Russian operator Vimpelcom has agreed to buy most of Orascom Telecom and Italian operator Wind from Egyptian businessman Naguib Sawiris and his Weather Investments holding company. While Vimpelcom already runs a multinational operation stretching across the CIS and into southeast Asia, the new deal presents the Russian company with a number of challenges that likely kept away other bidders for Orascom. Below a few of the issues that could prove stumbling blocks:
Algeria: Orascom Telecom's local mobile operation Djezzy has been under pressure from the Algerian government to pay additional taxes and faced restrictions on transferring profits out of the country and securing local financing. The Algerian government may still force a nationalisation of the operator, leading to a loss of Orascom's biggest profitmaker. African mobile operator MTN already backed away from a deal with Orascom earlier this year due to the Algerian problems.
Canada: Orascom Telecom is backing one of the new mobile operators in Canada, Wind Mobile. While the company managed to secure spectrum and government approval for its services launch in late 2009, it's still facing a legal challenge from another mobile start-up, Public Mobile, over whether it meets Canada's laws on foreign investors in communications companies. A Russian shareholder is unlikely to clear this up.
Africa: Telecel, Orascom's subsidiary in sub-Saharan Africa, operates in some of the most difficult markets on the continent, including the Central African Republic and Zimbabwe. In the latter it's under pressure to reduce its shareholding and list part of the company in order to meet government requirements on local ownership. In Burundi the company is also facing government pressure and fines over back taxes, claims it denies.
Bangladesh, Pakistan: Bangladesh also requires operators to turn over part of mobile operators to local investors, and Orascom Telecom's subsidiary Banglalink is expected to soon submit plans for an IPO. There may also be pressure to sell Banglalink entirely, as Telenor, the second-largest shareholder in Vimpelcom, already controls the biggest mobile operator in Bangladesh, Grameenphone. A similar problem exists in Pakistan, where Orascom controls market leader Mobilink and Telenor has its own mobile operator.
Apart from all the above obstacles in the Orascom markets, Vimpelcom faces major challenges in its existing markets. The company's merger with Kyivstar in Ukraine could still collapse after the competition authorities reopened an investigation of the combined companies' market position. They are also questioning Vimpelcom shareholder Altimo's possible shareholding in a third operator, Astelit. In Russia, the company must quickly make up for the slowdown in capital spending in recent years to support its expansion in the burgeoning fixed broadband market and roll-out of 3G. It will also soon face a major new competitor with the consolidation of the Russian state's telecom assets in Svyazinvest.
Most investors would have likely looked elsewhere after reviewing this deal, but Vimpelcom clearly has global growth ambitions. If the takeover of Orascom Telecom and Wind Italy is completed, the management of Vimpelcom face a number of sleepless nights ahead.
