VimpelCom’s acquisition of Weather Investments – owner of Orascom Telecom and the WIND mobile brand – is arguably the industry’s most significant deal of the year, creating the world’s fifth-largest mobile operator group with a network footprint spread across all corners of the globe.

The newly-enlarged group will boast 174 million subscribers from day one, a tally surpassed only by superplayers China Mobile, Vodafone, Telefonica and America Movil. But its prospects for subscriber growth – especially in many of Orascom’s emerging markets – could see it move up the rankings even further over the next few years. Today, its networks cover a total population of around 850 million – that’s almost a sixth of the world’s population.

These numbers reflect the alliance’s drive to benefit from economies of scale, and synergies will be instantly achievable in areas such as procurement. But for the newly-enlarged group to operate on the global stage as a force greater than the sum of its parts will require time and effort.

Both parties in the alliance are in transition. Amsterdam-based (and NYSE-listed) VimpelCom may claim to be a world player but the new incarnation of the firm only came into being earlier this year following the resolution of a bitter legal spat between Russia’s Alfa Group and Norway’s Telenor which had dragged on for years. As for Orascom, this week’s deal will mean it is able to write-down some of its huge debts, but it will not solve some of the problems it faces in key markets such as Algeria, where it is embroiled in a row with the local government over ownership of its local mobile arm, Djezzy. Some assets in the current Orascom/Weather portfolio – notably Greek operator WIND Hellas – are in such dire straits that they are not even included in the merger.

Despite the new group’s global footprint – which will cover 20 countries – only a handful of markets will be significant revenue generators in the short-term. On a pro forma (2009) basis, the existing VimpelCom-branded operation in Russia and WIND Italy will account for a combined 69 percent of revenue at the new firm (see graphic). It is likely that Ukraine’s Kyivstar and Djezzy – if the latter does eventually get included in the deal – will account for the lion’s share of the remainder.

This highlights the fact that while many of the group’s emerging markets such as Bangladesh and Pakistan may have strong growth potential, they won’t be contributing much to the bottom line for a while. The wildcard in the pack is WIND Canada, though this only launched at the beginning of the year and faces a herculean task to establish itself as a major player in the country.

VimpelCom’s new board is hoping to get the deal wrapped up by the first quarter of next year. A lot could change before then – and the potentially fragile alliance will need to hold strong to face the challenges ahead.

 

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members