The merger between technology companies LLC “Tet” and LLC “Latvijas mobilais telefons” (LMT) will lead to a greater distortion of competition in the telecommunications sector, creating a “monopolized giant” under the auspices of the state and worsening the position of other market players, LETA was told by Director General of mobile communications operator LLC Bite Latvija Arūns Mickevičs.
According to him, in order for the merger to take place without catastrophic effects on the market, the newly created company must not remain the property of the state. It is also necessary to carry out structural reforms by legally separating the strategically important underground duct infrastructure into a unit independent of “Tet” and LMT and ensuring access to it on equal terms.
Mickevičs also stresses that both Tet and LMT currently dominate several segments. On top of that, both companies compete with each other.
“The merger of LMT and Tet and the entry of the newly created company into state ownership will significantly increase the risk of “super-dominance” – that is, it will acquire such a significant dominance where a monopolized company has virtually unlimited ability to operate independently of competitors, suppliers and end-users,” warns Mickevičs.
According to him, this will influence the legislative process on the national level, secure their own interests and further reinforce their position.
“As a result, the biggest losers will be not only residents of Latvia, who will significantly overpay for services, but the state as a whole, because many costs would be covered both directly and indirectly from the state budget,” predicts Mickevičs.
Likewise, according to him, the subordination of the merged entity to the State will bring it significant advantages, such as subsidies, a more favourable regulatory regime or access to cheaper financing when necessary.
At the same time, Mickevičs is concerned the merger will maintain favouritism in public procurement and impending downtime in the development of technology.
The merger between LMT and Tet also creates risks for political influence and additional burden for the state budget, believes Mickevičs.
He said it is necessary to perform structural reforms and transfer ownership of both companies to a private legal entity.
In the event that the merger of LMT and “Tet” does take place, in Mickevičs’ opinion, the newly created company may not be allowed to remain in state ownership, as this would help avoid distortion of market competition, potential downtime in the development of telecommunication technologies, price rises and other side effects would also appear.
At the same time, it is important to evaluate structural reforms by legally separating the strategically important underground cable sewer infrastructure from the Tet and LMT in an independent entity and leaving it under state control, Mickevičs stresses.
As previously reported, the Latvian government agreed on further scenarios in negotiations with the telecommunications company “Tet” and the other shareholder of LMT – “Telia” at a closed meeting on the 16th of July. The government instructed the Ministry of Economics to conduct these negotiations. Previously, the TV3 programme “Nekā persona” reported that on the 11th of September 2024, negotiations between the Latvian state and “Telia” about the future of LMT and “Tet” began in person.
A complex management framework was created between Tet and LMT, the change of which the two shareholders – the Latvian state and Telia – have not been able to agree on so far.
The Latvian state owns 51% of the shares of Tet as LLC “Public Asset Manager “Possessor” (“Possessor”), and 49% of the shares of Tet in the subsidiary of Telia “Tilts Communications”. In turn, 49% of the capital of LMT is owned by Telia and its subsidiary Sonera Holding, 28% by the State of Latvia through the State Radio and Television Centre of Latvia (23%) and Possessor (5%), while another 23% of the shares of LMT are owned by Tet.
This theoretically means that through the Tet, the share of Telia in the capital of LMT is 60.3%, and the share of the Latvian state is 39.7%. However, in practice this does not happen and in fact the state also has decisive control over the LMT, as it has the majority of the “Tet”. At the same time, it has slowed down a number of strategic decisions that require consensus.
Telia has offered to change this procedure. Namely, LMT would acquire the telecommunications business of Tet for money, which would be distributed to a separate company (conditionally Tet Telco), the two existing shareholders of Tet would be paid special dividends and Telia would sell its 49% share of Tet to the State, while the missing 1% share of LMT would be acquired from Tet, as a result of which the two main shareholders – the State and Telia – would each own 50% of LMT. The initial public offering (IPO) of the shares and the quotation of 20% or more of the shares of LMT on the stock exchange are offered at a later date. In the public offering, both shareholders would sell part of their shares. As a result of the transaction, the top management of the companies would also be noticed.
Government officials have not formally commented on the offer, but have ruled out the possibility of the state selling its shares. Naturally, the possibility of buying back the shares of LMT from Telia is even being considered.
By the 15th of October, the Ministry of Economics was to prepare a report for the government with the results of the negotiations, including the information agreed by the two shareholders, as well as what the further path of these companies could be. However, the report is not yet ready and the ministry does not yet disclose when the report could be viewed by the government.