Russia's MTS Quits Uzbekistan

Sale of majority stake in UMS leaves Uzbek government in full control of the business.

Iain Morris, International Editor

August 8, 2016

3 Min Read
Russia's MTS Quits Uzbekistan

Russia's MTS has sold its mobile business in Uzbekistan to the government following allegations by US authorities that it had paid bribes to secure operating licenses in the country.

The company, which operates Russia's largest mobile network, is to make a write-off of about 3 billion Russian rubles ($46.1 million) as a result of the move, which will leave Uzbek authorities in full control of the Uzbek operator.

Mobile TeleSystems OJSC (MTS) (NYSE: MBT) is one of several foreign service providers that have faced allegations of corruption in the central Asian state, with Amsterdam-headquartered VimpelCom Ltd. (NYSE: VIP) and Sweden's Telia Company also accused of bribing officials in recent years.

In a statement released late on Friday, MTS said it had sold "at no cost" its 50.01% stake in Universal Mobile Systems, its Uzbek subsidiary, to the country's communications and IT ministry, which already held the other 49.99% stake in the company.

"Due to a variety of business reasons and other circumstances, MTS decided to sell its stake in the joint venture UMS LLC," said Andrei Smelkov, MTS's vice president, in a company statement.

UMS began operating in Uzbekistan in January 2014 but accounted for less than 2% of MTS's overall revenues in the January-to-March quarter of this year, generating sales of 85.2 billion Uzbek som ($28.7 million).

Losses at the business ran to about UZS12.5 billion ($4.2 million) in the same period, substantially narrower than the loss of UZS41.9 billion ($14.1 million) reported in the year-earlier quarter.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

The RUB3 billion ($46.1 million) write-off could weigh on the third-quarter earnings of MTS, which reported a net profit of RUB14.5 billion ($223 million) on revenues of RUB108.1 billion ($1.7 billion) in the first quarter.

MTS has been beset by various regional challenges in the last couple of years, with the falling oil price triggering a currency devaluation in Russia and an economic slowdown across a number of markets in central Asia. (See MTS's Russian Resolution and Russia's MTS Upbeat on Sales as Profits Dip.)

Nevertheless, the operator has continued to report earnings growth thanks largely to growing interest in mobile data services in Russia. Revenues rose by 7.9% in the first quarter, compared with the year-earlier period, while net profit was a third higher.

VimpelCom and Telia have also suffered as a consequence of a US government investigation into their Uzbek activities. The former paid a $795 million fine earlier this year to settle matters, while Sweden's Telia made a $622 million write-down of its Uzbek assets. (See Eurobites: 'Uzbekgate' Costs VimpelCom $795M and TeliaSonera to Quit Eurasia, Focus on Europe.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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