I blogged back in October that the tie-up between VimpelCom and Orascom’s Wind Telecom would not be a marriage made in heaven. As it turns out, it’s been quite a drama simply getting both parties to the church. Right from the start there were concerns from the VimpelCom side about merging with a heavily indebted operator that was embroiled in numerous problems and spats across its market footprint – not least a battle with the Algerian state over control of Orascom’s local Djezzy-branded network. Such issues prompted VimpelCom’s second-largest shareholder – Telenor – to withdraw its support for the deal just before Christmas and subsequently mount a legal challenge to protect its shares from being used to fund the transaction. 

However, following the recent news that Telenor had failed to secure an injunction – and with too few seats on the VimpelCom board to block the deal without additional support – it now seems inevitable that VimpelCom and Wind will tie the knot at a company EGM on Thursday.

This is perhaps then a good time for a refresher on what this deal means; and it is reflective of the somewhat transient nature of the alliance that the headline metrics have already shifted from six months ago. Orascom sold its Tunisian business late last year so the market footprint of the newly-merged VimpelCom/Wind has already been reduced by one (to 19), an adjustment that will make the combined company now the sixth largest operator in the world and not the fifth as originally trumpeted (usurped by Bharti Airtel, and now neck-and-neck with China Unicom, according to my back-of-a-cigarette-packet calculations). Pro forma revenue and EBITDA guidance has also been tweaked downwards. If the new firm fails to hang on to Djezzy – which has been a vital cash cow for Orascom in recent years – the numbers will be driven down significantly further.

If the firm is forced to dispose of its Algerian unit it would mean that almost all its revenue is generated from just three subsidiaries: VimpelCom Russia, Wind Italy and Ukraine’s Kyivstar – not particularly representative of a group whose network footprint covers one sixth of the world’s population (back-of-a-cigarette-packet calculation #2).

It is therefore to his credit that VimpelCom CEO Alexander Izosimov has recently attempted to move the debate on from the merger headaches to how the new group will develop its presence in emerging markets such as Bangladesh and Pakistan – markets that are growing quickly but not contributing much to the bottom line. Telenor is the largest operator in Bangladesh (via its Grameenphone arm) and the second-largest in Pakistan, and both units look well set to lead much-needed in-market consolidation in their respective countries. Both Bangladesh and Pakistan each support six players operating on wafer-thin margins so consolidation will be key to advancing the markets forward and boosting operator profitability and spurring investment. A tie-up between Grameenphone and Orascom’s Banglalink seems an obvious place to start.

These types of in-market deals appear to be the new VimpelCom’s strategy moving forward. Wind Canada has been the most high-profile of the Canadian operator start-ups but it will probably need to ally itself with other new entrants if it is truly serious about competing with the country’s large incumbent operators. Meanwhile, in markets where it is already established – Russia and Italy, for example – VimpelCom may look to gobble up smaller competitors or extend its reach into new areas by acquiring start-ups.

Barring any last-minute hiccups, the VimpelCom/Wind marriage should be sealed on Thursday. As any married couple will testify, that’s when the hard work really starts.

 

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