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New Russian mobile operator to launch
Wednesday, August 15 2001
by Matthew Clark


Sonera, Telia mobile and a major Russian telecoms investment company signed a
deal to cooperate in building Russia's first nationwide mobile operator.

The single company, Megafon, which is expected to be unveiled later this year,
will be owned by a consortium companies. 



AO Telecominvest, a Russian telecoms investment house that owns a number of local
networks, will own 31 percent of the joint venture, Sonera Corporation and
Central Telegraph Mobile will hold 26 percent each, and Telia Group will hold
eight percent. Other smaller shareholders include IPO Growth Fund (six percent),
ZAO WestLink (1.5 percent) and ZAO Kontakt S (1.5 percent). 



According to Sonera, the new company will encompass operations covering 400,000
subscribers and a staggering 122 million potential customers, representing 80
percent of Russia. 



The consortium claims that Megafon, measured by its operating license area,
stands to be largest in Russia, and third largest when measured by number of
subscribers.  Current mobile phone penetration in Russia is about three percent
and analysts expect that number to rise substantially over the next five to seven
years.



According to Sonera the new company's target is to capture over a third of the
market by 2009.



The company has said it plans to invest USD600 million over the next three years
and according to the Financial Times, UFG, the Moscow-based broking group,
estimates the value of the new entity to be about USD750 million. 





"Consolidation has become a key means to create value, new areas of growth,
efficiencies, and consumer benefits in telecommunications. We are excited about
participating in the creation of a leader in such a large market with so much
untapped potential," said Martti Huttunen, vice president of Sonera Wireless
Ventures. "The new entity will be one of only two mobile operators covering
both of Russia's largest markets, Moscow and St. Petersburg."



The core of the new operator will be formed by ZAO North-West GSM, a St
Petersburg's operator. The remainder of the network will be constructed by
Moscow's third mobile phone operator, Sonic Duo, and Telecominvest's five local
GSM 900/1800 operators in the Northern Caucasus, Ural, Volga, Siberia and the Far
East. Sonera owns a 23.5 percent stake in North-West GSM and a 35 percent stake
Sonic Duo.



Legal confirmation of the merger is expected no later than the end of the first
quarter of 2002, and according to Sonera the company will be profitable on day
one on an EBITDA basis. Furthermore, the consortium said, the company's
management will be appointed during the third quarter of this year.



The move will pit the new entity against the two leading rival operators in
Russia, MTS and Vimpelcom, which have both been rapidly, with 2 million and 1.5
million clients respectively.