MegaFon Leads Mobile Stock Slide as Tele2 Shakes Market

Russia’s biggest telecommunications companies plunged on concern they risk losing market share should government-run OAO Rostelecom gain Tele2 AB’s business in the country.

OAO MegaFon, Russia’s second-largest mobile-phone operator, slid the most on record in London, while OAO Mobile TeleSystems, the No. 1 provider known as MTS, sank to the lowest level since Jan. 30 in New York and declined as much as 4.7 percent in Moscow. VimpelCom Ltd., the third-biggest, rebounded 1.2 percent in U.S. trading, trimming its first decline in three weeks.

MTS and VimpelCom joined forces last week to try and trump state-run Russian lender VTB Group’s deal to buy Tele2’s business in the country. Stockholm-based Tele2 said yesterday that it completed the sale to VTB and analysts including Alexander Kazbegi at Renaissance Capital said that the government may combine Tele2 Russia with Rostelecom, the nation’s biggest fixed-line phone operator.

“This puts downside risk to all Big-3 players and MegaFon in particular,” Luis Saenz, head of equity sales at BCS Financial Group in London, wrote in an e-mailed note. “The end game that has been circulating in the market is a new mobile operator.”

A merger would give Rostelecom 36.3 million mobile subscribers, based on fourth-quarter data from Advanced Communications & Media, compared with 56 million for VimpelCom. VimpelCom, which has been expanding abroad, lost its position as Russia’s No. 2 mobile provider in 2010 and is lagging behind the others in rolling out fourth-generation wireless services.

‘Lower Prices’

“If Tele2 is merged with Rostelecom, which I expect will happen within the next six to nine months, major players in the mobile phone market will be forced to lower prices and revenue will suffer,” Kazbegi, a telecommunications analyst at Renaissance, said by phone from Moscow yesterday. “VimpelCom will probably suffer the most because it has already been losing its market share and didn’t invest enough.”

Kazbegi rates VimpelCom hold and is ranked first among 22 analysts who cover the company after his recommendations on the stock delivered the best total returns -- at 18.4 percent --over the past year, data compiled by Bloomberg show.

VimpelCom and MTS offered Tele2 a premium of about 30 percent to VTB’s deal March 28. The lender agreed to buy Tele2 Russia for $3.55 billion in cash and debt.

Rostelecom Talks

VTB is in talks with Arkady Rotenberg, an investor in Rostelecom, to set up a joint venture with Tele2 Russia, the Vedomosti newspaper reported today, citing people it didn’t identify. A joint venture would create Russia’s fourth-largest mobile operator and Rostelecom has both 3G and 4G licenses, Vedomosti said.

Rotenberg’s spokesman, who Vedomosti didn’t identify, declined to comment. VTB’s spokesman said that the lender is not in talks about Tele2 Russia partnerships, though it is open to “collaboration with any market players, both Russian and foreign,” according to the report.

Bobby Leach, a spokesman for VimpelCom based in Amsterdam, had no comment on whether the company will oppose the VTB takeover. MTS plans to fight the purchase, Michael Hecker, vice president for strategy at the company, said by phone this week.

“It is too early to speculate on any potential future owner or what this might do to the market,” Leach said by e-mail yesterday.

4G Licenses

VimpelCom lost subscribers in Russia in two out of four quarters of last year, according to Advanced Communications & Media data. The Russian subscriber tally for Moscow-based MTS rose 0.7 percent from the third quarter to 71 million, while VimpelCom’s slipped 0.1 percent in the last three months of 2012, the data show.

MTS, VimpelCom, MegaFon and Rostelecom won 4G wireless licenses in July. While MegaFon offers 4G services in cities including Moscow and St. Petersburg, VimpelCom will roll out 4G by June, according to its website. Tele2 failed to win a 4G license.

Rostelecom dropped 1 percent to 118.18 rubles, or $3.74 in Moscow today, while MegaFon was down 9.1 percent to $26.96 in London, the steepest one-day slump since the company’s November listing.

Shares of MTS fell 3.4 percent to 261.10 rubles, or $8.26, on Moscow’s Micex Index, and the provider’s American depositary receipts lost 1.1 percent to $19.64 in New York. Each ADR is equal to two shares. VimpelCom erased an earlier decline of as much as 1.2 percent to end the U.S. day 1.2 percent higher at $11.69. The ADRs fell 1.7 percent this week.

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