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Vodafone & MTS Ukraine

October 17, 2015

During the hottest days of the summer, your author received an email from the Foreign Office.  Something that is not at all unusual it has to be said.  More often than not (although certainly not always) such emails relate to meetings with wandering attachés that have found, or will find themselves in Odessa, and an invitation to “chat”.

This email was one of the few that didn’t meet that criteria.  It was, at the time, of a confidential nature – because it said so.

Would your author meet with two executives from Vodafone in Odessa?

Thus some weeks following receipt of the email the meeting took place on a hot Tuesday evening.  The subject:  Vodafone, its existing relationship with MTS, and a proposal made by MTS Ukraine to rebrand.  The big question was whether it would be a good idea to allow MTS Ukraine to rebrand itself under Vodafone as it had porposed  – or not?

Unsurprisingly, and which was already widely known before this meeting, MTS Ukraine was seeking to distance itself from MTS in Russia – presumably for Ukrainian domestic consumption purposes.

However, there are a lot of questions to be asked and answered before getting anywhere near a final answer to the big question – and it is was the myriad of other questions and answers that would formulate a positive or negative outcome for MTS Ukraine as far as a Vodafone decision went.  It was for these questions your author’s answers were sought.  They were perhaps very pertinent questions considering the relationship development under discussion, which to many would seem the equivalent to being “half pregnant” as an eventual outcome in the event of a positive decision by Vodafone.

Several hours of discussion followed of which absolutely nothing will be repeated – confidentiality is confidentiality.

It was very clear that a great deal of due diligence had already been done.  It was also clear that the two executives were going to see a lot of people of influence whilst in Ukraine too, and would be asking some very pointed questions.  Vodafone at the time of our meeting were far from committed to accommodating the MTS Ukraine requests.

Whatever one may think of the Vodafone brand, the due diligence that was already evident, and the desire to dig far deeper “in country” was impressive.  Likewise the organisational abilities of the FCO in door-opening and meeting facilitation appeared seamless.

Vodafone

The outcome of it all is that on 16th October, Vodafone and MTS Ukraine announced what is being labeled as a “strategic partnership” under which MTS Ukraine will now sail onward under the Vodafone brand which will begin to appear over the next 3 months.

Thus now this decision has been made, and made public, the fact your author met confidentially with Vodafone executives several months ago is also no longer confidential – albeit the questions asked and the answers given will remain so.

Whatever the final contract may say, and no doubt the lawyers will have worked very carefully upon the devil in a deal such as this one, clearly there are some implications for MTS Ukraine, and Ukraine.

The risks and benefits for Vodafone are not really the subject of this entry – but it is important to touch upon a few issues that will effect MTS Ukraine, and the potential effect upon Ukraine more generally.

Naturally MTS Ukraine will become branded as Vodafone, and as such will hope to distance itself from MTS Russia by way of public perception – or perhaps by public deception depending upon your point of view and a limited ability to look a little deeper, or not.

There are undoubtedly major consequences for the corporate governance within what was MTS Ukraine but will now be branded Vodafone.

In order to use that branding, the Ukrainian company will have to adhere strictly to Vodafone corporate governance – which is to say more than a little stringent, with clear and unambiguous procedures for everything from interaction with journalists and holding press conferences, to relationships with security agencies, corruption (including the full weight of the UK Bribery Act), equal opportunity, grievance procedures, intellectual property rights et al.

In short, when assuming the Vodafone brand, then assume the Vodafone mandatory corporate governance which is unwavering in every nation where the Vodafone brand operates.  Not only will the Ukrainian entity be obliged to assume it, it will be expected to employ it and enforce it – or be prepared to lose the branding rights and also end up in a very expensive London court.  It is beyond doubt that any signed contracts will be extremely explicit over such matters.

It is here that the repercussions for Ukraine as a nation, and its economy, may resonate.

For many years, and has been mentioned in the blog on numerous occasions, intellectual property rights rank very highly within the US Embassy Kyiv when it comes to Ukrainian failures in the economic and legal spheres.  From a US point of view, Ukrainian failure to enforce and protect intellectual property rights is a major repressive factor that actively repels FDI and corporate entry.

Thus Vodafone having gone to great lengths with its due diligence (to the point of even talking to your author) and having allowed MTS Ukraine to rebrand as Vodafone therefore putting Vodafone intellectual property rights by way of its corporate branding (and all that entails) squarely into the Ukrainian fray, sends a particularly strong and positive message to the numerous US corporations that are in consistent contact with the US Embassy Kyiv.

Now it may be argued, as is clear from the official Vodafone statement, that Vodafone are putting little cash or hard assets at risk in Ukraine under this “strategic partnership” – at least so far – but for corporations like Vodafone risking cash and hard assets is usually deemed far less important than risking damage to “the brand” globally.

The internal reverberations of this rebranding/strategic partnership within the Ukrainian entity will be tangible and long felt amongst the corporate management.  That may also be true externally for any pre-existing agreements with the security services, with existing supply chains, with Government Ukraine and now also Government UK.

It may ultimately make only a little difference to end user experiences as far as 3G coverage, bundles and tariffs are concerned (at least for now), and it may fail entirely to separate the public association between MTS Russia and the new rebrand of what was MTS Ukraine, which was undoubtedly a major driver for the MTS Ukraine approach to Vodafone – but it seems fairly likely to change the perceptions of those outside Ukraine looking in, both by way of feeling able to impose “best practice” corporate governance upon existing Ukrainian entities, and also with regard to the timing of any market entry they may have been considering.

(It is necessary to point out that any benefits to Vodafone, – or not – have been deliberately ignored in this entry, for this is not a “telecoms blog”, nor a “big business blog” – it is a blog about Ukraine.)

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