BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Telecomunications Sector of Latvia

Based on an evaluation of the subscriber data published by Latvia's regulator and by the sector's mobile operators, BMI estimates that the number of cellular subscribers increased by 5.2% in the first half of 2007. Subscriber growth in Q107 amounted to 2.7%, while in Q207, the sector grew by 2.5%; this growth was on the back of a 14.7% increase in subscribers during 2006. By the end of 2006, there were 2.184mn mobile subscribers in Latvia, giving the country a penetration rate of 95.8%.

In addition to changes to our Latvian mobile forecast figures, which predict that penetration will rise to above 140% by the end of 2012, in this report we have updated and extended our forecasts for the development of Latvia's fixed-line and broadband markets. We anticipate that the fixed-line market will grow by around 1.4% in 2007 and by 1.2% in 2008. Recent data shows that the number of fixed lines actually increased by 1.5% in 2006 and by 1.7% in 2005; this growth followed several consecutive years of decline. The number of fixed-lines operated by Lattelecom continued to fall in 2006, affected, among by mobile substitution and by increased fixed-line competition. Meanwhile, all of the most recent growth appears to have come from alternative fixed-line operators such as Latvenergo and cable operator Baltkom. We predict that these operators will generate further, albeit gradual growth in the years ahead.

One of the most significant developments within Latvia's telecoms sector in the past few months was the announcement, in August 2007, that TeliaSonera had signed a Memorandum of Understanding with the Republic of Latvia and a Lattelecom management buyout consortium, in order to increase its stake in mobile operator, LMT, from 60.27% to 100%. Under the agreement, TeliaSonera will acquire the Republic of Latvia's 28% stake and Lattelecom's 23% stake in LMT. The MoU also contains plans for TeliaSonera to divest its 49% stake in Lattelecom to the company's management buyout consortium; the Republic of Latvia will also sell its 51% stake in Lattelecom to the company's management.

Following the August announcement, it was revealed in September 2007 that private equity firm Blackstone had been chosen to back the Lattelecom management buyout offer. The total takeover is worth LVL290mn (US$575mn), with Blackstone and a consortium of banks providing financing for the deal. Blackstone will invest LVL90mn (US$178mn) for a 51% stake in Lattelecom, while the remaining 49% of the firm will be held by Lattelecom management and employees. Once the purchase is complete, Blackstone will, among other things, help finance the expansion of Latvia's broadband infrastructure.

Latvia is the lowest ranked of the three Baltic States in BMI's telecoms business environment ranking, and currently sits at the mid-point of our table. The country scores relatively well on competition and regulation issues, although there is room for improvement in these areas. Furthermore, although strong mobile and broadband growth has helped to push Latvia further up our rankings table, the country suffers from limited growth opportunities which stem from its small population and relatively poor economic long-term risk.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - Business Environment

Latvia Telecommunications Industry SWOT Analysis

Chapter 3 - Industry Forecast Scenario

Fixed-Line

Table: Latvian Telecoms Sector Mobile Historical Data & Forecasts

Internet

Table: Latvian Telecoms Sector Internet Historical Data & Forecasts

Mobile

Table: Latvian Telecoms Sector Mobile Historical Data & Forecasts

Chapter 4 - Macro-Economic Forecast Scenario

Table: Latvia – Economic Activity

Chapter 5 - Competitive Landscape

Market Structure

Table - Key Players: Latvia Telecommunications Market

Table: Selected Operators Financial Indicators

Key Players

Fixed-Line

Table: Regional Fixed-Line Penetration Overview

Internet

Table: Regional Internet Penetration Overview

Mobile

Table: Regional Mobile Penetration Overview

Market Data

Fixed-Line

Internet

Mobile

Table: Latvian Mobile Market, Q206 (estimates except for LMT and Bité)

Industry Developments

Chapter 6 - Company Monitor

Regional Case Study: Nokia

Table: Nokia Key European Network Contracts

Operator Profiles

Lattelekom

Latvijas Mobilais Telefons (LMT)

Tele2 Latvia

Baltkom TV

Siemens Latvia

Chapter 7 - BMI Forecast Modelling

How we generate our industry forecasts

Telecommunications Industry

Sources

Competitive Landscape for Europe Telecommunications Reports: Sample of Companies Ranked

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Commentary on key operators highlighting ownership structures, latest available revenue figures, market share analysis and ARPU counts. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company SWOTS Covering all leading telecommunications operators and manufacturers operating in each market, including competitive intelligence on geographic presence and competitive positioning against local companies; local market share; leading products, services and technologies; foreign direct investments, projects, merger and acquisition strategies.

Network of European Telecommunications Sources

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BMI's European Telecommunications Reports are based on an extensive network of multilateral organisations, government departments, telecommunications industry associations, chambers of commerce and company reports. Information sources include:.