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Putin’s Billionaire Ally Buys Half of Tele2 Russia Operator

President Vladimir Putin’s billionaire ally Yury Kovalchuk is buying half of Tele2 Russia Holding AB with partners, seeking to make the wireless carrier a stronger competitor to the country’s three dominant operators.

Kovalchuk’s Bank Rossiya (ROSS) and partners including steelmaking billionaire Alexey Mordashov bought 50 percent of the business from VTB Group (VTBR), a state-run bank. VTB, which bought the Russian unit of Sweden’s Tele2 AB (TEL2B) for $2.4 billion this year, said in its statement today that the selling price for the stake was “in line with expectations.”

With Kovalchuk’s backing, Tele2 Russia will become a more powerful contender in a market benefiting from rising demand for mobile Internet-browsing and video viewing. The Russian wireless market is dominated by billionaire Vladimir Evtushenkov’s OAO Mobile TeleSystems (MBT), billionaire Alisher Usmanov’s OAO MegaFon (MFON) and billionaire Mikhail Fridman’s VimpelCom Ltd. (VIP)

The next step may be combining Tele2 Russia with the wireless business of state-controlled phone company OAO Rostelecom. The two mobile carriers may be merged, VTB Chairman Andrey Kostin said this month. In the tie-up, which would form the country’s fourth nationwide mobile operator, Tele2 Russia owners would probably have majority control, he said.

Photographer: Michael Razuvaev/Bloomberg

With Kovalchuk’s backing, Tele2 Russia will become a more powerful contender in a market benefiting from rising demand for mobile Internet-browsing and video viewing. Close

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Photographer: Michael Razuvaev/Bloomberg

With Kovalchuk’s backing, Tele2 Russia will become a more powerful contender in a market benefiting from rising demand for mobile Internet-browsing and video viewing.

“Kovalchuk managed to agree with VTB and may become a beneficiary of Russia’s new nationwide operator,” Anna Lepetukhina, an analyst at Sberbank CIB in Moscow, said by phone. “Tele2 Russia is a good asset which has great potential if combined with Rostelecom’s mobile business.”

Russian Growth

Tele2 Russia and Rostelecom’s mobile unit together would have about 37 million customers, trailing the 57 million to 72 million users at the larger rivals, according to AC&M Consulting.

In contrast to Western Europe, the Russian wireless market is expanding as more consumers browse the Web and watch video on smartphones and tablets. Russia’s total mobile revenue climbed 9 percent to 837.4 billion rubles ($26.1 billion) last year, according to AC&M Consulting. Data revenue surged 33 percent to account for 100.7 billion rubles of that amount.

Shares of MTS, the wireless-market leader, fell 2.7 percent to 341.92 rubles at 12:47 p.m. in Moscow. MegaFon, the No. 2, dropped 0.7 percent to $36.75 in London. VTB declined 1.1 percent to $2.70.

Kovalchuk’s Partners

The Tele2 Russia purchase marks an expansion into a new area for Kovalchuk, who owns CTC Media (CTCM) in Russia with Tele2 AB founder Cristina Stenbeck and her family. He is the main shareholder of St. Petersburg-based Bank Rossiya, which owns stakes in National Media Group and insurance company Sogaz and has an indirect interest in Gazprombank.

Kovalchuk, 62, had a fortune valued at $1.1 billion by Forbes Russia magazine this year. He has known Putin since the early 1990s, and both are from St. Petersburg. Mordashov, a billionaire owner of Russian steelmaker OAO Severstal, is Kovalchuk’s partner in the bank and in National Media Group.

Rostelecom Chief Executive Officer Sergey Kalugin, appointed in March, had previously worked for Kovalchuk’s companies. Gazprombank holds a 7.2 percent stake in Rostelecom, according to the Prime newswire.

Rostelecom plans to rely on partners to develop mobile business, spokeswoman Kira Kiryukhina said Oct. 7. President Putin is backing measures that would allow Tele2 Russia to use so-called second-generation frequencies to develop fourth-generation networks for faster data speeds, Vedomosti reported today.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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