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Thursday, 25 June 2009

Russian state telecoms company to go mobile - but how?

A cursory reading of telecoms sector news items emanating from Russia this month makes it clear that a big shake-up of the country's mobile sector may be on the cards. It is less clear what form this will take.

Whatever happens, a reorganisation and a change of priorities for Svyazinvest, the mainly state-owned telecoms holding company, look set to be the drivers for this shake-up.

The change of priorities is a shift from playing mostly in the fixed-line space towards being much more aggressive in the mobile business than is currently the case.

Svyazinvest's key assets are controlling stakes in seven large regional telecoms operators and Rostelecom, the national domestic long-distance and international operator - the Russian Federation does not have a single fixed-line incumbent operator along the lines of those typical of many European, Asian and Latin American countries.

Some of the seven regional operators are quite active players in the mobile space. For example, Uralsvyazinform (the dominant telco in the Urals region) had nearly 5.8 million subscribers on its GSM network by March 2009, according to WCIS. Siberia's Sibirtelecom has slightly fewer subscribers on its own network.

These figures, however, are dwarfed by those of Russia's big three cellcos - MTS, Vimpelcom and MegaFon, which have nearly 159 million subs between them, a collective market share of about 82%.

According to Maria Kiselyova of Reuters, writing this week, the Russian Government wishes to play a bigger role in the telecoms sector "and in the high-yielding mobile business in particular." With this in mind, writes Kiselyova, Svyazinvest has plans "to become the country's fourth-largest mobile phone operator by consolidating its mobile assets and partnering with private regional providers." Citing an article in business daily Vedomosti, she says that Svyazinvest is reportedly discussing partnership a scheme with regional providers, including Tele2.

Tele2 Russia Chairman Yuri Dombrovsky is reported to have said that his company and Svyazinvest could create a joint venture to build a third or fourth-generation mobile network in Russia and that Tele2 would be interested in using Svyazinvest mobile networks in regions where it has no presence, while Svyazinvest would use Tele2's networks in other regions in return.

Other reports this week, however, suggest that Svyazinvest might also opt for a quite different route towards more active participation in the Russian mobile market. A TelecomPaper article, for example, contends that the company "is seeking to close a merger deal with one of the top three mobile operators in Russia," and cites Communications Minister Igor Shchyogolev as saying that this "would be the optimal path for the development of Svyazinvest's mobile business."

If this is the more likely option, I wonder which of the big three cellcos would be involved. A clue might be extracted from a look at the ownership structure of Szyavinvest itself. The Russian Federal Property agency owns 75% minus 1 share. The next largest shareholder, with 17.31% plus one share is Comstar-UTS, whose main shareholder is Sistema - owner of a 52.8% stake in market-leading cellco MTS. I personally find the intricacies of Russian corporate structures to be fairly bewildering at times. Is it naive of me, then, to wonder if an tie-up with MTS is, due to this overlap of interests, more likely for Svyazinvest than an arrangement or merger with either Vimpelcom or MegaFon?

Whether it will be with MTS, another of the 'big three' or with Tele2, various reports do seem to settle around one fairly consistent idea - that Svyazinvest will not remain content with a relatively minor role in Russia's mobile industry. Having organised and hosted a number of telecoms sector conferences in Moscow, I retain an interest in this story and will try to follow it as closely as I can.


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