Sistema Shyam TeleServices (SSTL)

History

2017: Exchange of the company for 10% in Reliance Communications

In 2017 the deal on merge of SSTL with the Reliance Communications mobile operator working in the CDMA, GSM, UMTS and LTE standards is closed. Shareholders of SSTL received 10% in the united company.

2015: Failure from participation in a new auction for frequencies

In 2015 the authorities of India held a new auction. SSTL considered the possibility of participation in it and obtaining additional frequencies using which the company could pass from CDMA technology to LTE technology. But the company as a result refused participation in an auction.

2014: India refuses increase in a share of the foreign capital in the company

Council for the foreign investments of India refused in September, 2014 to Sistema Shyam Teleservices mobile operator (SSTL, the MTS-India trademark) increase in the greatest possible share of the foreign capital. The Indian newspaper Economic Times writes about it. The cumulative share of foreigners in SSTL makes 74% - until recently it was the greatest possible level of foreign presence at the Indian telecommunication companies. From them 57% of stocks belong to AFK "Sistema", 17% - to Rosimushchestvo^[1].

Due to the existence of restrictions AFK "Sistema" financed Indian "subsidiary" not by carrying out an additional issue of ordinary shares, and using issue of preferred shares. Other "subsidiary" of AFK "Sistema" - Insistel Services – redeemed them for the amount of $1.6 billion.

However limits for the foreign capital are lifted. With respect thereto AFK "Sistema" wants to convert the preferred stocks of SSTl owned by it in ordinary shares. Earlier shareholder meeting already approved such converting.

The authorities of India motivated failure in permission to increase in the maximum size of a foreign share in SSTL with the fact that the applicant did not specify a new limit of foreign presence at the company. The representative of AFK "Sistema" Ekaterina Tsukanova considers that failure is connected with the formal reasons: the corporation intends to make required corrections to documents and hopes for the positive solution at reconsideration of their request.

2013

Net loss of $445.5 million

Net loss of the Indian mobile operator Sistema Shyam TeleServices (MTS India) belonging to the Russian AFK "Sistema" in 2013 decreased by 9.65% in comparison with 2012 to $445.5 million, says the company. Revenue of the operator in 2013 decreased by 24% — to 202.9 million dollars.

Purchase of frequencies for $660 million at a new auction only for 8 states

• Structure of property for February, 2013: AFK "Sistema" (56.68%), Shyam Group (23.98%), Rosimushchestvo (17.14%).

• The conflict of the company with the government of India came to the end in 2013 when SSTL redeemed at a frequency auction in the territory of eight districts for $660 million. The company left the territory of other 13 districts.

In February, 2013 it became known that the Ministry of Communications of India published conditions of auctions on frequencies 800, 900 and 1800 MHz, licenses for which were cancelled a year ago by the Supreme Court of India. Follows from the document which Vedomosti studied that the winner of an auction will be able to build networks, using any technology. It will only be necessary to report the regulator within a month after the victory what technology is selected.

In total the Supreme Court of India cancelled frequencies at 11 operators, having decided that in 2008 they were distributed opaquely and cost the companies too cheap. Among them there were also frequencies of Indian "subsidiary" of AFK "Sistema" — Sistema Shyam Teleservices Ltd. (SSTL) in 21 districts. The company protested the decision of the Supreme Court, but its supervisory appeal is not considered yet. Meanwhile the right of SSTL to use the frequencies which are available for it expires on February 4, 2013, auctions start only on March 11.

The starting cost of frequencies which permitted to use SSTL in 2008 (a band up to 5 MHz wide across all India) is set in $1.7 billion. But really the winner of an auction will receive more narrow band — 3.75 MHz in all regions, except Andhra Pradesh where play 2.5 MHz. If all frequency of 800 MHz are distributed at the starting price, then their total cost will be $1.22 billion.

Conditions of an auction allow to pay frequencies by installments: 25% of cost need to be given at once, and the remaining balance with percent can begin to be paid in three years. In a case with SSTL initial payment can make $305 million, but to it still should reckon 16.4 billion rupees spent for purchase of frequencies in 2008 (in 2008 it was equivalent to $620 million, now — $308 million). So if SSTL decides to participate in an auction, and the price will not exceed starting, then she will be able to win all frequencies which she uses now, and to make the first payment only in March, 2016, paying then within 10 years $91.5 million a year (plus percent).

