MTS Hopes to Save US$1 Billion Business in Uzbekistan

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Aug. 28 – Russia’s top mobile phone company MTS still hopes to save its US$1 billion business after losing its operating license in Uzbekistan, where four local managers have been detained and a campaign of intimidation against other staff of its Uzbek subsidiary is in a progress.

“Any way forward, as an integral part, needs to include the release of our people and the stopping of the intimidation and harassment campaign against our other employees,” a senior MTS executive told reporters.

Russian Foreign Minister Sergei Lavrov intervened to help to secure the release last week of MTS’s acting country manager, a Russian citizen, but four local managers remain in custody.

The four local MTS managers who remain in custody are being pressured into signing false confessions and have been denied access to lawyers during their interrogations, MTS’s Vice President for Strategy Michael Hecker told Reuters.

“We are most worried about those four people in prison,” said Hecker, adding that other staff had been interrogated “in a completely unlawful way, under severe intimidation, physical threats and the threat of imprisonment.”

Since June, MTS has gone from market leader in the Central Asian state with 9.5 million clients, to being shut down and hit with US$900 million in fines.

Uzbekistan’s State Inspectorate for Communications withdrew the license of MTS’s local unit, Uzdunrobita, for 10 days on July 17, citing “repeated and systematic” violations. A court revoked the license permanently on August 13 due to 48 “undocumented” base stations. An additional 150 unauthorized stations and optical cables are said to be illegally operated by Uzdunrobita.

New York-listed MTS, controlled by Russian oligarch Vladimir Yevtushenkov’s AFK Sistema conglomerate, says it faces a three-month state crackdown of the type that has forced out investors such as Oxus Gold, U.S. company Newmont Mining Corp., and Russia’s Wimm-Bill-Dann, now part of PepsiCo.

MTS bought 74 percent of Uzdunrobita for US$121 million in 2004, acquiring the rest three years later for US$250 million. It has since put US$1.1 billion into the business, reinvesting cash flows because it was not allowed to repatriate earnings.

A 2003 investigation by the Financial Times suggested that Uzdunrobita had been controlled by Karimov’s daughter, Gulnara. At the time, the company’s manager Bekhzod Akhmedov dismissed the report as “just a rumor.”

MTS is appealing to reinstate its Uzbek license and could restore services quickly.

“We still hope that, on the side of the Uzbek authorities, there will be an insight that this is an unlawful operation,” Hecker said.