Sistema scales back Indian mobile ops ahead of auction

Last Updated: Thu, Feb 21, 2013 16:41 hrs

NEW DELHI/MOSCOW (Reuters) - Russian conglomerate Sistema said on Thursday that its Indian mobile phone unit would cease operations in almost half its regions as it prepares to bid in a spectrum auctions re-run.

The company's London-listed shares fell after the statement and were down 5.2 percent by 1606 GMT, which an analyst said reflected investor discontent with potential extra costs Sistema would incur to regain licences.

All but one of 22 zonal permits held by Sistema Shyam TeleServices (SSTL) were ordered to be revoked by the Supreme Court last year. The company is required to win back airwaves in those zones to continue services.

Sistema confirmed on Thursday that Shyam would take part in the auctions starting on March 11, but it did not specify the number of zones it would bid for.

"There was a slender hope that Sistema would decide against bidding in the auctions. As an investment company they should have chosen projects with a more reasonable risk-reward profile," said Igor Semyonov at Deutsche Bank.

"Exiting India would not have amounted to an epic failure of Russian capital but would have, on the contrary, shown Sistema as a rational investor," he said.

Sistema said in a statement that it needs to conserve resources because of uncertainties resulting from the cancellations and that it will start to inform customers in 10 zones to shift to other carriers.

Its subscriber base, which stood at 14.88 million at the end of 2012, will decline by 15 percent, a company spokeswoman said.

Sistema added that it is allowed to set off previous licence costs - which stood at about $300 million - against the new auction prices.

Last month India approved a 50 percent cut in the auction reserve price for CDMA (code division multiple access) airwaves, used by Sistema, after an auction in November attracted no bidders, with Sistema saying at the time that the price was too high.

The auction followed a court order to revoke several cellular carriers' permits awarded in a scandal-tainted 2008 state grant process and redistribute airwaves through open bidding.

(Reporting by Devidutta Tripathy in New Delhi and Anastasia Tetereveleva in Moscow; Writing by Maria Kiselyova; Editing by David Goodman and Hans-Juergen Peters)

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