Russian Regulator Voices Unease at Alfa's Growing Influence in Mobile Sphere

Russia’s Federal Antimonopoly Service (FAS) has publicly indicated its opposition to the expansion plans of Altimo, the telecoms arm of Russian holding Alfa. Altimo holds a 44% stake in VimpelCom, the country’s second-largest mobile player, as well as a 25% stake in MegaFon, the third-largest player. In recent months, it has indicated its plans to merge its VimpelCom stake with Ukraine’s largest mobile operator, Kyivstar, in conjunction with fellow VimpelCom and Kyivstar shareholder Telenor, as well as plans to merge its stake in MegaFon with its 4.99% stake in Turkey’s Turkcell, in conjunction with fellow MegaFon and Turkcell shareholder TeliaSonera (see Russia: 5 October 2009: Telenor and Alfa End Five-Year Battle with Merger of Russia-Ukraine Assets and 12 November 2009: Altimo and TeliaSonera Agree to Merge MegaFon, Turkcell Assets Into New Company).

Igor Artemyev, head of the FAS, has indicated that the regulator would be “glad” if MegaFon exited either MegaFon or VimpelCom, voicing his disapproval at Alfa’s ownership of stakes in two of the country’s three top-tier mobile operators. However, Alfa has insisted that it has no such plans, instead reiterating in a statement quoted by Dow Jones that it is “striving to follow the process of consolidation in the telecommunications sector”.

Outlook and Implications

• The Fight for MegaFon: It is understandable that the prospect of Alfa's growing influence over two of Russia’s three leading mobile players is of concern to the country’s regulator, given that these three players between them commanded 84% of the country’s 208 million subscribers nationwide at end-2009, according to IHS Global Insight estimates. However, it is also very likely that the regulator has an eye on the state’s own eagerness to gain control of MegaFon through national fixed-line holding Svyazinvest. The holding is 75% minus one share owned by the Russian government, which in recent weeks has confirmed that it is interested in acquiring a controlling stake in MegaFon in order to facilitate entrance into the upper echelons of the country’s mobile market (see Russia: 15 January 2010: Russian Telecoms Shake-Up Beckons as Communications Minister Confirms Svyazinvest Interest in MegaFon). While it seems likely that Svyazinvest will be able to gain the 31% in MegaFon held by billionaire oligarch (and reputed Kremlin supporter) Alisher Usmanov, in order to gain control of MegaFon, Svyazinvest would also need to gain a further stake and neither 43.8% MegaFon shareholder TeliaSonera nor Alfa have given any indication that they are willing to sell up. It remains to be seen whether the Russian regulator can exert any prohibitive power over Alfa as Svyazinvest seeks to gain control of MegaFon.

• Alfa’s Famous Aggression on Show Once More: With a cast list including VimpelCom, MegaFon, Alfa and the Russian state, this affair could become a high-profile dispute to rival the recent saga involving Telenor and VimpelCom in the Russian telecoms sphere. It is of little surprise to seasoned observers of the sector to see Alfa in the thick of the action for the holding has forged a reputation as a particularly aggressive and litigious player, always prepared—and at times seemingly almost eager—to fight its battles in law courts. Having spent years slugging it out with Norway's Telenor for control of VimpelCom—a dispute eventually settled in October 2009—history suggests that Alfa would have no problem in fighting its corner in any potential contest with the Russian state regarding control of MegaFon. If Alfa is truly set on maintaining and consolidating its MegaFon stake, the state and regulator will have their work cut out in trying to manoeuvre MegaFon into Svyazinvest’s hands and some sort of compromise agreement may have to be suggested.