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Vodafone Group Plc will lease its brand to Mobile TeleSystems PJSC’s business in Ukraine, helping Russia’s largest wireless carrier eschew association with its home country amid political tensions between the two ex-Soviet republics.
Under the agreement, the companies will roll out third-generation mobile services using the Vodafone brand in Ukraine, they said in separate statements Friday. Newbury, England-based Vodafone’s brand will be used at MTS’s retail outlets and the majority of its dealerships. Financial details weren’t provided. Ukraine accounted for about 8 percent of MTS’s revenue last year.
Companies with Russian links, including MTS and rival VimpelCom Ltd. are under pressure in Ukraine because of the dispute over territory in the Black Sea peninsula of Crimea. The government had threatened to exclude them from an auction for 3G spectrum. Lawmakers said they would annul licenses for companies based in countries “that carry out aggression against Ukraine or create pre-conditions for military conflict,” newspaper Vedomosti reported in July.
“We will stop promoting the MTS brand gradually,” MTS Ukraine General Director Oleg Prozhyvalsky told reporters in Kiev today, adding that two brands will co-exist for a certain time. “The value of Vodafone brand is much higher.”
Vodafone and MTS have had a strategic partnership in Ukraine since 2008 when Vodafone agreed to help its Russian counterpart build out faster, third-generation mobile networks in Russia, Ukraine and other former Soviet countries. In return, Vodafone got access to the high-growth markets in central and eastern Europe.
Vodafone’s brand will only be used in territories under the direct control of the Ukrainian government, the company said. MTS rose as much as 1.1 percent in Russian trading Friday and was little changed at 219.90 rubles at 2:45 p.m. in Moscow.
“Perception of a Russian brand in Ukraine has probably worsened amid political tensions,” said Konstantin Belov, an analyst at UralSib Capital. “Still, rebranding requires costs and it remains to be seen how this will pay back.”
The MTS brand was valued at more than $12 billion last year by consultant Millward Brown Plc. Vodafone was valued at $36 billion.
With more than 20 million users, MTS is the second-largest carrier in Ukraine after VimpelCom’s Kyivstar, according to researcher Advanced Communications & Media.