Nils Melngailis has resigned as CEO of 49 % TeliaSonera-owned Lattelecom effective April. TeliaSonera should be worried.
Whatever problems the half-mother may have had with Nils, he at least kept the company growing and profitable. Maybe they saw him as a bit of a loose cannon, pushing into the Eastern markets that half-mommy wanted for herself and into the outsourcing space. But every year, the cannon fired almost half a golden cannonball into the Swedes’ pockets.
OK — growing a fixed line business in the age of convergence would have hit a wall in any case, but Melngailis departure, leaving Lattelecom with no one at the helm, should accellerate and amplify the inevitable decline, or at best, stagnation. After all, the company added only around 2000 new fixed subscriber lines last year (while DSL subscribers rose to over 150 000 out of 620 000 customer lines). But the mobile market had more than 2 million users.
About the only ray of hope is that Melngailis is still sticking to his offer (now as a private investor?) to buy out TeliaSonera’s share together with the Blackstone Group and then run the company on an ironclad management sets policy deal with the Latvian (loonie-tunes) government keeping 51 % as hitherto.
If you ask me, the owl’s tail will blossom (pūcei aste ziedēs), as Latvians say, before the government goes for this deal, which means that Melngailis would come back as the top honcho at Lattelecom. His leadership and his team were the reason the giant US investor agreed to the original MBO and continued to hope for a stake in Lattelecom even after that was rejected on January 17.
So where does that leave the half mother? Holding a leaking bag, if you ask me. It has been told that it will never be allowed to buy the rest of Lattelecom, and now it cannot easily sell its current holding, since there are no realistic buyers. We might go back to the swap of 49 % of Lattelecom for the rest of Latvian Mobile Telephone (LMT). That deal could have been done in late 2006, but wasn’t.
Without Melngailis and given the rapid pace of change on the telecoms market, the value of Lattelecom will start to decline very rapidly. The Swedes could try to renegotiate a management agreement (there was one until 2004, with Sonera and later TeliaSonera executives running the company) to at least protect their interests, but it will be difficult to let their CEO invest in any significant new projects, since the half-mother’s position is one of hold until you can divest.
If a politicized CEO is appointed by the government (as is likely), Lattelecom could start losing significant business customers, creating an opportunity for LMT and others to jump in with an offering of nearly-full-spectrum services (mobile, fixed mobile, wireless broadband). That would put the half-mother in the bizarre position of luring away the fattest cats (you expected rats?) from its own sinking boat. This, of course, has been happening in the context of mobile for fixed substitution without anyone sinking.
The best outcome might be to go back to Plan B 1.0, swap the 49 % plus a big cash payment for the remaining LMT shares, and let the government amuse itself with 100 % ownership of Lattelecom. It would also make the case for finding a new CEO easier, since the mandate would be to run a state-owned company with politicians breathing down one’s neck. There are people who have done that in Europe and elsewhere.