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. Last Updated: 07/27/2016

Minister Backtracks, Awards GSM License

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The Communications Ministry has issued without a tender a third GSM cellular license to a provider in the Volga region that is owned by a company on whose board the communications minister used to sit.

The GSM allocation to MCC-Saratov 98 percent-owned by Communications Minister Leonid Reimans former company St. Petersburgs Telecominvest almost mirrors the granting of a third Moscow license to Sonic Duo in June. That license was also awarded without a tender.

The move came as a surprise to some industry observers, since Reiman stated this summer that he would not issue a third GSM license to regions with less than a 10 percent cellular penetration.

The Volga region, despite being one of the nations largest markets, has a penetration level of less than 1 percent.

"Its incredulous," said Michael Alexeyev, senior consultant at Json&Partners.

The Communications Ministry was not available for comment Friday.

Alexei Ionov, a spokesman at Northwest-GSM, which is 45 percent owned by Telecominvest, said in a telephone interview that the Telecominvest subsidiary MCC-Saratov already has GSM licenses for a few of the smaller regions in the area and that the new license was a logical expansion.

The thrust into the Volga region is on track with Telecominvests declared strategy to expand into the regions and become a dominant player outside the more lucrative Moscow and St. Petersburg markets.

"We want to develop a national network of GSM companies," Bloomberg quoted Ionov as saying. "We want to be the leader in Russias regions."

Telecominvest, a strong player in northwest Russia, said Thursday that it had acquired 51 percent stakes in three telecoms: in the Northern Caucasus, Siberia and the Far East. All three already hold GSM licenses.

Including the license granted MCC-Saratov, which Telecominvest bought into last year, Telecominvest subsidiaries now have licenses in 77 of Russias 89 regions, Ionov said.

The companys eastward march is part of its recently announced Project Megafon, which calls for buying up shares in local operators. This is partly funded by its strategic Swedish partner Telia. Telecominvest plans to invest $100 million in the project next year and $150 million in 2002.

Telecominvest has applied for a fifth share issue that is expected to increase Luxembourg-based First National Holdings stake from 75.1 percent to 85 percent, Interfax reported.

If and when MCC-Saratov begins operating, it will be competing with Moscow powerhouse Vimpelcom and local company SMARTS. Yet another player, Sistema, which holds 42 percent of Vimpelcom rival Mobile TeleSystems, or MTS, is reportedly looking at buying into SMARTS. SMARTS and Vimpelcom received their licenses in a murky tender in March 1998.

Andrei Braginsky, telecoms analyst at Renaissance Capital, said that allocating the license without a tender is an unpleasant follow-up to the frequency scandal that shook the confidence of the telecoms industry in September, when the ministry moved to commandeer frequencies from Vimpelcom and MTS to make room for a newcomer, Sonic Duo.

"One would think that the Communications Ministry had learned its lesson after the frequency shenanigans," he said in a research note.