Kazakhtelecom received permission to purchase 75% of Kcell

Andrey KozhokaruJuly 12, 2018

On July 11, the Antimonopoly Committee of Kazakhstan approved the deal proposed by Kazakhtelecom to purchase a 75% stake in Kcell.

The Regulator put forward the following requirements:

1) A preservation of existing tariff plans within 3 years after the transaction

2) An increase in the range of services offered to subscribers

3) An expansion of 4G coverage to rural areas (population over 4 000) until 2021.

4) An introduction of 5G standard until December 31, 2021.

5) A preservation of Activ and Kcell brands

6) A preservation of existing agreements with other market participants on joint development of infrastructure

7) A maintenance of the separate business activity of Kcell, which should not depend on the main shareholder

The Antimonopoly Committee supported its decision by the fact that the Swedish Partner carries out the management of JV Tele2-Altel and, as a result, Kazakhtelecom does not have a market share in the mobile segment. In the case of the transaction, the Company's share in the mobile segment will be around 37.5% (Kcell’s share).

Our opinion:

Despite the fact that the approval of the transaction by the Regulator is not a guarantee for its completion, as was highlighted by Kazakhtelecom, we believe that the deal will eventually occur. A number of requirements put forward by the Antimonopoly Authority are ambiguous. The JV agreement has non-competition provisions that could be enacted in case of the deal occurrence. We put our recommendation on Kazakhtelecom under review. A detailed analysis of the terms of the transaction will be included in our report on Kazakhtelecom.