• At the end of February it became known that SSTL closes transactions in 10 Indian districts from 22. At the same time AFK "Sistema" confirmed that SSTL will participate in an auction on frequencies which will begin on March 11, 2013. But it will not apply for licenses in these 10 districts, the representative of System says. Whether the operator will submit applications for frequencies in the remained 11 districts (in one — Rajasthan SSTL worked from the very beginning), he did not specify. It is necessary to win at the March SSTL auction again a band in the range of 800 MHz which it uses since 2008.

Districts which are left by SSTL make 51% of the territory of the country, and nearly 40% of the population of India live in them. These are mainly rural areas so SSTL will lose only about 15% of a subscriber base and only 11% of users of mobile Internet access, the most profitable for the company, the representative of AFK says. Subscribers of SSTL in districts where the operator curtails business, will not suffer — in India it is possible to save the mobile number, changing a cellular network, he emphasizes. These subscribers were for SSTL the most capital-intensive in terms of the costs necessary for accomplishment of license conditions — ensuring a certain level of a covering and capacity of networks, the representative of System adds.

In 2008 SSTL acquired the right to use in each of license districts frequency band up to 5 MHz wide — four blocks on 1.25 MHz, but really could involve on average only two such blocks. At a new auction in each region about three blocks will be distributed, i.e. SSTL have a chance to receive more than the frequencies, than now. And frequencies at which for February, 2013 it is possible to build only networks of CDMA-800 standard will be offered for an auction technology neutral so in the long term the winner will be able to develop any technologies, including fourth generation (LTE). At last, validity period of the cancelled licenses expired in 2018, and new licenses are granted for 20 years — till 2033^[2].

The Indian government will reckon to System the money which is already spent for purchase of frequencies in 2008, says AFK. Then SSTL paid for the frequency of 16.4 billion Indian rupees, now it is equivalent to $301 million. Thanks to this solution will be reduced as operating expenses of SSTL (now it is just about $300 million a year), and capital expenditures, said in an analytical note of Morgan Stanley. Optimization of number of districts in which SSTL will work can positively affect its financial results and bring closer an exit to a positive cash flow though for System it would be better to leave India at all, the analyst of Deutsche Bank Igor Semyonov considers. There was a faint hope that AFK will not go to an auction at all, but it did not come true, it sneers.

Probably, AFK for the political reasons cannot leave for good India though it would be best of all, the analyst "Opening of the capital" Alexander Vengranovich agrees. In these conditions he calls failure from the most unprofitable regions the best of possible solutions. In the same way the Norwegian Telenor also injured from the decision of the Supreme Court of India went in October, 2012: she left a part of regions of this country, and recently reported that she hopes to bring in 2013 business in India to profitability.

The starting price of the frequencies of 800 MHz exposed on tender in 21 districts is about $1.185 billion (at a yesterday's rate of rupee). At the same time the cost of frequencies in 10 districts for which SSTL will not submit the application, – only $154 million. Thus, if SSTL wins all exposed frequencies at the minimum price, they will cost it $1.03 billion and the first payment (25%) will make $258 million. As to System 16.4 billion rupees ($301 million) paid in 2008 will be reckoned, really the company will begin to pay for frequencies only in 2016.

Global depositary receipts of AFK "Sistema" on the London Stock Exchange fell in price on February 21, 2013 by 5.6%.

2012: Licenses of the company in 21 of 22 districts are cancelled

On February 3, 2012 it became known that the Supreme Court of India decided to cancel 122 universal telecommunication licenses with the right of rendering services of cellular communication of the second generation granted by Department of Telecommunications (DTI) at the beginning of 2008 at 11 companies. Including licenses for 21 of 22 telecommunication districts of the country belonging to the Sistema Shyam Teleservices CDMA operator (SSTL, the MTS-India trademark) controlled by AFK "Sistema" are cancelled. 24% of stocks of this company own the Government of the Russian Federation.

In addition to SSTL, 22 licenses Unitech Wirelless ('subsidiary" of the Norwegian Telenor), on 21 licenses of Loop Telecom and Videocon telecommunications companies, 15 licenses Etisalat BD Telecom (belongs to Etisalat holding from the UAE), 13 licenses Idea Cellular, 6 licenses of S-tel company ('subsidiary" of Bahrain Telecom) and 3 licenses Tata Teleservices which co-owner is the Japanese NTT Docomo were cancelled. Thus, Russians were not the only foreign investors whose interests were infringed by court's decision.

Also the court fined "subsidiary" of System 5 million rupees ($102 thousand) for "obtaining benefit from accidental and unconstitutional" process of distribution of licenses. Similar penalties it is imposed on Videocon, S-Tel and Loop. And here Tata telecom, Etisalat and "subsidiary" of Telenor should be paid still heavy fines — on 50 million rupees ($1 million) for each district.

