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. Last Updated: 07/27/2016

Austrians in Talks to Buy Belarussian Phone Firm

Telekom Austria said Monday that it was in talks to buy a Belarussian company, a deal analysts said would signal that the country's tightly controlled telecoms sector was opening up to foreign investment.

The Austrian firm was looking at buying one of Belarus' largest mobile operators for more than 1.6 billion euros ($2.2 billion), Austrian Press Agency reported Friday.

The company confirmed Monday that it was looking at a potential acquisition in Belarus but could not "give any additional statement at this point in time," saying only that the company "reiterates its strategy for profitable growth."

The Belarussian Communications Ministry could not be reached for comment Monday.

Analysts said that if successful, Telekom Austria's bid would represent a big shift in the Soviet-style economic policy that Belarus has pursued under President Alexander Lukashenko. It could spur growth in the country's telecoms market and pave the way for Russian firms to increase their presence there, they said.

"Despite high growth prospects, telecoms companies are rather coy to invest in Belarus because of the government's tight grip on all sectors of the economy," said Vitaly Kupeyev, a telecoms analyst with Alfa Bank. Kupeyev said that up to now, the Belarussian telecoms sector was classified as "strategic," meaning that foreign companies could not own more than 49 percent in a company, adding that such regulations have stifled growth and harmed competition.

With a population of 9.7 million, Belarus has more than 6.3 million subscribers, according to the country's Communications Ministry. The mobile penetration rate is 62 percent, according to figures from consultancy J'son & Partners.

The country's largest mobile operators are Mobile TeleSystems-Belarus, which controls 54.3 percent of the market with 2.25 million subscribers, and Mobile Digital Communications, whose brand Velcom has 41.9 percent. Both are majority-owned by the state, as are their smaller competitors Best and BelCel, which have 2.3 and 1.4 percent of the market, respectively.

An aide to Communications Minister Nikolai Pantelei said that Mobile Digital Communications came under foreign control last month, but declined to provide information on the buyer, Bloomberg reported.

Of Russia's big three mobile firms, only Mobile TeleSystems has a presence in Belarus. It holds 49 percent in MTS-Belarus, with the Belarussian government holding 51 percent. Since 2001, MTS has made several attempts to acquire a majority stake in the joint venture.

"We have always stated our intention to buy a controlling stake in MTS-Belarus but so far it was not was on offer," said Irina Osadchaya, spokeswoman for MTS in Russia.

Anna Kurbatova of Aton Capital said that while the Belarussian telecoms market was attractive, it was also fraught with risks, mainly political.

"MTS has been struggling to have some control over the operations of its company in Belarus, but it failed to secure agreement from the government," Kurbatova said. "The political risks are significant."