UPDATE 1-New pay TV, broadband clients lift Rostelecom sales

Wed Nov 21, 2012 6:17am EST

* Total Q3 revenues rise 2 pct to 77 bln roubles

* Net income up 8 pct yr/yr to 9.9 bln roubles

* Expected management shake-up to keep stock volatile (Adds details, analyst comment, share price, background)

MOSCOW, Nov 21 (Reuters) - Russian telecoms firm Rostelecom , whose chief executive is embroiled in a fraud investigation, posted a rise in quarterly sales on Wednesday as new pay TV and broadband subscribers helped to offset a declining fixed-line business.

Investigators searched the home of CEO Alexander Provotorov on Tuesday in a probe that is not related to the state-controlled firm, but which analysts expect to hasten a long-expected management reshuffle.

Newspapers reported last month that Provotorov, who took the helm at Rostelecom in July 2010, could be replaced by Vadim Semyonov, the head of state telecoms holding company Svyazinvest who studied law with Prime Minister Dmitry Medvedev.

Rostelecom, the former fixed-line monopoly, is emerging as a universal telecoms provider after a major restructuring aimed at catching up with growing demand f o r broadband and pay-TV and adjusting to the shift towards mobile phones from fixed lines.

In the third quarter, its pay-TV revenues jumped 40 percent, boosted by an increase in subscribers, while cloud and IT solutions and renting channels to other operators were the other two big drivers. Broadband revenues grew 9 percent, also helped by more subscribers, Rostelecom said in a statement.

Mobile revenues rose 2 percent, which the company attributed to its acquisition of Sky Link.

These growing segments offset declines in its local and long-distance fixed-line business, helping total sales to reach 77 billion roubles from 75.25 billion a year ago.

Net profit climbed to 9.9 billion roubles ($316 million) from 9.2 billion a year ago, due mainly to lower income tax after the consolidation of the loss-making Sky Link.

"The results generally confirm the company's reasonably strong fundamentals based on the data services growth potential. However, the share price in the coming months will probably be volatile, driven primarily by corporate events," Uralsib analysts wrote in a note.

Rostelecom's shares were down 0.6 percent by 1010 GMT to 119.8 roubles, lagging the broad market index and valuing the company at around $12 billion.

Following its acquisition of Sky Link, completed at the end of July, Rostelecom said its closest mobile competitor Tele2 was the only big potential target, fuelling speculations over a possible tie-up.

According to newspaper Vedomosti, Rostelecom and the Swedish telecoms company - the fifth and fourth-biggest mobile operators in Russia respectively - are discussing a merger that could hand Tele2 control over combined mobile assets but give an option for Rostelecom to buy out Tele2 over time.

Rostelecom had no comment on a possible merger with Tele2.

($1 = 31.2995 Russian roubles) (Reporting by Maria Kiselyova; Editing by Lidia Kelly and Mark Potter)