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3G/HSPA

Russia's MTS On M&A Trail

BARCELONA -- Mobile World Congress -- Russian mobile operator Mobile TeleSystems OJSC (MTS) (NYSE: MBT), the world’s seventh largest mobile operator by number of subscribers, is evaluating acquisition possibilities in emerging markets as it looks to grow on its already considerable six-market customer base, according to the carrier’s chief marketing officer Cynthia Gordon.

Talking to Light Reading here in Barcelona, Gordon, who was formerly with Salt SA , said MTS is looking for ways to grow within and beyond its current geographic base of Russia, Ukraine, Belarus, Uzbekistan, Turkmenistan, and Armenia, where it has 85.8 million customers (up to end of September 2007). (See MTS Hits 80M.)

Just recently the operator has made two small acquisitions, one in Armenia and the other in the Volga region of Russia. (See MTS Enters Armenia and MTS Buys Bashcell.)

”We are looking at targeted acquisitions [in our existing markets and] in emerging markets,” building on MTS’s experience of having built up mobile operations in markets with low penetration and limited disposable income. “We’re evaluating opportunities and looking at the potential costs. Some of the best opportunities are in troubled areas,” she added.

Sistema, the giant Russian conglomerate that owns a majority stake in MTS, has already bought into small, up-and-coming mobile Indian operator Sistema Shyam TeleServices Ltd. (See Sistema Ups Shyam Stake, and Russia's Sistema Buys Into India.)

While MTS checks out potential acquisitions, it’s investing in its existing markets and looking at ways to bolster its service offerings. Gordon says MTS has committed $500 million to build out its GSM coverage, and plans to roll out 3G networks in Russia, Armenia, and Uzbekistan during 2008.

It’s also looking at the possibility of branching into fixed broadband to offer customers a bundle of broadband and mobile voice, and is already testing the potential of such offers in Moscow through a partnership with fellow Sistema company, Comstar United Telesystems JSC (London: CMST).

”We’re in discussions about whether to buy, build, or partner” for fixed broadband services, said Gordon.

Despite the carrier’s plans for mobile and possibly fixed broadband, Gordon still sees voice services as the main source of growth for MTS in the coming two years. “Data will grow, especially with 3G, but voice will still dominate growth until 2010,” stated Gordon.

MTS reported revenues for the first nine months of 2007 of $5.9 billion, up 29 percent compared with a year earlier. That growth is, in part, driven by the increasing levels of disposable income that people in Russia, where MTS has nearly 53 million subscribers, and the surrounding markets are enjoying as overall prosperity increases.

But an increasing gross domestic product (GDP) -- from around $600 billion in 2006 to an estimated $1 trillion in 2010 -- doesn’t automatically translate into revenues and increasing average revenue per user (ARPU) numbers, noted Gordon’s colleague, investor relations director Josh Tulgan. “ARPU growth isn’t just about GDP growth -- that’s just the wind, and then you have to catch that in your sails. You have to have the focus and consistency to take advantage.”

— Ray Le Maistre, International News Editor, Light Reading

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