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Unformatted text preview: INTEGRATIVE CASE 2 TeliaSonera: A Nordic Investor in Eurasia1 E; w: How did TeliaSonera grow from being a local telecom provider in the Nordic region to El a trend-setting international player in Eurasia markets? 2. Canan Mutlu, University of Texas at Dallas Today, climbers can have 3G access on Mount Everest to brag about their experience on top of the world. How- ever, not many people know that it is a Nordic company providing this service in such an alien environment. The company is TeliaSonera, which provides telecommunica- tions (hereafter “telecom”) services in a Wide geographic area from Nordic countries to Nepal that includes the emerging and highly valued Eurasia markets. TeliaSonera is the fifth largest telecom operator in Europe and has operations in Azerbaijan, Belarus, Denmark, Estonia, Finland, Georgia, Kazakhstan, Latvia, Lithuania, Mol- dova, Nepal, Norway, Russia, Spain, Sweden, Tajikistan, Turkey, Ukraine, and Uzbekistan. As a Swedish~Finnish company, TeliaSonera launched V the world’s first 4G network. Spanning from the Nordic ‘ and Baltic countries to the Himalayas, TeliaSonera serves more than 150 million customers in total. Listed on NASDAQ OMX Stockholm and NASDAQ OMX Helsinki, TeliaSonera had net sales of around US$159 billion and EBITDA of US$56 billion, and enjoyed a market value of US$31 billion as'of April 2010. How did TeliaSonera grow from being a local telecom provider in the Nordic region to a trend-setting international player in Eurasia markets (see Exhibit 1)? Merger of Telia & Sonera TeliaSonera emerged as a company after the merger of Telia of Sweden and Sonera of Finland in 2002. Telia’s history goes back to the early 19003, when the Swedish government established a state-owned monopoly tele- phone company in the name of ROyal Telegraph Ser- vice, which became Televerket in 1953. How could a state—owned monopoly evolve into a modern, private, and competitive company? The rules of the game began to change for the telecom industry toward the end of the 20th century, First, accelerated technologies in the form of cordless and mobile phones forced Televerket to re-evaluate its organizational capabilities. Second, new private players started to enter the Swedish telecom market. Third, the fall of the Berlin Wall in 1989 presented new invest- ment opportunities in Eastern Europe markets. With an urge to modernize the company and respond to these opportunities and challenges, Televerket was privatized and removed from the national budget in 1984. After investing in several Eastern Europe coun- tries, Televerket converted into Telia AB in 1993, a private and competitive company that operated both in Sweden and Europe’s liberalized telecom market. Finland was governed by Russia between 1809 and 1917, and its telegraph operations had been part of the Russian state telegraph system since 1855. However, as Finland declared independence in 1917, the country’s tele- phone system went under the control of private parties, unlike the early state monopoly of Sweden. However, the government still controlled the expansion of telecom sys- tems in rural and international areas. In 1921, about 850 private telecom companies united into a federation, which ' was named Finnet later in 1996. Eventually, the Finnish telecom market had two major players, one state-owned and one private. The telephone part of the state-owned company turned into a commercial company in 1994 in the name of Telecom Finland. Introduced in the stock exchange in 1998, the company’s name changed to Sonera. 1 This case was written by Canan Mutlu (University of Texas at Dallas) under the supervision of Professor Mike Peng. © Canan Mutlu. Reprinted with permission. 404 INTEGRATIVE CASE 2 TeliaSonera: A Nordic Investor in Eurasia 405 EXHIBIT 1 TeliaSonera's Eurasia Operations . - : - A I A o A A ' ' o A I - - o - A o - 11 A o - - I n ' A A - Azerbaijan 9 mil ion Azerce 51.3% , 1 4 m'll'on 55% “aiiu1shggsg GeOcel _, , moot, ' '1‘ 2mill‘on' ' 44% _' " Kazakhstan 16.5 million Kcell 51% 1 L 9 mill'on 50% 0" Moldcell100% _ L ‘ 2 907,000 32% Nepal H [28.5 million Ncell 80.0% 2 4.1 million 42% RUSSIa 1.141.911.11111111511- 1 :ll/legaFon 1",‘43180/0 ~ , ‘2 r 57 million , 26% - Tajikistan " 7.1 million Tcell L 60% 1 1.7 million 36% Turkcell 38% 1 34 million ‘ 55% Uzbekistan 27.8 million 7% l H’Ucell l 94% 2 7 million 32% Source: TeliaSonera website, . The fall of the Berlin Wall in '1989 and the EU’s new telecom policies presented both challenges and opportu— nities. Financial restrictions and the necessity to face new opportunities with a stronger cooperation led Telia of Sweden and Sonera of Finland to merge in 2002. In the Baltic countries, Telia and Sonera joined forces to build fixed and mobile networks. They were on the scene even before the collapse of the former Soviet Union in the early 19903. Telia already had experience operating mobile companies in various countries in) Asia, Africa, Latin America, and Europe. The most significant aspect of this collective power was displayed in its Eurasia expansion. Eurasia Expansion Distinguishing its markets as mature and growth mar— kets, TeliaSonera identified its operations under three business areas: mobility services, broadband