She said that the long government meeting on Tuesday, November 19, was discussed with the president, where the ministers listened to the consultants who, on behalf of the Ministry of Economy (ME), had conducted extensive research on the current situation of “Tet” and LMT. The Prime Minister emphasized that the government is looking for clear solutions to increase the value of strategically important companies, which is why negotiations are underway with the Swedish company “Telia”.
“We have a common understanding, and a clear position has been reached. The amended and clarified task must be submitted to the Ministry of Finance within three weeks, then within three months the ministry should come up with an outline of the next scenario, how to deal with the acquisition of a state control package or greater influence in companies,” said Siliņa .
Asked whether the Prime Minister herself has a vision for the future of the companies, as there are rumors that “Tet” and LMT could be merged together, Silina noted that the owner, not “Tet” or LMT, decides on any changes in the overall ownership structure of the companies. “Such statements are opinions, not decisions. Such decisions must be made with the agreement of the owner, who is the EM of the State of Latvia and VAS “Latvijas Valsts radio und televisie centrs” (LVRTC) in person, who in cooperation and agreement with “Telia” can make a decision on changes in the structure of the owners,” said the politician.
Siliņa explained that the government meeting discussed, for example, how companies have worked so far, what the consequences of decisions were, what decisions were not made in time and what has changed in the common market. She mentioned that the market for mobile operators is dynamic, the market for cable and internet service providers has also changed, as each year brings some new changes.
She admitted that the government did not consider 30 different directions because the concept of how to move forward was clearly marked. The Prime Minister stated that strategic negotiations are currently underway with a party representing another country, and these negotiations are sensitive. Also, Siliņa explained that it is important for the state to be able to implement its strategic interests both in the service provision market and, possibly, in the export market. There is also the question of television – how to further develop it and not lose this market share.
“These are complicated issues. [..] It is normal that the government considered the issue of two large companies in a meeting of several hours. We would have worked further, but the volume of information is really large, so the Ministry of the Interior has a task to collect the opinions expressed by the ministers, to take them into account, clarifying their delegation, the task, in order to be able to move forward with the negotiations and the representation of the state’s interests in the negotiations with “Telia”, said the Minister the president.
She also pointed out that it is quite clear that the government wants to maintain the strategic role of the state in both companies, and it should also be clear what the strategic interests of the state are in both companies.
It has already been reported that on July 16 this year, in a closed meeting, the government agreed on further scenarios in the negotiations with “Telia” and instructed the Ministry of Finance to conduct these negotiations.
At one time, a complex management scheme of “Tet” and LMT was created, the change of which the two shareholders - the Latvian state and “Telia” – have so far not been able to agree on.
The state owns 51% of Tet’s shares in the person of “Possessor” SIA “Public assets manager”, while “Telia’s” subsidiary “Tilts Communications” owns 49% of “Tet’s” shares. On the other hand, 49% of LMT’s capital
This theoretically means that currently, through “Tet”, the share of ”Telia” in the capital of LMT is 60.3%, and the Latvian state - 39.7%. However, in practice this does not happen and in fact the state has decisive control over LMT as well, as it has the majority “Tet”. At the same time, it has slowed down a number of strategic decisions that require consensus.
“Telia” initially offered the scenario that LMT would buy the telecommunications business of “Tet” for money, which would be separated into a separate company (conditionally “Tet Telco”), the two existing shareholders of “Tet” would be paid special dividends and “Telia” would sell its 49% to the state “Tet” share, while “Tet” would get the missing 1% LMT share, as a result of which the two main shareholders – the state and “Telia” – would each own 50% of LMT. It was proposed to conduct an initial public offering (IPO) of shares later and to list 20% or more of LMT shares on the stock exchange. Both shareholders would sell part of their shares in the public offering. The top management of the companies would also be affected as a result of the transaction.
State officials have not officially commented on the offer, but have ruled out the possibility that the state could sell its shares. Instead, the possibility of buying back LMT and Tet shares from Telia is being considered.
VAS ”Latvijas Valsts radio und televisie centrs” (LVRTC), which currently manages the state-owned 23% share of LMT, has expressed readiness to participate financially in the buyout of “Tet” or its assets – optical network infrastructure. The president of LMT, Juris Binde, also supported this option, stating that LMT could acquire the client portfolio of “Tet”.
On the other hand, the chairman of the board of “Tet” Uldis Tatarčuks said that “Tet” could buy shares of LMT. In the case of such a scenario, if the shareholder structure of “Tet” does not change, 51% of the combined company would belong to the Latvian state and 49% to “Telia”.
