City Telephone Will Sell 22 Percent Stake

Officials will decide next month on a date for auctioning off a 22-percent stake in the Moscow City Telephone Network in what promises to be one of the most sought-after investments in Russia.


Semyon Rabovsky, commercial director of MCTN, said in an interview Friday that a group of privatization officials and company executives would meet at the end of August to set a date for the investment tender, which has been promised for more than a year.


"There's some very strong interest," said one foreign telephone executive in Moscow. He said both foreign brokerages and telephone companies would likely consider taking part in the tender.


Telephone companies in emerging markets are often among the most popular stocks for foreign investors because they tend to have a stable revenue stream and can reap huge profits from international calls.


Rabovsky said that any company will be allowed to participate in tender as long as it is 100 percent private. But he said he expected a consortium of large Russian companies, rather than foreign ones, to come forward and buy the stake.


MCTN was privatized last month, selling 10 percent of its voting stock to employees and 5 percent to management. Another 38 percent will be held by the government while 22 percent is slated to be sold off. Twenty five percent of non-voting shares also went to the workers.


Investors are sure to look to St. Petersburg Telephone Phone Co., one of the most popular Russian stocks among foreigners, to gauge the value of the Moscow company.


The St. Petersburg company, whose stock sells at $18, has 2.5 million telephone lines. That gives it a value of $150 per line, one way that telephone companies are evaluated.


By the same standard, the Moscow City Telephone Network, which has 4.5 million subscribers, would be worth about $675 million, giving the amount to be sold at tender a value of around $165 million.


However, telecommunications in Europe and North America are valued at more than $1,000 per line and investors are likely to pay a premium for MCTN because it is in Moscow.


"It's the premiere telephone company of Russia. It's the hub,'' said the foreign telephone executive.


Rabovsky said the figure of $675 million was far too low.


Vasily Dedoborsch, manager of forecasting at MCTN, recently said that the network needs between $7 billion and $8 billion to finance its modernization program. Moscow has only 2,000 kilometers of fiber optic cable out of a total 60,000 kilometers, and 130,000 households are waiting for phones, Dedoborsch told Interfax.


He said the company's priority was replacing old cable, especially downtown, where some transmission lines are still in use from the turn of the century.


The British company GPT is working on a $75 million project, financed by the British government, to upgrade 100,000 telephone numbers. Twenty percent of the numbers will be kept by the joint venture Comstar for business clientele and 80 percent will be allocated to Moscow residents.


AT&T Network Systems signed a $6 million contract with MCTN in May to supply an exchange for the Moscow region called Mitino. While 29,000 people live in the region, Mitino has only 300 numbers, Interfax said.


In all, MCTN has 14 joint venture projects to upgrade the telephone system, Rabovsky said