TeliaSonera is exiting Eurasia at a good time

TeliaSonera’s decision to exit Eurasia is a sound one. The economies of Kazakhstan, Georgia, Azerbaijan, Uzbekistan, and Tajikistan have all suffered from the recent slowdown in the Russian economy. Kazakhstan and Azerbaijan were both hit by falling oil prices. All of these factors have contributed to the devaluation of local currencies in these markets.

Aside from economic problems, TeliaSonera has other reasons to exit Eurasian markets, including the competitive environment, legal issues in certain markets that have a negative impact on the company’s image, and ownership issues.

TeliaSonera has recently launched 4G in Tajikistan, Uzbekistan, and Georgia, which means the company would have to increase capex in these markets if it decided to stay in the region. At the same time, the negative ARPU trend signals that it would be hard to recoup these investments in the short term, particularly if the local currencies devalue further. Azerbaijan is a good example of where 4G deployment has been spinning its wheels since 2012 and not brought much value so far.

Nevertheless, these markets are still generating cash and might be much more attractive at this moment, than in the long term. Eurasia has the highest operating income margin, over 50%, which is well above the industry average, and service revenues grew by 11.4% year on year in 2Q15 and by 14.7% year on year in 1H15.

The big question is who are the possible buyers? Russia’s MegaFon might look into expanding its footprint overseas. The operator has a fairly solid second place in the Russian market and is currently offering services in Tajikistan, as well as partially recognized states such as South Ossetia and Abkhazia. Another company that might be interested in acquiring assets in Eurasia is Turkcell, which already owns 41.45% in Fintur Holdings, through which TeliaSonera owns operations in Kazakhstan, Azerbaijan, Georgia, and Moldova.

Alla Shabelnikova is a senior analyst for Europe telecoms at Ovum. For more information, visit www.ovum.com/