* Board meeting on Wednesday put mobile spin-off to
* Plans to contribute mobile assets to a JV with Tele2
* Q3 revenues rise 2 pct yr/yr driven by broadband, pay-TV
(Adds board meeting results, detail on possible share buyback)
By Anastasia Teterevleva
MOSCOW, Nov 20 Russian state-controlled telecoms
group Rostelecom aims to merge its mobile business
with Tele2 Russia, the country's fourth-biggest mobile operator,
before the end of the year, its chief executive said on
The new venture will create a stronger rival to MTS,
Megafon, and Vimpelcom, although analysts have
said it remains to be seen whether the new combine will manage
to defend its position and grow.
A former landline monopoly, Rostelecom was reorganised
several years ago in an attempt to win a bigger share of
fast-growing markets such as mobile, broadband, pay-television
and information technology.
The fifth-biggest mobile phone operator by subscribers, it
had long been expected to buy Tele2 Russia from Sweden's Tele2
but in April Tele2 sold the Russian business to state
bank VTB which in turn sold half of it to Russian
businessmen Yuri Kovalchuk and Alexei Mordashov.
Rostelecom now plans to spin off its mobile assets into a
joint venture with Tele2 Russia, Rostelecom's Chief Executive
Sergei Kalugin said on Wednesday, confirming media reports.
"We are less efficient in terms of operating results than
our competitors including Tele2 ... We want to attach our small
coach to this locomotive," Kalugin told reporters.
He declined to comment further. According to media reports
Rostelecom may get a 45 percent share of the venture but also
might have an option to eventually buy out VTB. VTB has said
previously that it could part from its stake in Tele2 Russia
through an initial public share offering for the mobile firm.
Rostelecom's board on Wednesday put the spin-off on the
agenda of a Dec. 30 shareholder meeting and set a price for
buying out those shareholders who do not support the move at
123.93 roubles per ordinary share and 87.80 per preferred share,
a premium of 7 to 14 percent to Wednesday's prices.
"We are waiting for this deal to be approved and expect
shareholders to vote in the nearest future," Kalugin said,
adding there were reasons for doing the deal before the end of
"We need to defend our (market) segment ... A strategy of
developing both (fixed broadband and mobile) is more risky."
The company said, however, that it was not going to exit the
mobile business but will develop it with partners.
Rostelecom said earlier on Wednesday a focus on broadband
and pay-TV paid off in the third quarter as it reported a 2
percent rise in revenue to 78.2 billion roubles ($2.4
billion)despite a 3 percent fall in its core local telephony
Revenue from pay-TV and broadband rose 27 and 8 percent
respectively and the company also increased inter-connection and
transit services by 21 percent, while mobile revenues fell 6
percent despite higher subscriber numbers.
Rostelecom's board was initially due to discuss the mobile
spin-off on Tuesday but the meeting was postponed due to a lack
of government instructions on the vote, Rostelecom said.
The postponement came as Russia's state property agency,
owner of a 47 percent stake in Rostelecom, complained that the
lack of control over the mobile venture may dent the company's
valuation ahead of its privatisation.
The government may sell its Rostelecom stake next year as
part of a wider privatisation plan.
The state's only sale this year saw diamond miner Alrosa
raise $1.3 billion in a share market flotation last
In a Nov. 18 letter to Deputy Prime Minister Arkady
Dvorkovich, the head of the agency, Olga Dergunova, also called
for the state to take greater control of Rostelecom's board,
according to newspapers Vedomosti and Kommersant.
The government controls more than 51 percent of Rostelecom
through the shares held by the state property agency as well as
by state development bank VEB.
Earlier Rostelecom reported a flat third-quarter operating
profit before depreciation and amortisation (OIBDA) of 29.4
billion roubles. Net profit rose 12 percent to 10.5 billion
roubles ($321 million), helped in part by lower financial costs
and better purchasing terms.
Rostelecom's shares last traded down 1.23 percent at 115.69
($1=32.7265 Russian roubles)
(Additional reporting and writing by Maria Kiselyova; Editing
by Greg Mahlich)