Mobile services

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.

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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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