MTS Announces Three-Year US$400-mil. Investment Plan for Belarusian Unit

Russian mobile operator Mobile TeleSystems (MTS) has indicated that it plans to invest US$150 million in its Belarusian unit, MTS Belarus, in 2008, as well as a total of around US$400 million over the next three years. Press reports indicate that the company expects to continue its investments beyond this. It expects that the Belarusian regulator will enable it to launch 3G services and is also negotiating LTE licensing, which will allow it to design the construction of 4G networks, offering higher data-transfer rates.

MTS has also reiterated its desire to increase its holding in its Belarusian unit, which currently stands at 49%, to a controlling stake. MTS Vice-President and Director of Foreign Business Units Oleg Raspopov is quoted by Prime-Tass as saying, "We would like to gain control of the company and invest in Belarus through the acquisition of a controlling stake." However, there is no indication that any development in this area is imminent. The majority 51% stake is held by state-owned incumbent Beltelecom, whose deputy general director, Irina Podobed, moved to deflect talk of a divestment, saying, "Let’s accept the situation as it is. If it changes, we will start talking [about] why it changed and how much it costs."

Outlook and Implications

• MTS Not Resting as Belarusian Market Matures: MTS Belarus is the subscriber market leader, with 3.94 million subscribers at the end of the first quarter of 2008 out of a national market of around 7.3 million. The operator's financial commitment indicates that the company will not rest on its laurels, and it has previously indicated that it has plans in place to increase its coverage to 100% by 2010. Development of services is also high on MTS' agenda and, having already made clear that preparations are under way for the launch of 3G services, it is now looking even further ahead towards 4G services. This reflects the growing maturity of the Belarusian mobile market, in which a total of three players compete and where penetration topped 70% at the end of 2007. With subscriber growth opportunities beginning to ease up, it is understandable that more emphasis is being placed on the data services market.
• Desire to Increase Stake a Long-Standing Ambition: MTS' investment promises and repetition of its intention to ramp up its stake are indicative of the fact that it sees MTS Belarus as a long-term project. Its eagerness to increase its stake in its Belarusian unit is nothing new, and its latest statement of intent is unlikely to arouse any tension in its dealings with the Belarusian state, as the pair have long had a stable and fairly cordial relationship (see Belarus: 31 August 2007: MTS Does Not Rule Out Increase of Stake in Belarusian Unit). Raspopov has pointed to Belarus' stable economic and political situation, the good investment climate and the "predictability" of the regulator as the main reasons for its continuing interest in the country's mobile market. As well as these country-specific factors, MTS' broader strategy involves a strong commitment to expansion and consolidation of its CIS footprint. Therefore, the indications are that MTS will continue to invest in Belarus over the long term, with a view ultimately to becoming a majority shareholder in MTS Belarus.

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