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. Last Updated: 07/27/2016

Comstar CEO Resigns After Losses

VedomostiA Comstar stand at a Moscow trade fair. Industry experts link Comstar's losses to a $62 million executive bonus plan.
Comstar CEO Eric Franke stepped down on Wednesday amid speculation that the country's largest alternative phone operator was in for an overhaul after recently reporting a disappointing quarterly loss.

Comstar is expected within a week to appoint Sergei Pridantsev, CEO at Center Telecom, one of fixed-line operator Svyazinvest's seven regional units, as the company's new CEO, spokeswoman Yulia Yasinovskaya said.

The board said in a statement Wednesday that it had agreed to Franke's request to be released from his employment contract to take up a position with another, unspecified business. Franke was leaving his post with immediate effect, the statement said.

Nikolai Tokarev, the company's vice president and chief financial officer, would serve as interim CEO until "a decision is made to elect a new president," the statement said.

Eric Franke
Alexander Goncharuk, CEO of Comstar parent company Sistema, said Wednesday that Franke's exit was not connected with Comstar's performance. Franke "loves to travel and it appears that the time has come for him to go traveling again," Goncharuk said.

Comstar last month reported a fourth quarter 2006 loss of $63.1 million on operating revenues of $ 1.12 billion. The company raised nearly $1 billion in an initial public offering on the London Stock Exchange in February 2006 and paid $1.3 billion to acquire a 25 percent stake in state fixed-line operator Svyazinvest in December.

Industry watchers have linked Comstar's loss to a $62 million executive bonus plan and said the firm lacked a credible turnaround strategy.

"Rival Golden Telecom is the yardstick Sistema used to measure performance at Comstar, but while its rival had a 20 percent profit last quarter, Comstar came out with a loss," said Yelena Bazhenova, a telecoms analyst with MDM Bank. "There was high expectation that Franke would bring order to the chaos with Comstar's corporate clients by consolidating its many small operators and raising the quality of service, but nothing happened."

Bazhenova also said Franke had failed to utilize funds raised through the IPO for an aggressive push into the regions.

Franke, 51, joined Comstar last June from Mobile TeleSystems, another Sistema company. He replaced Semyon Rabovsky as Comstar CEO.

Goncharuk said at the news conference that Pridantsev had been tapped to replace Franke starting Thursday.

Comstar shareholders are expected to meet within a week to confirm Pridantsev in the job, Yasinovskaya said.

"Pridantsev is a young, effective manager who successfully increased the viability of Center Telecom, salvaging it from the brink of collapse in the space of a year," Bazhenova said.

Alex Kazbegi, an analyst with Renaissance Capital, said the change was "no more than the replacement of one good performer with another."

Vitaly Kupeyev, an analyst at Alfa Bank, said Franke's successor would have his work cut out.

"Comstar over the years acquired many small businesses that had little in common [with each other] in their structure and governance," Kupeyev said. "It is difficult to optimize corporate governance without a vertical line of command."