Bloomberg News

Rostelecom May Lose Control of Mobile Business Upon Tele2 Merger

October 08, 2013

OAO Rostelecom, Russia’s state-run telecommunications operator, may cede control of its mobile business after a tie-up with VTB Group’s (VTBR) Tele2 Russia Holding AB, according to the bank’s chairman.

“As far as I remember, Tele2 Russia assets are valued higher” than Rostelecom’s mobile assets, VTB Chairman Andrey Kostin said in an interview in Bali. “I can’t tell whether Rostelecom will get 40 percent or 49 percent,” he said, adding that an independent appraisal is needed.

VTB, which acquired Tele2 Russia in April for $2.4 billion, is weighing a joint venture with Rostelecom’s mobile assets to form a nationwide operator, Vedomosti reported earlier this month. Tele2 Russia may consider “M&A activities” by the end of this year, VTB Deputy Chairman Yuri Soloviev said last week, without elaborating.

While Tele2 Russia has 23 million users in Russia versus Rostelecom’s almost 14 million, the state-run company holds wireless licenses for Moscow, the most lucrative region, and a nationwide permit for faster mobile networks. VTB valued Tele2 Russia at 126 billion rubles ($3.9 billion) in its first-half financial report.

A merger between Tele2 Russia and Rostelecom’s wireless unit may form the fourth-largest countrywide mobile operator in Russia, challenging billionaire Alisher Usmanov’s OAO MegaFon (MFON), billionaire Vladimir Evtushenkov’s OAO Mobile TeleSystems (MBT:US) and billionaire Mikhail Fridman’s VimpelCom Ltd. (VIP:US)

“The mobile business requires very high capital spending,” Alexander Vengranovich, an analyst at Otkritie Capital, said by phone. “That’s why Rostelecom is relying on partners to develop it and focuses on fixed-line broadband instead.”

Rostelecom picked a new strategy to focus on fixed-line broadband and may rely on partners to help develop its mobile business, Kira Kiryukhina, a spokeswoman, said by phone yesterday, declining to elaborate further before the plan is approved by Dec. 4.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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Companies Mentioned

  • MBT
    (Mobile Telesystems OJSC)
    • $13.61 USD
    • 0.65
    • 4.78%
  • VIP
    (VimpelCom Ltd)
    • $5.83 USD
    • 0.09
    • 1.54%
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