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. Last Updated: 07/27/2016

Sistema Bundles Up Fixed-Line Operators

Sistema Telecom is consolidating five subsidiaries to create what will be Russia's largest alternative fixed-line operator, company officials said Wednesday.

The operator will include Moscow-based companies MTU Inform, Comstar, Golden Line, Telmos and MTU Intel and will operate "under the umbrella" of the Moscow City Telephone Network, or MGTS.

Sistema owns 56 percent of MGTS, which has a 51 percent stake in MTU Inform, 50 percent in Comstar and Golden Line, 40 percent in Telmos and 25.5 percent in MTU Intel.

"While having control of several companies that do the same business, it's counterproductive for Sistema to make competitors out of them in one market," Sistema spokesman Viktor Isayev said. "That's why the decision was made to consolidate these companies."

Before they can be consolidated, however, MGTS and Sistema must have controlling stakes in all the current operators.

MGTS is now negotiating to buy a 50 percent stake in Golden Line from international high-tech major Alcatel, Isayev said, while Sistema is talking to Metromedia International about buying 50 percent stakes in both Comstar and Peterstar. The latter's participation in the consolidated operator is unclear.

After the consolidation, the new operator's financial results will be included with those of MGTS, Isayev said.

The merger plan was approved by Sistema's board of directors at a recent meeting, although the holding had been considering the reorganization for years.

Analysts applauded the consolidation.

"If MGTS gets a controlling stake in the new operator, it will be very good for the company," said Andrei Bogdanov, an analyst at Alfa Bank. "When investors count the value of MGTS, they do not take into account its shares in several alternative operators."

"The move could lead to a 30 percent jump in MGTS' consolidated revenues and result in about 50 percent of its U.S. GAAP revenues coming from unregulated data and integrated corporate services," said Alexei Yakovitsky, an analyst at the United Financial Group.

MGTS posted revenues of $315 million in 2000, according to generally accepted accounting principles, with $92 million from MTU Inform. MGTS should report GAAP revenues of $380 million for 2001, with $110 million coming from MTU Inform, according to UFG estimates.

Comstar's revenues in 2001 are estimated at $65 million, while both Telmos' and MTU Intel's are estimated at $30 million, and Golden Line's at $15 million.

The consolidation could add to the success of MGTS's issue of level 3 American depositary receipts, which the company has planned for later this year, Alfa's Bogdanov said.

Sistema, however, has not created a brand name for the new operator.

"We would like something that would sparkle at once, something that would attract, but not mislead," Isayev said. "That is why we would like to work on this with the appropriate agencies."