In court's decision it is said that the applied system of distribution of licenses was "wrong and helped to receive benefit to unfair persons". The government is entrusted to develop a new order of issue of licenses and frequencies on the basis of auctions. To operators, whose licenses were cancelled, the delay for four months during which they will be able to continue to work is granted.

The process of issue of telecommunication licenses which took place in 2008 initially was exposed to criticism, the principle "the first was its cornerstone came — the first received". DTI exposed the companies in queue on obtaining licenses, at the same time a number of applicants was discharged of process at the last minute. Time of issue of licenses it was announced in several hours that led to a fight between top managers of the Indian operators — having obtained licenses, it was necessary to get right there in line for obtaining frequencies.

The price of licenses was fixed - 16.580 billion rupees ($367 million) for all 22 Indian districts, all the authorities earned then $2.74 billion. The analysis which is carried out in 2010. The chief auditor and the controller of India, showed that the actual cost of these licenses was 77.580 billion - 91 billion rupees ($1.7-2 billion). The matter is that a number of the companies — receivers of licenses were at once sold to foreign investors, besides, afterwards the government of India offered 3G-licenses for an auction and earned from it $22 billion. Damages to the Indian state were assessed at $12-15 billion.

After publication of the report the Minister of Communications of India to Andimouth of Andimuthu Raja was forced to resign, and then together with some other officials and top managers of telecommunication operators it appeared under guards on a charge of corruption. Within investigation investigators were interested in SSTL, in particular, the inquiry concerning AFK "Sistema" was sent to Russia, and the founder of SSTL and the board member of System of Rajiv Mekhrotr (Rajiv Mehrotra) was called for questioning.

By this moment SSTL invested in India 125 billion rupees ($2.5 billion), including $600 million received from the Russian government. The company services 15 million subscribers. AFK "Sistema" said that the operator continues work and will take all legal measures for protection of interests of the clients.

Telenor by this moment invested 141 billion rupees ($2.9 billion) in India, its "daughter" services 36 million subscribers. As well as AFK "Sistema", Telenor waits for the decision of the government and hopes that it will be fair.

The source in the Indian telecommunication market told CNews that the decision made by court has political character. "The verdict is accepted "on topic of the day" within general fight against corruption, - the interlocutor of CNews says. - Under distribution about ten companies got at once, and the government, any of serious political parties are interested in their leaving from the market"^[3].

• In April, 2012 the Indian TRAI regulator estimated frequencies of SSTL at $6 billion. The cabinet in August, 2012 reduced the starting price to 182 billion rupees ($3.25 billion). At it the state tried to sell frequencies in October, 2012, but requests were not. Then in the middle of January, 2013 the government reduced the starting price twice – to 91 billion rupees ($1.7 billion).

The company services more than 16 million subscribers, including more than 1.7 million mobile Internet users.

2011

Revenue of $262.3 million

For April, 2011 SSTL is present at 130 cities of India.

Revenue (US GAAP, 2011) – $262.3 million. Net loss – $636.1 million^[4].

Revenue of SSTL grew by 128.8% for complete 2011 owing to 78% of growth of base of subscribers of mobile communication and data transmission in 2011 which reached 15 million. Increase in a loss according to OIBDA in comparison with 2010 is mainly connected with recognition of impairment of licenses and also due to accumulation of scales of business in all districts of the country.

The mixed indicator of ARPU for a reporting quarter and 2011 reached US$1.85 and US$1.78 respectively.

The number of the subscribers using data services, more than doubled in 2011 in comparison with 2010 and grew by 23.5% in the fourth quarter, having been 1.3 million.

Revenue from not voice services - both data services, and mobile services with the added value (VAS) - reached US$25 million for a reporting quarter. Revenue share from not voice services in percentage to total sales increased in a quarter by 0.6 items and made 33%.

Frequency scandal and arrest of the Minister of Communications of India

• On February 2, 2011 the Minister of Communications of India Andimouth of Raj was arrested. The investigation believes that Raj worked selfishly and got bribes for issue of licenses which the minister through 14 real estate firms belonging to it displaid the abroad. In particular, it is about the GreenHouse Promoters company created in 2004 right after the first arrival of the Rajah to the government as the minister of the environment. Shares in the company were received by the wife of the Rajah Parameswari, brothers Kaliaperumal and Ramchandran and nephews Parmesh Kumar and Ram Ganesh. And the minister's spouse, having joined the board, specified in qualities of the address the government residence of the husband in Daly. After detection of it the fact Parameswari transferred the stocks to the niece Malarvizhi Ram.

