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Rostelecom stepped on a broad band


A recent outsider of Broadband Internet access market in Moscow Rostelecom may turn into one of its leaders. As "Kommersant" found out the operator has almost reached an agreement with Svyazinvest to buy from its sub-structures an ISP “Qwerty”. In this case, the Rostelecom market share will get 14% which will leave behind "MegaFon" (10%) and come close to "Akado" and Vimpelcom, both controlling 20% of capital’s Broadband market.

"Central Telegraph" received an offer to sell “Qwerty” to Rostelecom affiliated companies, told "Kommersant" a source close to Svyazinvest (which owns 51% of the "Central Telegraph"). Rostelecom has received a list of "Central Telegraph" objects for due diligence, formal agreement has not yet been reached, specifies the manager of a Svyazinvest company. A deal can be closed by Rostelecom or "National Telecommunications" (NTC, 71.8% owned by Rostelecom). Theoretically, the deal could have waited for the unification of Svyazinvest and Rostelecom, which provides the second stage of state-owned holding reorganization (in its course Svyazinvest should pass to Rostelecom 51% of "Central Telegraph"), but it will happen not earlier than 2013 year.

Moreover, according to one of the scenarios, the unification may be delayed until 2017 (see "Kommersant" on September 19). Svyazinvest External Communications department head Igor Pshenichnikov declined to comment, noting that "Central Telegraph" board of directors haven’t discussed sale of any businesses". The press service of Rostelecom and "Central Telegraph" declined to comment, but a source confirmed the negotiations.

43.4% (voting shares) of Rostelecom belong to Svyazinvest, 7.4% - to Deposit Insurance Agency (DIA), 2.4% - to VEB. Sales by the end of 2010 amounted to 276 billion rubles, net profit - 40,8 billion rubles.

Entering Moscow’s market was one of the main purposes of united Rostelecom strategy, and until this year the operator was not represented in capital’s Broadband access market while MTS had 27%, "Vimpelcom" and "Akado" both had 20%. The last of the Russian telecommunications leaders which came to Moscow was "MegaFon”. This year company has closed a deal to buy ISP “NetByNet” (10% of the market) for $270 million excluding debt of $30 million.

In the spring Rostelecom has bought 71.8% of NTC (5% in Moscow in the first quarter) from "National Media Group", "Surgutneftegaz" and “Raybrook Ltd” of Alexander Mordashov for $ 951 million (the whole NTC was estimated at $1.352 billion). Now Rostelecom is negotiating the purchase of "Gorcom" which has 2% of Moscow’s market (see "Kommersant" on September 23). If both deals will be closed, given the projected growth of subscriber base of NTC Rostelecom will take about 14.5% of Broadband market in Moscow, said analyst of “iKS Consulting” Mikhail Bodyagin.

The last few weeks, Rostelecom worked through the issue of “Qwerty” subscribers transfer to the NTC, says the manager of a Rostelecom company. But in the end this scheme was dropped, says a source of "Kommersant" close to Svyazinvest, as "joint projects on customer service are an impossibility". According to him all Moscow based Broadband access of “Central Telegraph” is now a subject of a possible transfer in favor of NTC. In this case, "Central Telegraph" will keep its broadband business in the corporate segment, telephony, inter-carrier business and Broadband in the suburbs.

"Central Telegraph" will not sell “Qwerty” below its balance sheet value, that is at least 1.2 billion rubles exclusive of VAT, says a source close to Svyazinvest. "Based on the estimates of the multiplier 10-12 EV/EBITDA, the cost of “Qwerty” can be in the range of 1.2-1.4 billion rubles", - says “Raiffeisenbank” analyst Sergey Libin. "The opportunities for organic growth of Broadband access business in Moscow is limited, so it would be logical to assume that capital assets are valued at premium," - he believes. |

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