Turkcell (41.45%). TeliaSonera is currently fighting with the majority share holder of Vimpelcom, Alfa Bank, in Russia and Turkey (funnily enough over Turkcell ownership) and must be thinking – here we go again…

Magticom is another ex-CIS cellular operator whose ultimate ownership is shrouded in mystery. It seems to be part-owned by a US company called MetroMedia. I suspect whoever owns Metromedia given its previous experience in St. Petersburg knows all about the Russian Cellular scene and could be already in the grip of Alfa Banks main competitor MTS.

It seems to me that the ex-Vodafone marketing man, David Haines, just re-appointed Chairman of Vimplecom, has his hands full at the moment. Mind you, David Haines is no stranger to disputes and legal wrangles after the infamous Formula I sponsorship case.