Russia's top cellular operator Mobile TeleSystems (MTS) is in talks to buy Armenia's leading mobile network provider, K-Telecom, a source familiar with the situation said on Tuesday.
"The talks are under way, but they are far from being concluded," the source told Reuters.
Services conglomerate Sistema, which holds a controlling stake in MTS, confirmed MTS was interested in mobile assets in the former Soviet states. "We are currently in talks with several companies working on the ex-Soviet ground. K-Telecom is interesting to us as one of the options," said Sistema spokesman Kirill Semenov.
Vedomosti business daily quoted sector analysts as saying the value of K-Telecom, which currently has over 1 million subscribers, could reach up to $600 million.
"Although the deal is only modest in size (about 1.3 percent of MTS's existing subscriber base) and value, it makes every sense from a strategic standpoint," Deutsche UFG analysts wrote in a note.
Russia's leading mobile providers are in fierce competition to expand into post-Soviet countries where fewer people own mobile phones and the markets still have a potential to grow.
Vedomosti said mobile penetration in Armenia, a country of 3.2 million people, is about 50 percent, while penetration in Russia already tops 110 percent.
"We believe the deal is positive for MTS, which has lagged Vimpelcom in expanding its footprint in the CIS," Aton brokerage said in note.
Last year Vimpelcom, MTS's key rival in Russia, bought Armenia's No.2 mobile provider Armentel for $488 million. Vimpelcom's client base in the country stands at 530,000. K-Telecom launched its mobile services in 2005. According to Vedomosti, it is controlled by the Lebanese Fattouch Group.