Telenor says Farimex behind ‘anti-competition’ probe in Ukraine

19 May 2009

Norwegian telecoms group Telenor has found itself in the baffling position of facing an anti-monopoly inquiry essentially over its attempts to prevent two mobile operators falling under common ownership. The Oslo-based heavyweight claims in a statement on its website that a complaint from obscure British Virgin Islands-registered company Farimex Products prompted an investigation launched by Ukraine’s Anti-Monopoly Committee (AMC) on 7 May into Telenor and its majority-owned Ukrainian mobile subsidiary Kyivstar. Farimex claims that Kyivstar, Telenor and its fellow shareholder in Kyivstar, Storm – part of the Russian Alfa Group – are in breach of Ukrainian competition legislation by including a non-participation clause in their shareholders’ agreement, and that Telenor hindered competition in Ukraine through delaying the 2005 acquisition of cellco Ukrainian Radio Systems (URS) by Russian mobile group Vimpelcom – in which Alfa and Telenor own the largest and second biggest stakes respectively. The Kyivstar non-participation clause restricts each party from holding more than 5% in competing businesses in Ukraine without the other party’s consent, and was used recently by Telenor to force Alfa to reduce its indirect stake in another Ukrainian cellco, Astelit, to below 5%.

Last summer Farimex, which reportedly holds a 0.002% stake in Vimpelcom, initiated a court proceeding against Telenor, Vimpelcom and Alfa’s telecoms arm Altimo in a Siberian court, accusing the three companies of having caused losses to Vimpelcom shareholders by delaying the purchase of URS. Telenor, whose appointed members on the Russian cellco’s board strongly argued against the acquisition, was found solely liable for Vimpelcom’s alleged late entry into Ukraine’s mobile market, and on 20 February 2009 another court in Omsk ruled to hold Telenor liable for USD1.7 billion. The court gave Farimex a writ of execution to claim the amount that resulted in arrest of all Telenor shares in Vimpelcom on 11 March 2009. Telenor has appealed the decision of the Omsk court which will be heard in Tyumen in Western Siberia on 26 May 2009.

Farimex has previously been called a front for Alfa by Telenor, although the Russian group has denied this. The situation is potentially complicated by the fact that the new anti-trust investigation is aimed at Alfa’s Storm unit as well as Telenor, although this could be viewed as a ‘red herring’ in light of the fact that the original Russian court proceedings were also launched against Alfa alongside its Norwegian shareholding partner (despite Alfa backing the URS acquisition).

Regarding its reasons for opposing the purchase of URS (since rebranded with Vimpelcom’s Beeline trademark), Telenor said in yesterday’s statement that the USD231 million deal was ‘overpriced and non-transparent’, with ‘unidentified sellers’ and a ‘non-credible business plan’ and ‘would require huge investments to cope with an already maturing Ukrainian market.’ The statement went on to say that ‘at present Beeline continues to show little growth in Ukraine, having a market share of only 3.4% and just over two million subscribers despite additional investments by Vimpelcom of more than USD600 million so far.’