Russia Buys Into MTS India
In a deal that strengthens its political underbelly, Sistema Shyam TeleServices Ltd. (SSTL), which operates under the name MTS India, is to have the Russian government as one its main investors.
MTS India's majority stakeholder, Russian conglomerate Sistema JSFC (London: SSA), announced that, following a new share issue, the Russian government paid about US$600 million for approximately 17 percent of the Indian CDMA mobile operator's capital, leaving Sistema holding a 57 percent stake in MTS India. Jointly, Sistema and the Russian government hold a near 74 percent stake in MTS India, just under the threshold allowed by Indian law.
MTS India, which holds licenses for all of India's 22 telecom circles (service areas), plans to use the proceeds from the stake sale to further invest in its CDMA EV-DO network and launch operations in additional circles. (See MTS India Signs Up for Advanced CDMA.)
The operator has also just signed a $200 million loan deal with Russia's Gazprombank to help fund its expansion plans.
MTS India currently has more than 8 million customers in 13 circles, having recently launched in Gujarat.
Why this matters
MTS India, which did not participate in this year's 3G spectrum auction, is at a crucial stage in its development. Its strategy relies on the uptake of its CDMA-based data services, which it needs to develop and promote further as quickly as possible, as it is about to face much stronger mobile data competition from rival operators that are rolling out their 3G networks. (See MTS India Puts Its Faith in Data, Data Is India's Next Tariff Battlefield , and Reliance Com Joins India's 3G Club.)
To do that it needs new investment, as it can't simply rely on current cashflow. The operator may raise further funds in 2011 from an IPO. (See MTS India Aims for 2011 IPO .)
The investment from the Russian government is also important from a political perspective, as it will give the operator additional bargaining experience and influence as it negotiates with the Indian government, currently embroiled in a seemingly never-ending 2G spectrum scandal, about the validity of its licenses: MTS India is one of five carriers that face having some of their 2G licenses cancelled if the Telecom Regulatory Authority of India (TRAI) gets its way. (See India's Regulator Wants 2G Licenses Revoked and India Telecom 2010: In the Shadow of Scandal.)
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