The conclusion in March of the 10-year marathon of privatizing Ukrtelecom, the country’s leading fixed-line communications operator, has not passed without controversy.
Some analysts, insiders and business community advocates say the government privatization was rigged in favor of the new owner, Austrian company EPIC, which they suspect represents the interests of oligarchs close to President Viktor Yanukovych.
Experts also predict a huge cut in Ukrtelecom’s staff as part of an efficiency drive. Some say the possible sale of the company’s mobile business Utel could be the first step toward selling off the firm bit by bit.
“Rubbish!” responded Peter Goldscheider, EPIC’s managing partner, in his first interview since the deal.
He said that he and his partners, who bought Ukrtelecom for slightly more than the $1.3 billion auction starting price, have developed a strong business plan and a new organizational structure for the company.
Goldscheider discussed with Kyiv Post how this new structure will look, to whom and why Utel is being sold, and what will happen with the company’s staff.
Kyiv Post: The business community widely considers that the Ukrtelecom privatization wasn’t fair and transparent, that you represent someone else. Could you briefly tell us who the new owners are?
Peter Goldscheider: Privatization of telecommunication companies is difficult for all governments. Everywhere this is politically extremely sensitive and all governments struggle to find a compromise between the best price and strategic priorities which should be taken care of.
What made the Ukrainian government agree on the guidelines for this specific auction? You’ll have to ask the Ukrainian government. I have been in Ukraine for over 20 years. I know the country very well as I know Russia very well.
As I know pretty much all the countries in Central and Eastern Europe. As far back as 10 years ago we were advising Ukrtelecom’s management. So when we heard about the privatization I phoned my regular clients.
I spoke to Deutsche Telekom, I spoke to France Telecom, to the Austrians – all of them longtime clients of ours. But we didn’t find a big interest. So we thought: Ok, why not bid ourselves?
KP: Yourselves? But experts say you are a front-man representing interests of oligarchs…
PG: I know all these rumors, and they are all rubbish. And I go on record for the thousandth time that we are not fronting the Ukrainian government, we are not fronting Akhmetov, the Russians or the Turks. We put our money at risk and time will tell if this is smart or not.
We work in the telecommunication field and we know the big players. I have good relations in that industry. And you can talk to those people, they know me. I used to work for 10 years for IBM where we had over 250,000 employees.
I worked for 10 years at Zurich Kosmos Insurance Company when the group also had tens of thousands of employees. I’m not afraid of big numbers. I’m really looking forward to this work. So I’m not fronting anybody here. I don’t have a pre-agreement with somebody that in 2-3 years he will buy Ukrtelecom from us. It’s our risk; it’s our work.
We had the first Supervisory Board with new Supervisory Board member Klaus Hartmann, who was vice president of Deutsche Telecom.
KP: He was?
PG: He left there on May 31. So there is no conflict. Deutsche Telecom is informed about this. We think we know what we are going to do.
KP: Where did you get financing for the $1.3 billion purchase of Ukrtelecom?
PG: We have got financing from Bank of Cyprus. Bank of Cyprus knows EPIC very well because we operate the holding company for our investments in Cyprus. EPIC is more a merchant- than only an investment-bank.
Alongside M&A advisory and privatizations, we focus on our own investments. We hold big energy assets, especially in gas storage, we hold the largest hotel group in Croatia, we have a significant participation in RCS, the Romanian cable TV provider.
We are more low-key. As a general rule, not always the loudest are the most successful companies. I understand that the media have an interest. But that we are not telling the world how rich we are, how successful we are doesn’t mean that we don’t have funds.
KP: You named Deutsche Telekom, France Telecom etc. They are not interested in Ukrtelecom. How about in five years’ time?
PG: A sale is a possibility, but for the next four to six years we don’t think about exit scenarios, we think about making this company successful. This will not come quickly; this is not something where we will make money quickly. This is a long-time process.
The most likely exit will be IPO because even if we have no agreement with the government that we can’t sell to the Russians, that we can’t sell to Akhmetov or anybody else, politically an IPO will face less resistance.
KP: What should the structure of Ukrtelecom look like in five years’ time in order to attract interest from potential investors?
PG: We have to see that the tariffs and the roaming agreements with the mobile operators will be fair. Because till now the mobile operators make huge profits and Ukrtelecom – losses, losses, losses.
And this is not fair because a good part of the infrastructure is established by us and that is a huge investment to build and uphold. So we shall negotiate with all other stake holders to get a fair split of the revenues in the telecom sector.
KP: You decided to reorganize Ukrtelecom’s mobile business as a separate entity for sale to a third party. Why now?
PG: Georgii Dzekon will hold a press conference in a couple of weeks. We have adopted a business plan, we have adopted a strategy, we have adopted a new organization. Not all of what we have decided is for public consumption, but the media will get some information.
But it will not come from me because I’m Chairman of the Supervisory Board. It will come from Dzekon, the CEO of the company.
KP: Could you describe pro and contra of possessing 3G license for Ukrtelecom?
PG: As I said we will not discuss it.
KP: What is the future of Ukrtelecom’s unprofitable business?
PG: I think it depends on negotiation with the government. In the EU there is clear regulation – no private owner can be forced to carry on with a loss making activity for the interest of country. In the EU they have special funds for that.
KP: Could we use the same solution for Ukraine?
PG: A solution could be that we keep the service but the government pays the balance so that we get at least cost plus fees, or we shall find another solution.
KP: Some media say you decided to fire Ukrtelecom’s staff…
PG: That is not my biggest headache. Look at the last few years; the staff was up to 125.000 people. We will clearly find a solution which we shall implement in close cooperation with trade unions.
KP: Returning to the question about Utel. Who are the most credible bidders?
PG: You are intelligent enough to answer this yourself. It is quite clear who would benefit the most.
KP: Don’t you represent this person who would benefit the most?
PG: You never give up, do you? No, I am not anybody’s front man.
Kyiv Post staff writer Maria Shamota can be reached at [email protected]