services, and Eurasia (see Exhibit 2). Mature markets especially consisted of the Northern Europe countries, where cus— tomers demand value-added services that can best be used with smartphones. The leading growth market, Eurasia, was named as its growth engine by TeliaSonera. TeliaSonera developed aggressive goals for its Eurasia operations: (1) double—digit revenue growth, (2) defend- ing the EBITDA margin, (3) taking a leading position in mobile data, and (4) increasing ownership in core hold- ings. What are the underlying reasons that led to the successful expansion of TeliaSonera in these challenging yet attractive markets? TeliaSonera’s operations in Eur— asia, where the institutional frameworks are either in transition from planned to market economy or relatively weak compared to Europe, can be examined under the lens of the strategy tripod in terms of the resource-based, institution-based, and industry-based views. First, TeliaSonera leveraged its decades of telecom expertise developed in Nordic countries in the developing countries of Eurasia region. The technical know-how and deep customer understanding of the company as unique resources enabled operations in difficult areas to be smoother and less problematic. TeliaSonera utilized its know-how specifically in infrastructure investments in the region. The highly technological and better quality network investments provided TeliaSonera a leading edge in the region compared to local competitors. This high 406 INTEGRATIVE CASE 2 TeliaSonera: A Nordic Investor in Eurasia EXHIBIT 2 TeliaSonera’s Business Areas MOBILITY SERVICES EURASlA Mobile communication services. The business area is composed of mobile operations in Sweden, Finland, Norway, Denmark, Lithuania, Latvia, Estonia, and Spain. TeliaSonera is the biggest telecom investor in Eurasia. The business area is composed of mobile operations in Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, Moldova, and Nepal. The business area is also responsible for developing TeliaSonera's shareholding in Russian MegaFon and Turkish Turkcell. Source: TeliaSonera website, . investment cost turned into a larger and more satisfied customer base, upgrading TeliaSonera into the leading positions in most countries. Moreover, the technology expertise reflected in infrastructure investments expedited the government relations and related bureaucratic issues. Second, TeliaSonera faced certain challenges due to weak institutional settings, especially in former Soviet Union countries in Eurasia. Although each country is in a different phase of transition to market economy, the economic, legal, and regulatory systems are still highly bureaucratic and risky. The ambiguity in the institutional frameworks brings additional risks for businesses, signifi- cantly increasing the costs of investments. The telecom industry has further liabilities in terms of infrastructure spending and related fix costs. TeliaSonera’s success in its Eurasia expansion lay in utilization of strong business and "government ties that were developed in decades throughout the company’s history in the region. Third, the market conditions in Eurasia countries pre- sent many opportunities for technology companies. In contrast to developed European countries, fixed networks are not as developed, which in turn makes these countries rely more on mobile networks. This in fact means a jump into a higher technology for consumers. Moreover, mobile network penetration is lower in Eurasia than in TeliaSonera’s mature markets, offering a great deal of potential for TeliaSonera’s mobile operations. There are fewer competitors, which enables higher margins to be reaped. Moreover, many Eurasia markets welcome for- eign direct investments (FDI).as a source of economic development. These market conditions not only increased the attractiveness of the region for TeliaSonera but also the likelihood of future investments. Another significant aspect of market conditions is a larger and younger population that is the number one customer group of new technologies and telecom services in Eurasia countries. This provided a huge sales oppor- tunity for TeliaSonera’s telecom services in the region. For example, although it is below the level of developed economies, the use of mobile data services showed an increasing trend and constituted a big share in total revenues in Eurasia markets (see Exhibit 3). Moreover, improved macroeconomic situations and growing econo- mies led to strong subscription intake, which increased revenues by 16% in 2010. By further leveraging its cap— abilities, TeliaSonera set its target to become the number one player in Eurasia and neighboring region, which has a population of more than 380 million. Alliances and Acquisitions in Eurasia How could a Nordic company with roots in highly developed markets in Europe expand in such politically risky and institutionally ambiguous settings? Savvy use of alliances and acquisitions in Eurasia appeared to be a key. Itself the result of a merger between Telia of Sweden and Sonera of Finland in 2002, TeliaSonera certainly understood the importance of alliances and acquisitions. Its alliances and acquisitions throughout Eurasia resulted in enviable performance in many host countries, often commanding either the number one or number