TASHKENT, July 24 (TCA) – A new wave of mobile phone market redistribution has started in Uzbekistan. The suspension of operations of the nation’s largest cellular operator, Uzdunrobita, controlled by Russia’s MTS, has been linked by experts to a shift in company ownership.

Tens of thousands of cellular subscribers attacked offices of the Uzbek mobile operator, demanding them to put additional cash registers on the streets. The company’s building has been cordoned off by police, and traffic restrictions have been implemented on the streets next to their offices. These are the initial results of the Uzbek authorities' decision last week to suspend the license of Uzdunrobita for 10 days. Thus, 9.5 million subscribers, or nearly 40% of all mobile phone users in the country, were left without service.

A spokesman of the Uzbek Agency of Communications and Information (UzACI), Elbek Dalimov, wrote on the agency’s website that the violations are related to the illegal exploitation of base stations. According to the State Inspectorate of Communications in Uzbekistan, monitoring and analysis of subscribers’ applications showed that there were cases of Uzdunrobita providing poor services. During the last month, as prescribed by supervisory authorities, the company cut off 256 base stations out of more than 3,000 established in the country.

The UzACI does not see any reasons to dramatize the situation. Elbek Dalimov stressed that MTS’s license will be returned after removing all deficiencies. However, the agency order to suspend the operator’s activities appeared only during the morning of the appointed day for operation suspension, immediately sparking confusion and panic among customers.

According to market participants, cellular companies in Uzbekistan will be unable to cope with the influx of Uzdunrobita customers who want to restore their access to communication services.

It is estimated that today's subscriber base of cellular communication networks in Uzbekistan is more than 26 million users, compared with 19 million users at the end of 2010, for a population of 29.6 million. The country currently has five mobile operators: three in the GSM standard – Uzdunrobita, Coscom (controlled by TeliaSonera) and Unitel (a subsidiary of VimpelCom Ltd.), and two in CDMA standard – RWC and Uzbektelecom Mobile (a branch office of Uzbektelecom).

However, given the scale of activities and operational standards of communication networks, the major inflow of new subscribers will fall to the main competitors of Uzdunrobita – Coscom and Unitel. Both operators decided to activate the SIM cards of subscribers that have been inactive for the past three months, giving priority to Uzdunrobita’s services.

VimpelCom’s Head of Public Relations in the CIS, Artem Minayev, found it difficult to define an influx in the number of subscribers. “The inflow is so great that we had to switch our offices to around-the-clock work.”

"The subscriber base of cellular communications in Uzbekistan could be reduced by 25%, or about 6 million subscribers during the suspension of Uzdunrobita’s license,” claimed Ilkhat Tushev, an analyst for Central Asia Investments.

"Currently, the network capacity of cellular providers in the country will allow only 30% of Uzdunrobita’s subscribers to switch to the services of other operators; besides, about 10% of subscribers already have SIM cards for other mobile companies," stated Tushev. However, most market experts associate the suspension of MTS’s subsidiary with market redistribution and the possible appearance of new owners of the Uzbek operator.

Changes in Uzbekistan’s cellular market took place as recently as five years ago. In 2007, a Scandinavian operator, TeliaSonera, entered the market, acquiring 100% of the assets of American MCT Corp, which owned a stake in Coscom. Together with Russian MTS and Vimpelcom, they formed a powerful “group of three” in the market, and investors began to aggressively expand the network and introduce new technologies. A 3G standard network, which slowly evolved into 4G in 2011, was launched almost simultaneously.

MTS’s position appeared the strongest given this background. In July 2004, the Russian investor acquired 74% of the shares of Uzdunrobita for $121 million, bringing its stake over the next three years to 100%, spending a total of about $270 million. According to unofficial sources, the sellers of the stake were affiliated with Gulnara Karimova, the Uzbek president's daughter. For this reason, analysts say, the amount paid by MTS for the Uzbek company at the time was slightly overvalued. However, some market experts believe that the money was not enough, considering the development of cellular communications in the country.

Evidently, technical differences are just the start of the problems between MTS and the Tashkent authorities. In late June, the Prosecutor General of Uzbekistan opened a criminal case against a group of Uzdunrobita’s officers. The basis for the criminal case was an inspection of the company’s financial-economic activity, carried out by the State Tax Committee of Uzbekistan. A group of the company’s top managers accused of organizing large-scale theft have been arrested. Other staff members are on a wanted list, including Uzdunrobita CEO Bekhzod Akhmedov.

A financial inspection of Uzdunrobita which was conducted over three months revealed tax violations worth $520 million, according to Uzbek authorities.

The Russian company does not agree with these calculations, and it points to the direct raiding. "During the investigative activities, unidentified persons receive access to the company’s documents. At the same time, the list of required documents and the nature of the inspection are similar to a comprehensive pre-investment audit of the Uzbek investment company (due diligence),” said an MTS press release.

"Judging from the situation, it is quite realistic that the mobile operator may lose its business,” said Raiffeisenbank analyst Sergey Libin. “The conflict moved quickly enough from tax claims and audits to cutting off base stations and prosecution of the company’s management.”

According to Libin, if, within ten days, there is no compromise on the suspension of the license, it is most likely that it will be withdrawn.

Uzdunrobita’s losses for a ten-day downtime could reach millions of US dollars. In general, the negative effect of lost business in Uzbekistan for MTS is estimated at about $800 million to $1 billion in terms of market share loss. The configuration of the cellular market in Uzbekistan may change soon.