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. Last Updated: 07/27/2016

Broadband Boosts Svyazinvest Profits

Svyazinvest reported Wednesday that its net profit nearly doubled last year but said it could have performed even better with less state interference.

Svyazinvest's net profit surged 48.5 percent to 12.3 billion rubles ($473 million) in 2006, compared with 8.4 billion rubles the previous year, while revenues increased 13 percent to 210 billion rubles, the state-controlled fixed-line monopoly said in an unaudited report posted on its web site.

CEO Alexander Kiselyov credited the increase in profitability largely to a growth in popular new services such as broadband Internet. The number of Internet subscribers almost tripled to 690,000 last year, he said. "Introducing the most advanced and most needed services will be our main priority from now on,'' Kiselyov said in a statement.

Government interference, however, is hampering the firm's development, spokesman Oleg Mikhailov said. "If Svyazinvest had been allowed to focus on its businesses, it would have become a world leader in providing communications services," he said. "No other company or corporation puts 46 percent of its capital expenditures into state-related social expenditures as we do."

Svyazinvest would be able to earn more by expanding "in unregulated sectors, such as broadband Internet and mobile phones for the regions," he said, saying the company's mobile phone subsidiaries Sibir Telecom, Ural Svyazinform and Volga Telecom had accounted for 30 percent of the company's profit last year.

The only way to make the company more efficient is to privatize it, said Vitaly Kupeyev, a telecoms analyst for Alfa Bank. "To make it productive, it must be decentralized and all its seven regional subsidiaries put under efficient private management," he said.

The company's larger 2006 profits are not indicative of efficient performance, said Nadezhda Golubeva, analyst at Aton Capital. "If it posts good results as a state holding, it will post better results as privatized company," she said.

An adviser to IT and Communications Minister Leonid Reiman reiterated the ministry's view that Svyazinvest should be privatized. "Our ministry has done the spadework on Svyazinvest, and we believe privatization is the right thing to do," she said, asking that her name be withheld because she was not authorized to speak with the media.

The IT ministry adviser said the Economic Development and Trade Ministry was responsible for approving privatizations. Calls to the economic ministry's press service went unanswered.

Privatizing Svyazinvest has been the declared goal of the government since 1997, when it sold a blocking stake to U.S. financier George Soros. Soros called the deal the worst investment decision of his life and later sold the stake. It now is in the hands of Sistema.

At a meeting Tuesday, Svyazinvest's shareholders rejected changes to the company charter that could have allowed Sistema to have a decisive role in running its affiliates. Sistema spokesman Kirill Semyonov said Wednesday that the changes had been rejected for technical reasons and the company was waiting for a revised version.