Telecoms to Be Included as a Strategic Sector

Itar-TassThe VimpelCom-Golden Telecom merger being toasted by CEOs Alexander Izosimov, left, and Jean-Pierre Vandromme.
The government wants foreign investors to seek its permission for buying control of mobile and landline communications companies, a measure that could hamper growth in the booming sector, according to draft legislation made public Thursday.

The requirement is the latest addition to the bill seeking to regulate foreign investment in strategic industries that are crucial for national security.

Some of those additions, such as Internet providers, the print media and the fishing industry, have raised concerns that the definition of strategic is being stretched too far, however.

Buying control of a company that "dominates the communications services market" or "holds a significant position" in the landline communications network would become subject to government approval if the proposals became law.

The broad definition of applicable communications companies appears to encompass both landline and mobile operators. The phrase "significant position" is likely to leave room for interpretation by officials.

Strong opposition to the new requirement came from the IT and Communications Ministry at a meeting held Thursday by the State Duma's Construction and Land Policy Committee, which oversees the bill.

If the bill takes effect it will "hamper investment on the communications market and will no doubt cause stagnation in the industry," Deputy IT and Communications Minister Alexander Maslov told the committee.

Communications companies need investment to continue consolidating their assets -- a process that is currently going on -- and install digital lines to replace antiquated Soviet-era equipment, he said.

Maslov also criticized the inclusion of Internet providers as strategic companies, saying more than 95 percent of the country's 10,000 Internet providers are small operators serving city districts or small or mid-sized towns.

The government has said its proposals governing foreign access to strategic industries are meant to define clear rules, but some investors raised concerns that the number of such industries had grown from 39 to 43 since last fall when the bill passed a first reading.

In the proposals, made public this week, the government wrapped several space-related industries into one industry and added such new sectors as media, Internet services provision, publishing, printing and fishing.

While the Cabinet is sponsoring the bill, the final decision about amendments was made at a Kremlin meeting of senior presidential administration officials with ministers and key lawmakers, said Martin Shakkum, head of the Construction and Land Policy Committee.

IT and Communications Minister Leonid Reiman did not attend the Kremlin meeting, which was chaired by Kremlin chief of staff Sergei Sobyanin, Shakkum said.

Lawmakers should not change anything in the bill because it has the blessing of senior Kremlin officials, Shakkum said.

"It would be wrong, I think, to not listen to their opinion," he said. "It would mean that the State Duma is contradicting the people to whom the president has entrusted the responsibility for national security."

Committee members, representing all four Duma factions, voted unanimously to adopt the amendments.

The amendments, if approved, could seriously restrict foreign telecom majors from vying for such lucrative assets as Svyazinvest, said Anna Kurbatova, an analyst at UniCredit Aton.

Svyazinvest is now state-controlled but the government is looking to privatize it eventually.

"If the government is talking of privatizing Svyazinvest, for instance, part of the calculation should involve big foreign investors with the necessary funds," Kurbatova said.

A senior executive at a foreign-owned telecoms company, speaking on condition of anonymity, praised the proposals, however, saying that they defined "a clear playing field in the business of acquisition and ownership of telecom companies in Russia."

The country's telecoms market, both fixed-line and mobile, has presented attractive opportunities for foreign investors. Last month, VimpelCom, the No. 2 mobile operator, paid $4.3 billion to acquire Golden Telecom, the country's largest independent fixed-line operator. The deal gave VimpelCom more than 400,000 new broadband Internet customers and a strong foothold in fixed-line services.

VimpelCom is jointly owned by Norway's Telenor, with a 33.6 percent stake, and Alfa Group, with 37 percent. Most of the remaining shares are free float.

The Duma committee on Thursday also rushed through long-expected amendments to the subsoil resources bill, voting to accept them without debate. If foreign investors want to buy control of fields that the amendments describe as having "federal significance," they will need to seek government permission.

The committee also quickly rebuffed a proposal from a Gazprom representative to expand the list of such fields to include natural gas deposits that contain helium.

Shakkum told him to try and find a consensus with the government first.