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Will MTS Return to Uzbekistan?
November 29, 2012 12:11

The Tashkent city court has ruled in favour of four managers of Uzdunrobita, the Uzbek subsidiary of a leading Russian cell phone operator, MTS. The court overturned an earlier decision to confiscate and nationilize its property and bank accounts with a $600 million payment, which is roughly the value of its local assets.

This news revived hopes that MTS might be able to return to one of the largest markets in Central Asia.

Bitter Battle

Uzbekistan’s largest mobile provider, controlling some 40 percent of the market, Uzdunrobita got into trouble in July when its lines were switched off for alleged repeated violations and failure to act on the orders of the Uzbek Communications Agency.

In August 2012, the company lost its licence, and with it, 9.5 million subscribers and in September, the court ordered to put its assets under arrest, upholding a lawsuit filed by the Prosecutor General's Office which sentenced four of the operator's top-level managers to three years’ probation on fraud charges.

Uzbekistan's tax and antitrust agencies stepped in, laying claims worth $1.35 billion in total.

Out of Control

MTS rejected the accusations saying it was a clear attempt by the movers and shakers in the power to oust an industry leader from the market and seize valuable assets.

The company has said it is just the latest victim, citing other foreign players who’ve had similar problems – Russia's Wimm-Bill-Dann, now part of PepsiCo, Carlsberg, U.S. firm Newmont Mining Corp  and telecom group MCT Corp, India’s Spentex Industries, Israeli Metal-Tech Ltd, British Oxus Gold Plc, and Kazakhstan’s United Cement Group.

Before the legal debacle, Uzdunrobita accounted for 3.6 percent of its total sales and 4.5 percent of its OIBDA last year.

Russia Strikes Back

Russia's Interior Ministry opened a criminal case on charges of restricting competition.

The Russian parliament began drawing a bill to defend the interests of subsidiaries of Russian companies operating abroad.

But the most effective tit-for-tat step appears to be the arrest of a three-storey apartment in central Moscow that belongs to Uzbek president’s daughter Gulnara Karimova on November 2. There has been no official explanation as to the reason for the move but the situation with Uzdunrobita began to improve.

Surprise Support from the U.S.

In August, a group of five congressmen signed a letter to Uzbek President Islam Karimov urging him to ensure due process for Uzdunrobita. According to Forbes magazine, they said they understood the need for an investigation but warned that MTS has important shareholders in the US because its shared are traded on NYSE. 

More info on Russia's cell phone operators here.

More on the case in an interview with MTS' Vice president Michael Heecker.


Author: Mikhail Vesely

Tags: Uzdunrobita MTS Russian business mobile operators  

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