Uzbekistan silences mobile operator
MTS By Robert M Cutler
MONTREAL - Uzbekistan has shut down for
two weeks, at least to start with, the operations
of Uzdunrobita, the Uzbekistan-based subsidiary of
Russian cell-phone company Mobile TeleSystems
(MTS). The prosecutor general's office in Tashkent
has accused the company of illegalities in the use
of equipment and other violations of contractual
obligations.
The company's client base is
disappearing and its competitors are profiting,
leading some observers to think that this is not
just a regulatory dispute. Uzdunrobita is thought
to have between 9 million and 9.6 million clients,
equivalent to 40% of the country's mobile-phone
market.
This is not the first time that
MTS has had poor luck in Central Asia. It held 85%
of the cell-phone market in Turkmenistan until
December 2010, when the
government there suspended its license. The
company is still fighting that decision.
MTS's most recent troubles in Uzbekistan
began nearly a month ago when, according to a
Moscow Times report, the State Communications
Inspectorate in Tashkent raised the possibility of
revoking its operating license for reasons of poor
quality of service. It cited customer complaints
it said it had received. Somewhat contradictorily,
it simultaneously asserted that the company lacked
the correct authorization to use the country's
cell-phone tower network.
Within days, the
government of Uzbekistan had opened a tax claim of
US$1.3 million against the company and detained
five of its senior managers, reportedly including
its chief financial officer. In June, the general
director of MTS's subsidiary in Uzbekistan
(Uzdunrobita), Bekhzod Akhmedov, had already left
Tashkent for Moscow, where MTS says that
Uzdunrobita represents only 3.5% of the company's
revenues in 2011 (about $430 million) and 4.5%% of
its operating income before depreciation and
amortization. The company's share listings have,
as a result, not much suffered from Tashkent's
actions.
However, the move by the
Uzbekistani government augurs poorly for foreign
direct investment (FDI) in the private sector, at
a time when the country's national economy
desperately needs it.
FDI during the first
quarter of 2012 was already down by half from the
year previous. A number of high-profile exits have
plagued the country's reputation lately, including
Oxus Gold, Carlsberg Beer, more than one Turkish
firm, and also apparently an international hotel
group.
There is a definite perception that
the government can be arbitrary in applying its
regulations, and the Uzdunrobita case will do
nothing to diminish that perception. The company
is reported to have invested more than $1 billion
in the course of nearly a decade in order to
upgrade Uzbekistan's domestic mobile network.
The government had announced plans earlier
this year to seek tenders for over 500 state
firms, in order to draw more foreign capital into
the domestic economy and raise its technological
level. Previous attempts at privatizating state
companies, notably in 1998 and 2005, were not very
successful. The national currency, the som, became
convertible only in 2003, yet still the banking
system is not modernized. Repatriation of profits,
for example, remains problematic.
Public
or state-sponsored FDI on a larger scale seems to
have a potentially smoother path. Earlier this
year, South Korea agreed to build a gas and
chemical complex in the Surgil field of
Uzbekistan, the largest project so far in the
country's petrochemical sector.
A
joint-venture firm called Uz-KorGasChemical has
been formed for the purpose and has raised loans
of more then $2.5 billion from the Asian
Development Bank, China's State Development Bank,
Korea's Eximbank, two Uzbekistan financial
entities, and a syndicate of European and Asian
commercial banks.
The project represents
well more than half of the total $4.2 billion of
deals that South Korean President Lee Myung-bak
singed in Tashkent during an economic diplomacy
tour of the region almost a year ago.
For
small businesses in Uzbekistan, however, the
shutdown of Uzdunrobita is naturally a disaster,
as they now have no way to reach or be reached by
their suppliers or their customers. The company's
subscribers have therefore been overwhelming its
competitors, mainly Beeline-Uzbekistan - a unit of
Amsterdam-based VimpelCom, the first Russian
company to list in New York - and Ucell, but also
another company called Perfectum Mobile, for new
SIM cards and phone numbers.
These
companies are reported to have tripled the prices
for their SIM cards, and scalpers are reported to
be selling them on the street outside their
offices for between five and 20 times what they
used to cost. And of course Uzdunrobita's
customers are losing all the minutes for which
they prepaid on its own SIM cards, which are now
for all intents and purposes worthless.
Uzdunrobita used to be owned by the
daughter of President Islam Karimov, Gulnara
Karimova, who took control of it in the late 1990s
and sold it at a profit in 2004 to MTS. Her former
business partner, who accused her of pushing him
out, was sent to prison in 2005 on tax fraud
charges but was amnestied in 2009 and is now
reported to live in the United States.
Rumors swirl in an information-poor
environment such as Tashkent, and it is an
increasingly common assumption there that the
stars have aligned to kill Uzdunrobita not out of
random patterns but by design through its
competitors' illicit influences on government
agencies. Whether that is true or not, the episode
is a poor advertisement for the government's
privatization program.
Dr Robert M
Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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