New investors pledge to turn Wellcom into national mobile firm with cash injection of $100 million this year.
Ukrainian Radiosystems, a mobile phone provider that operates the troubled Wellcom brand, has unveiled a $100 million expansion plan following the company’s takeover by a business group affiliated with Dnipropretrovsk-based Privatbank.
Officials at Wellcom said the company will extend its GSM-900 network to twenty more cities, including Dnipropetrovsk, Donetsk, Kharkiv, Lviv, Odessa, Sevastopol and Yalta by the end of the year. The company’s coverage is currently confined to Kyiv and the Kyiv Oblast.
Wellcom also pledged to cover the country’s major transportation routes over the period.
If accomplished, the plan will transform Wellcom into a serious contender on Ukraine’s mobile phone market, currently dominated by Kyivstar and Ukrainian Mobile Communications.
Motti Korf, supervisory board chairman at Ukrainian Radiosystems, said on April 10 that the company is currently close to launching network access in several cities. He wouldn’t name the cities, however. Korf also said that the company has changed its senior managers, with Oleh Bolsheshapov replacing Yury Kurmaz as general director. Kurmaz left Wellcom to head Donetsk-based mobile operator DCC.
The announcement came two months after a business group linked to Privatbank consolidated its control over the venture through a buyout agreement with South Korea’s Daewoo Corporation, which owned a 49 percent share.
Earlier this year, the Korean firm sold its stake in Wellcom to Varkedge Ltd. and Occidental Management Ltd., two Cyprus-based firms affiliated with Privatbank. The firms join Daewoo’s former partners, Ukrfondinvest Ltd. and Interinvest Ltd., which together held 51 percent in the firm. Both are also linked with Privatbank.
Though rooted in Daewoo’s global financial troubles, the sale was triggered by a shareholder dispute in Wellcom that erupted in July 2001. The company’s Ukrainian shareholders removed Korean managers from top positions in the company prompting a series of legal battles that continued until the sale.
The sale ended the bitter two-year conflict that stalled Wellcom’s growth. The firm’s subscriber base grew from 20,000 in 2001 to about 36,000 now. At the same time, Kyivstar GSM and UMC have more than doubled the number of their subscribers, with each now having about 2 million users.
Korf said that Wellcom’s ambitious expansion plans will be backed by Privatbank’s financial muscle.
He also said the company recently held talks with Donetsk-based operator DCC about a possible sale of Wellcom or a merger of both companies. The talks fell through, he said. Merging with DCC, which recently acquired a GSM-1800 license and has more than 100,000 subscribers for its D-AMPS standard network, would have eliminated a competitor and consolidated efforts to compete with Kyivstar and UMC. Both Kyivstar and UMC have large strategic investors to back them up.
Norway’s Telenor owns a controlling stake in Kyivstar, while Russia’s MTS has recently acquired a majority share in UMC.
Korf said Wellcom will not search for a new investor.
“Privatbank is our strategic investor,” he said. “We are not currently seeking other investors.”
Investment figures provided by Ukraine’s large mobile phone operators show that Wellcom may need to continue investing heavily to catch up with its bigger rivals. UMC, for instance, has invested $400 in expanding its network and promoting its services since 1992 and is planning to pump another $400 million in the next four years.
UMC CEO Eric Franke doesn’t see the emergence of a third operator as a serious threat to his firm.
“As for the third operator [Wellcom], I wouldn’t say it has rosy growth prospects,” he said. “In other countries, experience shows that the first company develops more successfully than its followers.”
“Even a second provider has to target a special niche, such as youngsters, prepaid packages and so on,” he said. “So what’s left for a third one? Probably new technologies and low prices, but that doesn’t bode well for high profits.”
Rostyslav Khomenko, an analyst at Kyiv-based AVentures, an IT sector venture capital firm, said that there is still room for a third big operator but warned that Wellcom can no longer postpone its expansion plans or it will “miss the entry opportunity.”
“Our analysis suggests that the third country-wide operator could still make some decent profits in Ukraine,” he said. “But successful market entry today can not be achieved by standard means. Wellcom will need an original marketing approach in order to compete successfully with significantly larger rivals.”
Korf said his company does have an excellent marketing and tariff strategy. He said that he didn’t want to discuss details as it would give an edge to competitors.
