Mobile TeleSystems (MBT), Russia and Eastern Europe’s largest cellular operator, has reportedly acquired a 50.91% stake in Comstar-United TeleSystems (Comstar-UTS), a leading integrated telecommunication solution provider in Russia and the CIS.

The incumbent Russian telecom carrier has acquired the stake from AFK Sistema, a Russia-based financial and industrial holding company, for RUR39.15 billion (US$1.32 billion) having received all the necessary regulatory approvals for the transaction.

Comstar-UTS comprises fixed-line operator Moscow City Telephone Network (“MGTS”) and STREAM-TV, a leading Russian cable TV and Internet service provider. The company holds a major share in the broadband and IPTV markets in Moscow. Comstar-UTS also offers value-added “Triple-Play” bundled (voice, Internet and pat-TV) services to its customers.

Comstar-UTS currently operates in 70 Russian cities, covering a total population of over 48 million people. At the end of first-half 2009, the company served 4.4 million fixed telephony subscribers, nearly 1.2 million broadband Internet customers and 2 million pay-TV subscribers.

While Mobile TeleSystems is the market leader in Russia, the company is increasingly exposed to intense pricing pressure across most of its operating regions fueled by aggressive competition. This has led to declining operating margins as evidenced by the last quarter’s results. In contrast, the company’s archrival VimpelCom (VIP) continues to grow at a respectable pace.

VimpelCom has strenghened its opportunity in the residential broadband market by acquiring Golden Telecom Inc, a leading provider of broadband Internet services in Russia and the CIS, in February 2008. This acquisition has strengthened VimpelCom’s offerings to wireline backhaul, corporate telecom and broadband access segments, and extended services beyond the traditional cellular networking.

To remain competitive, Mobile TeleSystems is pursuing a similar strategy by acquiring a controlling stake in Comstar-UTS. In addition to extending growth opportunities in commercial and residential broadband markets, the transaction will provide considerable cost and operational synergies while facilitating the development and roll out of innovative services.

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