VimpelCom Expands in Southeast Asia

International mobile operator group Millicom International Cellular SA (Nasdaq: MICC) has agreed to sell its GSM mobile business in Laos to Russia's VimpelCom Ltd. (NYSE: VIP) and has bidders lining up for its Sri Lankan operations, the sale of which will end Millicom's activities in Asia.

VimpelCom will pay about $66 million for Millicom's 78 percent stake in Millicom Lao Co. Ltd. in a deal VimpelCom CEO Boris Nemsic describes as, "the next logical step in our international expansion strategy" and one that "fits perfectly into our strategy of building a solid Southeast Asian cluster."

VimpelCom already has operations in Vietnam and Cambodia, having launched services in both markets in July 2008. It holds a 40 percent stake in a joint venture established with government-owned GTEL in Vietnam, which created the seventh operator in the country. In Cambodia, the Russian company owns 90 percent of Sotelco, which had acquired licenses and spectrum but had not begun operations at the time of the deal.

In Millicom Lao, VimpelCom is getting a live operation, but it will be in a similar market challenger position, as Millicom is the third ranked out of four mobile operators in Laos. However, Nemsic sees potential, claiming in a statement that, "Laos is attractive, with a population of 6.5 million people and low mobile penetration estimated at around 23%.”

Last month Millicom agreed to sell its 58.4 percent share in market-leading mobile operator CamGSM, Royal Telecam International, and Cambodia Broadcasting Services to its Cambodian partner, The Royal Group, for $346 million in cash.

That leaves just Sri Lanka from Milicom's Asian portfolio, and its operations there are also up for sale.

Millicom is the sole owner of Celltel Lanka (Pvt) Ltd. , which operates under the Tigo brand in Sri Lanka. It was the first mobile operator in Sri Lanka and claims to be the second largest, although the competition is very close between it and Sri Lanka Telecom 's Mobitel, which also claims second position. Tigo is also planning its HSPA deployment, which would help it compete with the Mobitel and Dialog GSM , the country's largest operator (both have the technology).

Bharat Sanchar Nigam Ltd. (BSNL) is the latest to enter the competition for Tigo, with chairman Kuldeep Goyal confirming that the Indian operator has made a bid, according to this Reuter's report.

It is a move that comes as no surprise, as BSNL has been named as a possible partner in the consortium buying up a significant stake in Zain Group . (See Zain's $13.7B Mystery Investors.) It could also provide a much needed distraction for the state-owned operator, which has come under pressure from the increased competition in its home market. (See BSNL Struggles for Subs in May.)

BSNL joins Etisalat , which entered which a bid three days ago and is looking to add Sri Lankan operations to its 45 percent share in Etisalat India, formerly Swan Telecom. (See Etisalat Buys Into India and A Guide to India's Telecom Market.)

Neither company has revealed any details of their bids, which is hardly surprising when others, including Malaysia's Axiata Group Berhad and India's Bharti Airtel Ltd. (Mumbai: BHARTIARTL), are also being linked with possible bids. (See APAC M&A Update.)

Both Axiata and Bharti Airtel already operate in Sri Lanka. Axiata owns Dialog, while Airtel launched a new venture in the country at the beginning of this year. (See Airtel Goes to Sri Lanka.) The purchase of Tigo by Axiata would give Dialog an overwhelming market position, whereas Airtel would provide a strong challenger, which may sit better with the regulator.

Millicom expects to complete all the sales and exit the region by the first quarter of 2010, removing a small but profitable part of its business. At the end of the first quarter, Millicom had a total of just over 4.5 million subscribers in Asia, a 4.25 percent quarter-on-quarter rise and 34 percent increase year on year. Revenues for 2008 from Asia sat at $262 million with an EBDITA of $101.5 million, year-on-year increases of 24.4 percent and 27.5 percent respectively.

— Catherine Haslam, Asia Editor, Light Reading