* Court revoked operating licence of market leader
* MTS may take $1 bln writedown - source
* Ex-manager has fled, whereabouts unknown
* Four managers detained in Uzbekistan
By Douglas Busvine
MOSCOW, Aug 24 Russia's top mobile phone company
MTS says it has fallen prey to a "classic shakedown" in
Uzbekistan but still hopes to save its $1 billion business after
losing its operating licence in the Central Asian state.
First, however, the authorities should release four local
managers that have been detained and cease a campaign of
intimidation against other staff of its Uzbek subsidiary, a
senior MTS executive told Reuters.
A three-month crackdown by Uzbekistan on MTS has reinforced
the country's reputation as one of the most hostile environments
for foreign investors in the former Soviet Union and exposed the
lack of clout wielded by former colonial master Moscow.
"We absolutely want to save the business," Michael Hecker,
MTS's vice-president for strategy, told Reuters in an interview
at the company's Moscow headquarters.
"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."
Since June, MTS has gone from market leader in Central
Asia's most populous state, with 9.5 million clients, to being
shut down and hit with $900 million of fines.
New York-listed MTS, controlled by Russian oligarch Vladimir
Yevtushenkov's AFK Sistema conglomerate, says it faces
a state crackdown of the type that has forced out investors such
as London-listed Oxus Gold, U.S. company Newmont Mining
Corp and Russia's Wimm-Bill-Dann, now part of PepsiCo
"We were presented with the agenda of a classic shakedown,"
said Hecker, who added that MTS had been hit with claims
fabricated by "experienced raiders".
A source close to MTS said that the company may write off
the $1 billion value of its Uzbek business when it reports
second-quarter results next Tuesday. MTS has a market value of
Moscow's Uralsib brokerage expects MTS to take an $800
million hit, forcing it to a net loss of more than $600 million.
RUSSIA, U.S. CONCERNS
Uzbekistan's State Inspectorate for Communications withdrew
the licence of MTS's local unit, Uzdunrobita, for 10 days on
July 17, citing "repeated and systematic" violations. A court
revoked the licence permanently on August 13.
Shomansur Abidkhojayev, head of the state inspectorate, said
his organisation had found 48 "undocumented" base stations
operated by Uzdunrobita. Further inspections found an additional
150 unauthorised stations and optical cables operated illegally.
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.
A U.S. State Department official raised the matter on a
recent visit to Tashkent. The Helsinki Commission, an
independent U.S. government agency that monitors human rights,
has written to President Islam Karimov to express its concern.
Uzbekistan, ruled since independence in 1991 by former
Soviet apparatchik Karimov, is a vital way station for
resupplying the West's security operation in Afghanistan but has
a history of troubled relations with both Moscow and Washington.
Tashkent recently pulled out of the Collective Security
Treaty Organisation, a Russia-led security group, deepening the
isolation of 74-year-old Karimov.
MTS bought 74 percent of Uzdunrobita for $121 million in
2004, acquiring the rest three years later for $250 million. It
has since put $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 rumour", according to the FT.
Akhmedov stayed on after the MTS deal, but he fled the
country this June as friction with the Uzbek authorities
escalated. MTS says his whereabouts are unknown. Tashkent,
through Interpol, has issued a wanted notice seeking Akhmedov on
suspicion of fraud and money laundering.
Akhmedov also features in a Swiss investigation of alleged
money laundering through accounts held in his name at private
bank Lombard Odier, Swiss news weekly L'Hebdo reported last
Swiss prosecutors confirmed they had arrested two Uzbek
nationals in the case, while Lombard Odier said it had notified
the Swiss Money Laundering Reporting Office. Both declined to
The four local MTS managers who remain in custody are being
pressured, Hecker said, into signing false confessions and have
been denied access to lawyers during their interrogations.
"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".
He said that MTS's competitors would not be able to fill the
gap any time soon, leaving customers cut off from communications
and, as a result, access to emergency services.
Abidkhojayev denied this, saying that competitors such as
Beeline, the popular brand of Russia-based VimpelCom,
offered an alternative.
"There are other companies working here. They are working
day and night to connect subscribers quickly," he said by
telephone from Tashkent. "I don't see any frenzy. People aren't
standing in line for hours."
MTS is appealing to reinstate its Uzbek licence 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.