The lights have gone out at Russia-based operator MTS’ operations in Uzbekistan, revealing how forays into emerging markets can go disastrously wrong and prompting the company’s director of investor relations to urge other telcos not to invest in the country.

Mobile operator MTS is facing losing its business in UzbekistanOn Monday, the Tashkent Criminal Court ruled in favour of the Uzbek state to confiscate all assets of Uzdunrobita, the MTS subsidiary, in connection with a criminal court judgment against four of its employees who have been arrested.

Uzdunrobita, which has a book value of €850 million and 9.5 million subscribers, was purchased by MTS in 2004.

But, as European Communications reported over the summer, the story began to turn sour in February over unpaid tax receipts.

It has escalated dramatically to include claims by MTS of employee harassment, the seizure of internal documents and accusations of the involvement of “certain influential entities” for, ultimately, “illicit purposes”.

Uzdunrobita had its license suspended last month and made a loss in Q2 with the coup de grace being delivered last weekend.

European Communications spoke to Joshua B Tulgan, 
director of investor relations 
and acting director of corporate finance at MTS, who revealed how “what can only be described as marshalls arrived to shutter the business and lock us out” last Friday. 

Moscow-based Tulgan claimed the expropriation of assets includes around €140 million of cash held in local bank accounts.

“It’s been an incredibly stressful time,” Tulgan said on the phone. “We have this strong sense of incredulity. We’ve been on the receiving end of open intimidation and have been denied legal representation.”

Of immediate concern is the situation of the four managers, all Uzbek nationals, who have been arrested.

“I can’t give you their exact whereabouts, but I believe they are in the process of being released,” said Tulgan.

“What is happening to colleagues and friends is very hard … I don’t want to have to think about them languishing in a jail cell.”

Further, Tulgan claims their arrest is “totally illogical”.

“They have been charged with crimes but with the seizure of assets the penalties have been borne by the company.”

MTS, it should be clarified, refutes the allegations that the Uzbek state has thrown at it and is exploring all legal avenues open to it.

Tulgan said MTS is looking at international arbitration and predicted a long drawn out process.

He added the company had raised the issue with all its stakeholders and has been actively lobbying governments.

So far, only the GSMA has, publically at least, come out in support.

The industry body wrote an open letter to the Uzbek president earlier this month.

Tulgan said the company appreciated the effort but it was difficult to say whether it had had any impact.

So, what ultimately, does he think will happen?

“Unfortunately I don’t know. Our assets have been taken so our ability to influence what is happening is severely limited. We will engage as much as we can but the next move is with the Uzbek authorities.”

However, Tulgan did say MTS would be seeking compensation and pushing for full restoration or a negotiated settlement.

Surprisingly, he said at this stage MTS was keen to return to business in the country.

“We have an obligation to our shareholders and employees – the asset is there, it is a good one and our only crime is success.”

Tulgan added that the company had had “problems” in other markets in the region, notably Turkmenistan, but had managed to rebuild its business there.

Then there are Uzdunrobita’s customers, who appear to be just as big a loser in this saga as MTS.

Tulgan said customers are unable to use the network but competitors, including VimpelCom and TeliaSonera, could only absorb 20 percent of those who wanted to switch.

“This has put the Uzbek telecoms market back a number of years,” he added.

What makes the situation even harder for Tulgan to take is that he says he feels the company has been a good corporate citizen.

“We have said good things about the country and hosted investors there,” he claimed.

Ultimately, is it a question of poor due diligence on the part of MTS?

“That’s a good question. It is a difficult environment and we’ve known that,” admitted Tulgan.

“But we’ve had no problems during eight years of doing business in Uzbekistan and to my mind it’s not a question of misunderstanding the risks involved.”

So, why have the Uzbek authorities chosen to pick a fight with the company?

MTS has drawn attention to the Uzbek deputy prime minister, who previously served as general director of the regulator – one of the bodies that has pursued MTS over allegedly operating without the correct licenses.

MTS claimed the deputy PM signed all the license agreements when he was at the regulator.

Then there is the possibility of action being taken against foreign-owned companies.

Tulgan dismissed this, but intriguingly Teliasonera released a press release today about a TV programme “containing allegations related to TeliaSonera’s operations in Uzbekistan” is to be broadcast on Swedish TV channel STV.

The Scandinavian operator said it would comment on the content following transmission.

Said Tulgan: “I can’t speculate on why this has happened, but I will say that there are lot of contradictions in this whole thing.”

“We would advise any other telco thinking about investing in the country not to do any business here.”

The Uzbek authorities could not be reached for comment.

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