two positions (see Exhibit 1). INTEGRATIVE CASE 2 TeliaSonera: A Nordic Investor in Eurasia 407 EXHIBIT 3 TeliaSonera’s Mobile Data Potential and Revenues Source: TeliaSonera website, . Nepal is an interesting case study for TeliaSonera‘s challenges in Eurasia. After TeliaSonera’s acquisition of 80% equity of Nepalese youth brand MeroMobile in 2008, the start-up company, which was now called Ncell, grew into a GSM leader in the whole country. However, the ‘réad 'to success had serious difficulties. There was an ongoing political and security crisis involving terrorist attacks and union strikes, which negatively affected multi— nationals. TeliaSonera contributed to the efforts to over- come such host country difficulties by offering world-class technologies to this country traditionally suffering from poor telecommunications and also by generating local jobs and employment opportunities. The base stations (cell transmission towers) increased from 300 to 1500 in three years. As a result, the percentage of the population covered by mobile TeliaSonera networks increased from 44% to 80%. Another significant contributor was the use of local employees. Other than employing 25 expatriates, Ncell created 500 solid jobs for locals in a variety of positions. Mobile Broadband Market Maturity Stages Mobile Data as Percent Ireland €523in ,4 Penetration 5 s a . .Rism : 1 : Romania : : : 3' Poland Tajikistan Azerbaijan ~3:‘~ ' “ , :Georgia Nepal/rm Uzbekistan . I 9;; "a" _ .. 'India .. _ _ .- I _________________ I _________________ of Total Revenues l-Finland Netherlands Ncell 3% Denmark Tcell 3% Geocell 3% Moldcell 4% Azercell 6% Ucell 6% Kcell 8% Time J TeliaSonera’s operations in Eurasia aimed to be the trendsetter in these highly dynamic and low penetra- tion markets. For example, its alliance with a local player, Kcell (in which TeliaSonera held a 51% share), was the first company to launch GPRS technologies that provided Kazakhstan people the opportunity to access Mobile Internet, WAP, and‘ MMS services. Kcell owed its reputation to providing the best net— work coverage and also distribution systems in the whole country. In addition, the young and dynamic population generated a promising customer base for mobile data services, which already made 8% of total Kcell revenues. ~ New Branding Strategy Operating in such a broad geographic area, TeliaSonera refined its branding strategy to identify its operations under one brand image in 2009. Eighteen brands of TeliaSonera from Nordics to Nepal began to use the 408 INTEGRATIVE CASE 2 TeliaSonera: A Nordic investor in Eurasia same brand image to convey the customers the message of unity under a strong, multinational brand. At the same time, the local brand names were not altered. Lars Nyberg, CEO and president of TeliaSonera, explained: a i..»£5$§2€l Our strength lies in the combination of two features: leading and local. We are one of Europe’s leading operators with international strength and reach. At the same time, we have strong local brands and operate very close to our customers on each market. Therefore, it is natural to keep the name of the strong local brands but adding a unifying visual brand symbol. This strategy also clearly difierentiates us from our competitors. new mime”... r... :mfxlfihx" Ngmrmwmmmwgmvs. ma,“ QLVJE’.’ The most interesting aspect of this change was that the new branding strategy was first tested in the Eurasia markets in Kcell (Kazakhstan), Geocell (Georgia), Ncell (Nepal), Tcell (Tajikistan), Azercell (Azerbaijan), Moldcell (Moldova), and lastly in Ucell (Uzbekistan) as seen in Exhibit 4. The new brand identity united the local companies under the same umbrella and turned out to be a success in the region that led the companies to protect their leading market positions. Defined as “the next step on our journey to unify the company” by Lars Nyberg, the new branding strategy took off from Eurasia and spread to the Nordic and Baltic region. This harmonization in branding enabled TeliaSonera tomfurth’er" spread and better defend its extensive telecommunication technology in risky but high opportunity markets. Sources: Based on publicly available information and press releases of TeliaSonera. The following sources were primarily helpful: (1) TeliaSonera CEO’s speech Annual General Shareholders Meeting April 6, 2011; (2) TeliaSonera Annual Report 2010; (3) TeliaSonera Investor Day, 2011. EXHIBIT 4 TeliaSonera's Eurasian Brands Azercell UCCH Source: © 1999 Cartesia Software. All rights reserved. Map Resources is a trademark of Cartesia Software. CASE DISCUSSION QUESTIONS 1. How would you characterize the competitive intensity and attractiveness of the telecom industry in Eurasia by using Porter‘s Five Forces? Many multinational companies fail in their expansion in emerging economies. What are the main capabilities and resources that drive TeliaSonera‘s successful growth in Eurasian markets? Given the institutional differences between European and Eurasian markets, what are the main challenges faced by TeliaSonera in its international expansion strategy? Which strategies enable TeliaSonera to minimize the risks of these challenges? How does TeliaSonera differentiate itself from its competitors in Eurasian markets? ...
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