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. Last Updated: 07/27/2016

The government approved a controversial $33 billion plan Thursday to expand the telecoms industry, aiming to attract investment but proposing limiting foreign stakes in local firms.

The 10-year blueprint outlines the ministry's plans to reduce loss-making services, win investment and connect more Russians — 6 million of whom are waiting to have phones installed — to the network.

Communications Minister Leonid Reiman said that half or more of the funds he expected the sector to attract would come from reinvestment by more profitable, streamlined state operators themselves.

"In regard to foreign investors, we are planning several measures: effective tariff policy, and transparency to allow investors to see what is happening in the companies, and transparent government regulation," Reiman told reporters.

Among investor-friendly measures, Reiman said the ministry would start conducting tenders for licenses, including next generation UMTS licenses.

The government would forgo cash auctions for the licenses, instead holding "beauty contests" for the broadband wireless system, which will allow users faster Internet access.

Reiman said tariff regulations had left Svyazinvest, the state telecoms holding that owns 78 regional telecoms and the national long-distance carrier, with a market capitalization less than Russia's three U.S.-listed private operators.

The ministry said that under its restructuring of the state telecoms sector, which dominates the market outside Moscow, Svyazinvest's regional operators will be consolidated into seven firms and tariffs brought in line with cost and investment needs.

The ministry expects the restructure to at least quadruple Svyazinvest's market capitalization.

Reiman said Svyazinvest would aim to list the companies on a Western exchange if their value could be raised.

But analysts said some of the ministry's proposed measures — namely a possible cap on foreign stakes — were not what investors were looking for.

The program says a key task is to "consider limiting foreigners direct access to the communications market as well as direct and indirect foreign majority participation in the charter capital of communications organizations."

Despite being asked by reporters three times, Reiman was unable to detail exactly how the plan will limit foreign investors' stakes and to what percent.

"The government should talk about how to attract strategic foreign investors and not how to limit their presence," Aton brokerage analyst Andrei Braginsky said. He also criticized the idea of creating a universal service fund to help struggling and ineffective companies by mandatory contributions from all operators. "The fund may become and instrument of the state to transfer funds from alternative operators to … local operators and Rostelecom," Braginsky said in a research note.

"The ministry has reaffirmed its reputation as 'investor unfriendly,'" said Yevgeny Golossnoy of Troika Dialog.

"We will support domestic investors, but only by the means used throughout the whole world, that are supported by the World Trade Organization, Reiman said.

"No one is going to seize anything from anyone," Reiman said.

(Reuters, MT)