It has already been reported that last year the “Tet” concern worked with a turnover of 295.753 million euros, which was 9.5% less than the year before, but the profit of the concern decreased by 40.1% – to 15.226 million euros. At the same time, the turnover of “Tet” itself in 2023 was 187.204 million euros, which is 19.1% less than in 2022, while the company’s profit decreased by 21.1% and was 18.987 million euros.
Meanwhile, the LMT concern worked with a turnover of 310.269 million euros last year, which was 6.7% more than a year earlier, while the group’s profit increased by 0.6% and was 32.069 million euros. The turnover of the parent company of the concern in 2023 was 175.062 million euros, which is 5.9% more than the year before, while the company’s profit increased by 20.6% and was 34.864 million euros.
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How could the government’s increased control over “Tet” and “LMT” impact consumer services and competition in the telecom sector?
Interview Between Time.news Editor and Telecom Industry Expert
Editor: Welcome to Time.news. Today, we have an esteemed guest, Dr. Alena Krūmiņa, an expert in telecommunications and government policy, who will help us unpack the recent developments regarding the potential restructuring of “Tet” and “LMT.” Thank you for joining us, Dr. Krūmiņa.
Dr. Krūmiņa: Thank you for having me. I’m excited to discuss these critical developments in Latvia’s telecommunications sector.
Editor: Let’s dive right in. The recent government meeting led by Prime Minister Siliņa seems to indicate a push for more strategic control over companies like “Tet” and “LMT.” What do you think the implications of this initiative could be for the telecom market in Latvia?
Dr. Krūmiņa: This initiative highlights a significant shift in how the government seeks to influence the telecommunications landscape. By pursuing negotiations with “Telia,” the government aims to strengthen its control over these companies, which are critical for the nation’s digital infrastructure. Increased state involvement could result in more robust regulations, potentially leading to better services for consumers and a stronger competitive stance against international players.
Editor: The Prime Minister mentioned that strategic negotiations are ongoing and emphasized the importance of the state’s interests. What do you think those strategic interests might encompass?
Dr. Krūmiņa: The state’s strategic interests likely revolve around maintaining a competitive edge in the digital economy, ensuring that national security is upheld in telecommunications infrastructure, and possibly enhancing service provision not just domestically but also for exports. Maintaining a strong foothold in both mobile and cable services will be crucial, especially as these markets continue to evolve rapidly.
Editor: Speaking of market dynamics, Siliņa pointed out that the mobile operator market is quite dynamic. How crucial is it for the government to adapt quickly to the changes in the telecom market?
Dr. Krūmiņa: It’s essential. The telecommunications sector is characterized by rapid technological advancements and shifting consumer demands. If the government does not adapt, Latvia risks falling behind in digital innovation and consumer satisfaction. By proactively engaging with stakeholders like “Telia,” they can formulate a more adept response to market fluctuations.
Editor: There have been rumors about a potential merger between ”Tet” and “LMT.” What are your thoughts on this speculation, especially considering Siliņa’s statement regarding ownership decisions resting with the owners?
Dr. Krūmiņa: While it’s not unusual for companies to contemplate mergers for competitive advantage, the actual decision-making process is complex. As Siliņa mentioned, the owners, in this case, the state and “Telia,” must reach a consensus. While a merger could streamline operations and reduce redundancy, it would also require careful consideration of regulatory approval and the potential impact on consumers.
Editor: Additionally, there was mention of the potential for an IPO of LMT shares. How would this impact the relationship between the state and ”Telia”?
Dr. Krūmiņa: An IPO could significantly alter the stakes. If the government were to sell a portion of its shares in LMT, it could generate substantial revenue while simultaneously diluting its control. However, it could also lead to a supportive partnership with ”Telia,” as both parties would align their interests towards maximizing the company’s market performance. This move could potentially attract more investment, but careful thought must be given regarding the long-term implications for state control.
Editor: Lastly, what should the government prioritize moving forward to ensure successful negotiations with “Telia” and the future of “Tet” and “LMT”?
Dr. Krūmiņa: Priorities should include transparent communication with all stakeholders, clear strategic objectives that align state interests with corporate goals, and the establishment of a robust regulatory framework. Additionally, fostering innovation and ensuring consumer protection should be integral to any plans. The government must navigate these complex negotiations skillfully to preserve its strategic interests while promoting a competitive market.
Editor: Dr. Krūmiņa, thank you for your valuable insights into this crucial issue. Your expertise sheds light on the complexities of Latvia’s telecommunications landscape and the importance of strategic governance in this field.
Dr. Krūmiņa: Thank you for having me. I look forward to seeing how these developments unfold!