Telia's Exit from Latvia: Strategic Implications and Investment Opportunities in a Restructured Market

The telecom sector in Latvia is undergoing a seismic shift as Telia Company, the Swedish telecommunications giant, exits its 100% stake in Telia Latvia, selling the local unit to Tet for €10.75 million. This divestiture, part of a broader strategy to streamline Telia's global operations, marks the beginning of a new era in Latvia's telecom landscape. With the Latvian government poised to fully acquire Telia's remaining stakes in Tet and LMT through state-owned entities like Latvenergo and LVRTC, the sector is set for a strategic reconfiguration that could unlock significant value for investors.

The Ownership Shift: From Foreign Control to State Consolidation

Telia's exit is driven by a complex ownership structure that has long hindered operational efficiency. Currently, the Latvian state holds 51% of Tet and 28% of LMT, while Tet itself owns 23% of LMT. Telia's indirect stake in LMT totals 60.3%, creating a web of interlocking ownership that requires unanimous decision-making. The government's plan to simplify this structure by acquiring Telia's shares—projected to cost hundreds of millions of euros—will centralize control under state-owned entities. This shift is not merely a transfer of assets; it's a strategic move to position Latvia's telecom infrastructure as a unified, publicly traded entity.

The government's involvement signals a long-term vision: preparing Tet and LMT for a stock exchange listing. Such a move could inject liquidity into the sector, attract foreign capital, and align Latvia's telecom assets with European market standards. For investors, this transition represents a unique opportunity to capitalize on a market undergoing structural reform.

Valuation Dynamics and Strategic Rationale

The €10.75 million sale of Telia Latvia to Tet reflects a valuation of 10x FY 2021e EBITDA, a modest but pragmatic multiple in a sector where infrastructure investments often outpace short-term earnings. However, the larger government buyout of Telia's stakes in Tet and LMT is expected to command a significantly higher valuation, with unofficial estimates ranging between €550–600 million. This premium is justified by Latvia's robust telecom infrastructure, including its 50% fiber penetration rate (second in Europe) and ongoing 5G expansion.

The government's funding strategy—leveraging state-owned entities and potential private capital—adds another layer of complexity. By avoiding direct use of the state budget, the government aims to minimize fiscal strain while still securing control. For investors, this hybrid model suggests a phased approach to value creation, with the eventual public listing serving as a catalyst for broader market participation.

Investment Opportunities in a Restructured Market

Latvia's telecom sector is primed for growth, driven by regulatory support, infrastructure investment, and evolving consumer demand. The country's focus on 5G and fiber expansion aligns with broader European trends, with telecom expenditure projected to grow at 2.3% annually, reaching €684 million by 2028. Key developments include:
- Spectrum Auctions: The recent 700MHz band auction raised €13.27 million, underscoring the regulator's commitment to 5G infrastructure.
- Cross-Border Coordination: Latvia's collaboration with Estonia and Lithuania on 5G spectrum management has enhanced coverage in border areas, reducing interference and improving service quality.
- Fiber Expansion: Tet's recent 10Gb/s FttP service in Riga highlights the sector's technological ambitions, with rural FttP coverage already among the highest in Europe.

For investors, the post-divestiture landscape offers three key entry points:
1. Infrastructure Plays: Companies involved in 5G rollout and fiber deployment, such as Tet and LMT, are likely to benefit from government and private sector investment.
2. Public Listing Opportunities: The eventual stock market debut of Tet and LMT could create high-growth equities, particularly if the companies leverage their strategic assets to scale operations.
3. Special Economic Zones (SEZs): Latvia's SEZs, including the Riga Free Port and Latgale zone, offer tax incentives and infrastructure support, making them attractive for telecom-related ventures.

Risks and Considerations

While the outlook is optimistic, investors must remain vigilant about challenges:
- Regulatory Scrutiny: The government's procurement processes have faced criticism for favoring state-aligned contractors, raising concerns about transparency.
- Labor Constraints: Latvia's demographic challenges and labor shortages could delay infrastructure projects, impacting timelines and costs.
- Shadow Economy: A significant informal sector may distort market dynamics, affecting revenue predictability.

Conclusion: A Market at the Inflection Point

Telia's exit from Latvia is more than a corporate retrenchment—it's a strategic repositioning of the telecom sector under state stewardship. By simplifying ownership, accelerating infrastructure development, and preparing for a public listing, Latvia is creating a foundation for sustained growth. For investors, this transition offers a rare window to engage with a market at the intersection of regulatory reform and technological innovation.

The key question is timing. As the government finalizes its acquisition in mid-2026 and moves toward a stock market listing, early-stage investors could capture undervalued assets before broader market participation drives up valuations. Meanwhile, the sector's alignment with European digital transformation trends—5G, fiber, and AI-driven services—positions Latvia as a regional hub for telecom innovation.

In a world where telecom infrastructure is the backbone of economic growth, Latvia's restructured market presents a compelling case for long-term investment. The challenge lies in balancing the sector's potential with its inherent risks—a task that rewards patience, due diligence, and a strategic eye for value.