By Astghik Bedevian, Shakeh Avoyan and Ruzanna Khachatrian
Armenia’s largest mobile phone operator, K-Telecom, announced on Friday its widely anticipated takeover by a Russian telecommunication giant, which will give a further boost to Russia’s already strong economic presence in the South Caucasus state.
Top executives of the two companies said Mobile TeleSystems (MTS), Russia’s number one wireless operator, will pay over $430 million for a commanding 80 percent stake in K-Telecom and have the option of buying the remaining 20 percent of its stock in the next five years.
The deal came after weeks of negotiations reportedly involving the governments of the two countries. According to reports in the Armenian press, the authorities in Yerevan have played a large role in convincing K-Telecom’s official owner, Lebanese tycoon Pierre Fattouch, to sell his rapidly expanding VivaCell network to MTS.
The Armenian government was similarly said to have been a driving force behind last year’s sale of the ArmenTel national telecom company, which operates the country’s second cellular network, to another Russian wireless firm, Vimpelcom. The $500 million acquisition came shortly after President Robert Kocharian’s visit to Moscow.
Fattouch denied any political motives behind the latest deal, again comparing his Armenian subsidiary to a young woman courted by suitors. “The bride has come of age,” he said. “It was natural for her to want to marry.”
“There were many suitors, but this girl fell in love with this one,” said Ralph Yirikian, the VivaCell chief executive. “This deal has no political motives,” he added.
Speaking at a joint news conference, the MTS chairman, Leonid Melamed, likewise insisted that political factors were not at play, but chose to thank the Armenian government. Asked for the reason for the gratitude, he said, “We had the honor of being received by the country’s minister of communications and plan to maintain our contacts with the government.”
The government picked K-Telecom as Armenia’s second mobile operator without a tender in late 2004 after forcing the then Greek-owned ArmenTel to abandon its legal monopoly on mobile telephony. The launch of K-Telecom’s network in July 2005 led to an explosion in mobile phone use in the country as fierce competition between ArmenTel and VivaCell dramatically reduced the hitherto high cost of the service. VivaCell currently boasts nearly one million subscribers, compared to ArmenTel’s 500,000.
As recently as in July, Fattouch declared that he has invested about $340 million in VivaCell, intends to expand it and has no plans to leave Armenia. He said on Friday that he will invest proceeds from the network’s sale in the Armenian mining sector. He gave no details.
With a market capitalization of $25 billion, MTS is one of the world’s biggest mobile phone companies and has subsidiaries in other former Soviet republics like Ukraine, Belarus and Uzbekistan. Its purchase of VivaCell coincided with a meeting in Yerevan of the Russian-Armenian inter-governmental commission on economic cooperation.
The commission co-chairs, Prime Minister Serzh Sarkisian and Russian Transport Minister Igor Levitin welcomed the deal, saying that it will further boost Russian-Armenian commercial ties. Levitin said Russian investments in the Armenian economy will total a record-high level of $500 million this year. The figure will likely grow next year because of “a number of other very interesting and big investment projects,” he added without elaborating.
“It is very important that business believes in the governments of Russia and Armenia and that investments in our countries are protected,” the Russian minister told reporters.
Sarkisian also welcomed “huge progress” in Russian-Armenian ties and described as “extremely important” his upcoming visit to Moscow. “There are problems that must be solved with the governments’ intervention,” he said.
In Levitin’s words, the most serious of those problems is a lack of stable and reliable transport communication between the two countries.
The sale of VivaCell is certain to prompt serious concern from opponents of the Armenian government who believe that Russia’s rising economic presence is putting their country’s security and independence at risk. They strongly condemned a series of Russian-Armenian agreements that left Armenia’s energy sector under near total Russian control.
Opposition leaders and commentators have alleged that Sarkisian and Kocharian have facilitated the Russian economic expansion into Armenia with the aim of ensuring Moscow’s continued support for their joint rule. The two leaders and their political allies have always dismissed such claims.
Still, some of them admitted on Friday that they are worried that Armenia is becoming too dependent on its former Soviet master.
“We must make calculations. If [Russian-Armenian deals] affect our independence, we must be careful on such issues,” Karen Karapetian, the parliamentary leader of Sarkisian’s Republican Party (HHK), told reporters. Asked whether Yerevan has been careful enough, he said: “Not quite.”
“We must think about attracting not only Russian but American, European and Asian capital into our economy,” said Artsvi Minasian of the Armenian Revolutionary Federation, the HHK’s junior coalition partner.
(Photolur photo: Levitin and Sarkisian pictured after the commission meeting.)