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Communications, economics ministries clash on Svyazinvest reform

MOSCOW, December 18 (RIA Novosti) - Russia's information technology ministry refused Monday to support the economics ministry's idea of state-owned telecoms giant Svyazinvest taking over seven inter-regional companies (MRK), citing shareholders' interests and market monopolization concerns.

Earlier this month, a senior economics ministry official said the ministry was looking into the takeover possibility, and into reorganizing Svyazinvest on the basis of services rather than geography. The plan would include asset consolidation based on type of service - fixed-line or cellular communications.

"We do not support this idea," Information Technology Minister Leonid Reiman said, adding that it involved the interests of shareholders in the eight companies constituting the Svyazinvest holding.

Svyazinvest currently holds controlling stakes in seven inter-regional companies, and in national long-distance communications operator Rostelecom. It also has shares in the Moscow City Telephone Network (MGTS [RTS: MGTS]), one of the largest fixed-line operators in Russia, and in other companies.

"We have some experience in forming inter-regional companies, and we know that it would be fairly difficult," Reiman said.

The minister also said that Svyazinvest's reorganization would lead to market monopolization followed by tariff hikes and poorer quality of services.

Yevgeny Mikhailov, a department head at the Ministry of Economic Development and Trade, said earlier that the ministry had already discussed plans to takeover MRK with the companies' creditors and Svyazinvest minority shareholders.

"We have received cautious approval everywhere," he said.

The government's share in Svyazinvest is held by the Russian Federal Property Fund (25% minus two shares) and the Federal Property Management Agency (50% plus one share).

Comstar UTS [RTS: CMST], one of the largest operators of integrated telecoms services in Russia and the former Soviet Union, acquired a blocking stake of 25% plus one share for $1.3 billion from Cyprus-based Mustcom Ltd. last Tuesday.

Experts say the proposed MRK takeover will shrink the state's share in the new company to 42%-51%, and reduce the share of Comstar UTS, controlled by AFK Sistema, to 13%.

The remaining 30-40% will be held by numerous investors who will own no more than 1% each, Mikhailov said, adding that this would help the government retain control over shareholders' decisions, even without the controlling stake.

The official also said Svyazinvest's reform would increase the company's market capitalization.

"Consultants say capitalization will be twice as large as the current aggregate capitalization of MRK, Rostelecom and the Central Telegraph," he said. "It will be a blue chip which will cost several times more."

Svyazinvest currently combines seven large regional operators, including Uralsvyazinform [RTS: URSI] with 3.6 million subscribers, VolgaTelecom [RTS: NNSI] with 2.4 million subscribers, and Sibirtelecom [RTS: ENCO], with 1.5 million subscribers.

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