Scartel acquisition to give MegaFon the 4G edge: Fitch

MegaFon’s planned takeover of Scartel will put it at the top of a three-tier market for the provision of next-generation mobile services in Russia, according to a statement from ratings agency Fitch.

Scartel (Moscow, Russia) had originally set itself up with the intention of building a 4G LTE network that could be used by all of Russia’s main cellular operators, but it has failed to attract any customer besides MegaFon (Moscow, Russia).

MegaFon’s planned takeover of Scartel will put it at the top of a three-tier market for the provision of next-generation mobile services in Russia, according to a statement from ratings agency Fitch.

Scartel (Moscow, Russia) had originally set itself up with the intention of building a 4G LTE network that could be used by all of Russia’s main cellular operators, but it has failed to attract any customer besides MegaFon (Moscow, Russia).

Last week, MegaFon unveiled details of a $1.2 billion bid for the 4G operator, which operates under the brand name Yota and serves about 600,000 customers.

According to Forbes, besides giving MegaFon a competitive edge over rivals MTS (Moscow, Russia) and VimpelCom (Moscow, Russia), the deal would represent some consolidation of assets owned by Russian billionaire Alisher Usmanov, who owns more than 50% of MegaFon and more than 80% of Garsdale, the holding company behind Scartel.

According to Fitch, the deal would also position MegaFon as the leading operator in Russia’s 4G market.

MegaFon controls more spectrum than any other Russian operator, while Scartel clearly has a significant headstart in the country’s 4G market.

Fitch reckons MTS and VimpelCom still have enough spectrum to compete effectively against a combination of MegaFon and Scartel, but questions the outlook for state-backed fixed operator Rostelecom, which has been linked with a takeover of Tele2 (Moscow, Russia), a smaller operator currently owned by Russia’s VTB Bank.

The ratings agency says Rostelecom would have to significantly increase capital expenditure to compete with the country’s existing mobile operators following a takeover of Tele2.

Although an acquisition of Scartel would push MegaFon’s leverage close to the top of its target range, Fitch believes the strengthening of the operator’s market position would offset this impact.