News, views and commentary from the telecoms sector across emerging markets and developing countries worldwide

Tuesday, 5 May 2009

Russian cellco happy to do business in Georgia's disputed regions

Today's Guardian newspaper carries news of the Tbilisi Government denouncing an army mutiny as a "Russian-backed attempted coup". While the Russian Government has yet to respond, "the Kremlin has frequently rubbished claims of agreements between its special forces and Georgian elements hostile to Saakashvili's government", states the article. Even from within Georgia, there are those who are not inclined to believe today's claims, which were articulated to Reuters by the country's defence mininster David Sikharulidze. Georgia's former defence minister, Giya Karkarashvili, does not believe these claimes, telling reporters in Tbilisi he was sceptical of claims of a planned coup attempt, suggesting they were fabricated by the government to dampen opposition.

Clearly, the tensions which sparked last August's conflict in South Ossetia remain unresolved. In March, I reflected here on how this impacts the telecommunications industry in Georgia, as part of a longer piece on telecoms service provision in the world's various unrecognised states, disputed territories and breakaway republics.

In that entry, I noted that Russian cello MegaFon has attracted criticism in some circles for, as UK lawyer Anthony Julius alleges, operating in South Ossetia since 2004, and in Abkhazia since 2003 without "a licence to operate in either region".

Recent news suggests that MegaFon is not uncomfortable working in these regions, both of which are recognised by the vast majority of UN member states as integral parts of the territory of Georgia.

Last Monday (27th April), Telegeography carried news of the Russian MNO completing the purchases of Aquafon and Ostelecom, two mobile network operators in Abkhazia and South Ossetia respectively. The article provides a useful recap of MegaFon's recent activities in these territories:
  • The GNCC (Georgia's telecoms regulator) won a claim that before the August conflict operations controlled by MegaFon covered only part of the former Autonomous Republic of South Ossetia, but that in August the operator unlawfully expanded its coverage area and exceeded the conflict zone to include the regions of Gori and Kareli.
  • In October 2008 the Administrative Panel of the Tblisi City Court rejected MegaFon’s appeal against the GNCC's ruling on the Russian's cellcos "unlicensed use of radio frequency spectrum within Georgia's sovereign territory".
  • In December 2008 CommsUpdate reported that the same court turned down a secondary appeal by MegaFon seeking the dismissal of a USD360,000 fine imposed by the Georgian National Communications Commission (GNCC) for operating without a licence in South Ossetia.
MegaFon's recent purchases suggest the company is unconcerned by these problems. The operator may be buoyed by news of recent news of profits rising by 37.2% in Q4 2008.

According to a recent Cellular News article, sales rose by 25%, EBITDA rose 28.5% and the margin rose to 50.8 percent from 49.4 percent a year ago. CEO Sergei Soldatenkov cites cost savings as key: "We have thoroughly managed the structure of our expenditures in response to the slowdown in economic growth." CAPEX will be cut from USD2.2 billion in 2008 to around USD1 billion this year, according to the article.

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