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Russia's Rostelecom sales rise, mobile spin-off eyed

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MOSCOW, Nov 20 (Reuters) - Russian state-controlled telecoms group Rostelecom said its focus on pay-TV and broadband paid off in the third quarter as it reported a 2 percent rise in revenue despite a fall in its core fixed-line business.

A former landline monopoly, Rostelecom was reorganised several years ago in an attempt to win a bigger share of fast-growing markets such as mobile, broadband, pay-television and information technology. It now plans to spin off its mobile assets and put them under the management of a partner.

The company said its sales grew to 78.2 billion roubles ($2.4 billion) in the third quarter from 77 billion a year earlier, although revenue from local telephony services, which account for a third of the total, declined 3 percent.

Revenue from pay-TV and broadband rose 27 and 8 percent respectively and the company also increased interconnection and traffic transit services by 21 percent.

But revenue from mobile services fell 6 percent despite higher subscriber numbers that placed Rostelecom fifth in a highly competitive market behind MTS, Megafon, Vimpelcom, and Tele2 Russia.

MOBILE OR NOT

Rostelecom plans to merge its mobile business with Tele2 Russia, a former unit of Sweden's Tele2 now owned by bank VTB and Russian businessmen Yuri Kovalchuk and Alexei Mordashov, according to telecoms industry sources and media reports.

It is expected to get a 45 percent share of the venture, effectively ceding control to the rival.

But a board meeting that was due to approve the mobile spin-off and new strategy on Tuesday was postponed until Wednesday due to a lack of government instructions on the vote, Rostelecom said.

The postponement came as Russia's state property agency, owner of a 47 percent stake in Rostelecom, complained that the lack of control over the mobile venture may adversely impact the company's valuation ahead of its privatisation.

In a Nov. 18 letter to Deputy Prime Minister Arkady Dvorkovich, the head of the agency, Olga Dergunova, also called for the state to take greater control of Rostelecom's board, according to newspapers Vedomosti and Kommersant.

The government owns more than 51 percent of Rostelecom shares through the state property agency and state development bank VEB.

Rostelecom reported flat operating income before depreciation and amortisation (OIBDA) at 29.4 billion roubles. Those earnings as a percentage of sales fell to 16.9 from 17.4 percent a year earlier.

Third-quarter net profit rose 12 percent to 10.5 billion roubles ($321 million), helped in part by lower financial costs and better purchasing terms.

Rostelecom shares were trading 1.5 percent lower by 0820 GMT, underperforming a broader market. ($1 = 32.7265 Russian roubles)

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