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

Saturday, 27 June 2009

From a reader: more on the Russian state's mobile ambitions

I drive a bit of traffic to this blog by putting up links to some of the posts in relevant interest groups' news sections on LinkedIn. The only downside of this is that some comments/responses/questions which would add value for readers of DevelopingTelecomsWatch are only visible via these particular groups. By and large, this is not a huge problem for me. This week, however, one reader left such a well-written and insightful comment via LinkedIn, that I wanted to post it once again here for slightly wider consumption.

On Thursday, I picked up on press buzz about the Russian state telecoms investment vehicle Svyazinvest looking to get a lot more active in the sector, particularly in the mobile space. I reflected on the suggestion that this would be done via some kind of link up with one of the country's 'big three' cellcos and wondered which one it might be.

In response, Kiev-based Tim McQuillin leveraged a much better understanding of the Russian market than my own to weigh in with a more thorough analysis than anything I was able to come up with quickly. Over to you, Tim:
I'm not surprised that the Russian government is now turning its sights towards more control over its telecom industry, as it has done with its energy sector and most recently doing with its banking industry. I think a "merger" with a mobile operator would be a euphemism, and will be more like a nationalization.

The economic crisis is creating an opportunity to consolidate its position by taking advantage of the weakened oligarchs who own these businesses. Yevtushenkov (Sistema/MTS) has lost an estimated 90% of his wealth and worth barely $1 billion. Fridman (Alfa/Vimpelcom) has reportedly lost about 70% but is still worth around $7 billion and also is involved with the energy sector.

As MTS and Vimpelcom are both the most attractive mobile targets, the Kremlin would probably be satisfied with either. Therefore, as usual, the oligarch who isn't "playing nice" with Mr. Putin will be the likely loser. In this case, Yevtushenkov and his affiliations seems to fit this bill closer than Fridman, who has generally supported Putin and his party.

So with Yevtushenkov's weakened financial position, his relative distance from Putin, the "merger" with Sistema/MTS seems more likely. Additionally, to merge with Vimpelcom, the State would either need the agreement of Telenor's Vimpelcom board members for the deal or just railroad them. While it has shown it's willing and able to do that to foreign investors, Telenor has proved very tenacious over the years in its battles against Alfa and that it cannot be bullied or pushed out easily. But, if they've tired of the fight, this might be a good chance to sell out and move on. So there is my hedge. :-)

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