US Congress gets involved in Russian mobile communications

Howard BermanSource:

Howard BermanSource:

The “big three” mobile phone operators protesting against the non-competitive allocation of 4G frequencies to Rusenergotelekom and Osnova Telecom have gained an influential champion. US Congressman Howard Berman (Democrat-California), Chairman of the House Foreign Affairs Committee, has written to Konstantin Kosachev, Chairman of the State Duma’s International Affairs Committee. The congressman is worried that if MTS and VimpelCom, both of which are traded on the New York Stock Exchange, are left without frequencies to develop new generation networks, the interests of their American minority shareholders will suffer.

Kosachev confirmed that he had received a letter from Berman. “The letter mentions, among other things, the topic of the allocation of 4G frequencies in Russia,” Kosachev said. He declined to comment on the content of the document, noting that to reveal such correspondence “could only do harm.” “It would be inappropriate, especially as the question (of frequency allocations) is still under consideration, and I have sent requests for information to the relevant Russian departments. When I get responses to them, I shall draw up a reply on this matter,” he said.

Naum Marder, Deputy Minister of Communications and Mass Media, said Mr Kosachev’s request has not reached the ministry and Yelena Kokhanovskaya, Public Relations Director for MTS, and Anna Aibasheva, press officer for VimpelCom, maintain that their companies know nothing about the existence of the letter.

In July MTS, VimpelCom and MegaFon sent three collective letters to Igor Shchegolev, minister of communications and mass media, Prime Minister Vladimir Putin and President Dmitry Medvedev asking them to stop the non-competitive allocation of 4G frequencies. The service providers insisted that creating a nationwide mobile communications network “from scratch” would take five to seven years, and would require investment of some $5–7 billion as well as other essential resources “which minor players do not have.”

The “minor players” are Osnova Telecom, 25.1 percent of which belongs to Voentelecom, a subsidiary of the Ministry of Defense, and the rest to former Gazprom Export manager Vitaly Yusufov’s Aykominvest, and Rusenergotelekom (RET), a joint enterprise owned by Rostelecom (25 percent) and Grigory Berezkin’s ESN Group (75 percent).

Osnova Telecom is planning to build a dual-purpose network: primarily for the security services, but with a plan to offer excess capacity to the civil population. But in an interview with Kommersant on Sept. 13, Berezkin explained the need to allocate frequencies to Rusenergotelekom: “If no new players come into the market and there is no competition, the consumer will see no benefit from the emergence of the new technology.”

Kommersant sources said in August that the allocation of frequencies on a non-competitive basis in the 2.3 – 2.4 GHz band to Osnova Telecom and in the 2.5 – 2.7 GHz band to Rusenergotelekom was agreed at the highest level of government and was due to be examined at a meeting of the State Committee on Radio Frequencies (SCRF). However, these issues did not feature on the agenda of the last meeting of the SCRF, held on Aug. 23. Two Kommersant sources close to the SCRF claim that changes were made to the wording at the last moment “by the personal decision of the SCRF chairman.”

“If VimpelCom doesn’t get manage to get equipped for LTE, I don’t see that as a reason to sell my shares in the service provider, because the telecommunications industry is very receptive to technological innovations and something new is bound to emerge,” said Alexander Mamut, a minority shareholder in VimpelCom. A source close to one of the MegaFon shareholders was also skeptical about whether an intervention by Congress would influence the situation, since this issue was in the realm of domestic politics: “It’s not the United States’ business to allocate frequencies in the Russian Federation, although one can understand its concern.”

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