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. Last Updated: 07/27/2016

MTS Eyes Caucasus Operator

Mobile TeleSystems is close to gaining a foothold in the Northern Caucasus -- seen as the most lucrative region for cellular subscribers outside Moscow and St. Petersburg -- by buying a big stake in Kuban-GSM.

The deal has not been signed yet, but media reports Thursday indicated it is all but set in stone. Kuban and MTS refused to comment.

Vladimir Gorbachev, general director of regional telephone operator Kubanelectrosvyaz, which owns 24 percent of Kuban-GSM, said a deal to sell a piece of the operator could be closed this December, although he did not name a buyer.

It is still unclear how large a stake No. 1 mobile operator MTS would take in Kuban, which has been valued at $120 million to $135 million, though sources close to the negotiations have said it would most likely be a controlling stake.

An MTS spokeswoman would not confirm that talks were being held, saying only that they are interested in the region to fulfill their ambitions of becoming a nationwide operator.

With 320,000 subscribers, Kuban-GSM is Russia's largest regional operator and fourth-largest overall.

Norwegian operator Telenor, a strategic investor in No. 2 mobile operator Vimpelcom, was reportedly also negotiating for a stake in Kuban-GSM. Vimpelcom-R, Vimpelcom's arm responsible for regional expansion, holds a license for the area but has yet to begin operations.

Currently, MTS is the only one of the "Big Three" -- the term given to Russia's leading three GSM operators, MTS, Vimpelcom and Telcominvest's Megafon project -- that lacks an operating license for the region.

Telecominvest has shown impressive growth in the area since launching Mobicom-Kavkaz in mid-August, having signed up 50,000 subscribers through November.

Vimpelcom-R, which could end up the latecomer, will not necessarily lose out, said Michael Alexeyev, senior consultant at J'son and Partners.

He noted how MTS, whose early Moscow entrance as a GSM operator helped it dominate the local market, is now being challenged by Vimpelcom.

"The first GSM entrant indeed has an advantage in any geographical area," Alexeyev said. "But newcomers might very well turn the situation around."