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Wednesday, July 05, 2006

Russian Roulette

When you are a Russian Cellular Operator and an asset comes up for sale in a CIS country with a market share of 88%, you’d jump at the chance to buy it. The country is Kyrgyzstan, the asset is Bitel and both the Russian cellular titans, MTS and Alfa, jumped at the chance to buy it and both of these companies have a penchant for bar room brawling.

Back in Dec 2005, MTS announced to the world they had bought 51% of the company for $150m even thought the ownership was dubious to say the least. Unfortunately for MTS they had not gained operational control of the company. A few days later the MTS CEO was arrested in Bishkek and thrown in jail. This was not a normal arrest, the operation was executed by Kyrgyz special forces with crow-bars, sledge-hammers and electric tools. Obviously, the purchase by MTS had upset someone important in the government.

Now, we have the strangest cellular purchase of the century by the Alfa group. Basically, they are buying the majority of the assets of Bitel: equipment, employees and subscribers and transferring them to a new company with a GSM licence but no other assets. In other words they are leaving Bitel as a shell with a licence. You just have to admire the imagination of the Alfa Group.

The battle is destined for a few years in the courts, but meanwhile the new company will be operating away leaving the ultimate settlement mired in difficulty.

I’m also thinking that if Alfa Group asre successful, perhaps they will see the manoeuvre as a template for settlement of the Ukraine dispute with Telenor at Kyivstar.

The more I read about Alfa, the more I think that Telenor have underestimated the fight ahead.