Turkcell revenue up, TeliaSonera may be getting the upper hand

The leading Turkish mobile phone operator Turkcell (ISE: TCELL, NYSE: TKC) reported quarterly earnings last Thursday. Its revenue climbed 12% to 2.44 billion TRY(just above 1 billion Euros) Net profit was down due to one-off items related to hyperinflation in Belarus. Sweden-based telecommunications company TeliaSonera AB (OMX: TLSN ) owns a large stake in Turkcell and has been trying to gain control in it.

In September 2011TeliaSonera said that ICC arbitration tribunal had made its final ruling related to the 2005 Turkcell share purchase agreement between the then Sonera Holding and Mehmet Emin Karamehmet’s Çukurova Group, which would have given Sonera a majority. The court battle was initially on whether this agreement is binding as after agreeing to sell the shares to TeliaSonera, Turkcell decided to make an arrangement for a smaller stake (13%) of shares with Russian Altimo (Alfa Telecom International Mobile), which is owned by Russian oligarch Mikhail Fridman’s Alfa Group, including a major loan.

TeliaSonera and Altimo have since managed to patch things up and have worked in cooperation merging their assets Turkcell and that of the second largest mobile phone operator in Russia called MegaFon. The thought here is to combine these assets into a new listed company. Towards this end the resolution in Turkcell fight is important.

ICC ruled that the new arrangement was against the shareholders agreement with TeliaSonera few years ago and now the tribunal ordered Cukurova to pay 932 million USD in damages plus interest. The tribunal also said that Cukurova had neglected payments to Altimo and Altimo can thus take the shares as bail. This would shift the balance of power in Turkcell from Cukurova to Altimo & TeliaSonera clique.

Russia’s anti-trust Commission has previously rejected a deal to merge MegaFon and Turkcell into a separate company. This was done particularly since the third MegaFon owner Telecominvest has been against it. Another billionaire Alisher Usmanov, often operating through Danish lawyer Jeffrey Galmond, with AF Telecom Holding and Olymp controls a majority in Telecominvest.

Just so that things would not be too clear, TeliaSonera is a minority owner in Telecominvest with 26.1% stake. TeliaSonera and Altimo have felt that the Appeals Committee and tribunal rulings contradicted Russian Foreign Investments Law. The companies wish to include Telecominvest in any resolution to the matter. Likely some kind of complex agreement is needed. Russian entry into WTO may push the matter ahead.

Turkcell has investments in Azerbaijan, Kazakhstan, Georgia and Moldov through Fintur. This was important for TeliaSonera most recently in its decision to increase ownership in Kcell. This is a good example of the complex deals that it sometimes takes to resolve complicated matters in the industry. TeliaSonera has constantly maintained that Turkcell is great company where TeliaSonera is staying long-term.