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Usmanov, State Discuss Swap of Telecoms Assets

Alisher Usmanov, right, speaking with Alfa Group co-owner Mikhail Fridman. Denis Grishkin

Billionaire Alisher Usmanov is in talks with the government on swapping his 31.1 percent in mobile operator MegaFon for a stake in Rostelecom once it completes a planned reorganization.

Usmanov's AF Telecom Holding is considering swapping the MegaFon shares for part of the Svyazinvest fixed-line unit, which by mid-2011 is supposed to absorb seven of Svyazinvest's regional companies, an executive close to Usmanov told Vedomosti.

No decision has been made, but consultations with the government are being held, he said. A government source said the idea was being actively discussed in the Communications and IT Ministry.

Spokespeople for Svyazinvest and the ministry declined comment, while Usmanov did not respond to questions from Vedomosti.

The source close to Usmanov said AF Telecom Holding was not excited by the idea of merging MegaFon with Turkcell, Turkey's largest cell phone operator, which was recently proposed by Altimo managing director Alexei Resnikovich.

MegaFon and Turkcell have two shareholders in common — Altimo, with 25.1 percent and 4.99 percent in the companies, respectively, and TeliaSonera, with 43.8 percent and 37 percent — that would benefit from a merger. AF Telecom's stake would be significantly diluted, however.

But if AF Telecom were to swap its stake in MegaFon for shares in Rostelecom, it would be able to have a foot in the quickly growing market for broadband Internet access, as well as the mobile sector. According to AC&M-Consulting, Svyazinvest had 54.2 percent of that market in August, with just above 4 million subscribers. In 2008, the company had 81.7 percent of the local fixed-line telephone market and 76.7 percent of the long-distance market, according to its own estimates.

Svyazinvest is also looking to develop its mobile operations, from the 9 percent of the market it had in May. The most effective way to do that would be obtaining control of one of the country's three largest operators — Mobile TeleSystems, VimpelCom and MegaFon, according to the holding's reorganization plan.

MegaFon's largest shareholder is the Swedish and Finnish telecoms firm TeliaSonera. Senior vice president Cecilia Edström declined to say whether TeliaSonera had offered to sell its MegaFon stake. But she said TeliaSonera's goal was to consolidate its assets, not sell them.

Another shareholder, Alfa Group's telecoms unit, Altimo, is not planning to sell its 25.1 percent stake in MegaFon and has not received any offers, senior vice president Kirill Babayev said.

Swapping his MegaFon shares for a stake in a unified Rostelecom would be a good deal for Usmanov, said Konstantin Chernyshyov, head of research at UralSib. But the government has repeatedly said it intends to control the new Rostelecom.

Currently, Rostelecom's fair price would be $12 billion, he estimated, while MegaFon is worth $15 billion, meaning that Usmanov could get a 39 percent stake in Rostelecom. Minority shareholders in what are now the Svyazinvest subsidiaries would also be due a stake of about the same size, according to UralSib's calculations.

As a result, a deal with Usmanov would only be possible if Rostelecom paid for some of the MegaFon shares in cash, Chernyshyov said.

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