The investigation does not exclude that the head of Greenhiuse Promoters of Sadib Batcha disposed not only Raj's finance, but also was a financier of a batch of Dravida Munnetra Kazhagam which the ex-minister enters. The batch renders Raj I will support also a number of her heads, including the acting ministers, visited him in prison.

Within investigation the Directorate sent inquiries by control of performance of the legislation of India to a number of the foreign states in which shareholders of the companies receivers of licenses are registered, including data on AFK "Sistema" were requested from Russian authorities.

• February 23, 2011. The Central Bureau of Investigations (CBI) of India interrogated the member of Boards of Directors of AFK "Sistema" and its Indian "subsidiary" of Sistema Shyam Teleservices (SSTL, works under the MTS India brand) Rajiv Mehrotra. Until recently Mehrotra was the managing director and the chairman of the board of directors of SSTL.

Along with Mekhrotra the Rajah's brother Kaliaperumal and the CEO of Loop Telecom mobile operator Sandip Basu were interrogated, and a day earlier in the Central Bank of Russia the managing director of the considered Greenhouse Promoters company, close to the Rajah, Sadiq Batcha and the founder of Himachal Futuristic Communications Limited (owns 36% of stocks of Videocon Mobile mobile operator) Mahendra to Nakhatya (Mahendra Nahata) were called.

Above-mentioned operators were among the companies which obtained telecommunication licenses at the beginning of 2008. In particular, SSTL which was initially owning a cellular network of the CDMA standard in one District of Rajasthan could obtain then universal telecommunication licenses for the territory of all other 21 districts of India. According to Economic Times sources, interest of investigators in SSTL is attracted by the fact that the company in extremely short terms got in Rajasthan permission to the GSM standard in addition to frequencies for CDMA.

Investigators, interrogating Mekhrotr and the Bass, showed them a number of documents on activity of their companies withdrawn by the Central Bank of Russia during searches.

• In March, 2011 the deal on entry of the Government of the Russian Federation into authorized capital of Sistema Shyam TeleServices Ltd was closed. During additional issue of shares for benefit of the Government of the Russian Federation and the Indian shareholders SSTL attracted 28,894.5 million rupees (more than US$647 million) in authorized capital. The Government of the Russian Federation on behalf of Rosimushchestvo redeemed 17.14% of the shares SSTL for total amount of 26,988 million rupees (about US$600 million). Based on additional issue of shares the share of AFK "Sistema" in authorized capital of SSTL made 56.68%, a share of the Indian shareholders of SSTL – 26.05%.

• In August, 2011 Sistema Shyam TeleServices Ltd. presented at the Indian market the most available smartphones at the price based on the Android operating system.

• In September, 2011 MTS India became the first CDMA operator in the world who implemented a technology platform of new generation - EV-DO Rev. B Phase II.

• In October, 2011 the SSTL company started service of the international roaming for the subscribers on prepayment-based rates which allows them to perform roaming in 433 GSM networks in 231 countries. Besides, SSTL released the SIM card supporting the standard of the GSM phones at stay abroad and the standard of the CDMA phones corresponding to an initiative of OMH in India.

• In October, 2011 SSTL became the first company which started in India a zone of high-speed data transmission on the highway Bangalore - Chennai 350 km long.

2010

Growth of revenue by 198%

• The consolidated revenue in a year increased by 198%, and reached 5,239 million rupees.
• The consolidated loss according to OIBDA grew by a year by 39%, having made 15,037 million rupees.
• The consolidated debt to banks and financial institutions made 55,702 million rupees.

• Services of high-speed data transmission at the end of 2010 were provided in 100 largest cities of India.

• The subscriber base on mobile services in 2010 increased by 190%, having made 8.4 million subscribers.

• The subscriber base on data services in a year increased by 61.9 times and reached 0.43 million subscribers.

• The mixed ARPU within a year practically did not change, in absolute digits the indicator was 77 rupees.

• Revenue from not voice communication services - both from data services, and from additional services of mobile communication, for all 2010 grew by 21.6 times and reached 872 million rupees. Revenue share from not voice services in consolidated revenues increased by 14% in a year.

Part of a national debt of India in front of Russia goes for purchase of shares of SSTL

• The order about purchase of a share in SSTL for the amount equivalent to $600 million (on December 20, 2010 made 26.998 billion rupees), was signed at the beginning of September, 2010 by the prime minister Vladimir Putin. Money for the transaction is selected from a national debt of India in front of Russia which, according to the intergovernmental arrangement, can be spent only in India.

• On September 30, 2010 shareholders of SSTL made the decision on an additional issue within which Rosimushchestvo can receive 547.3 million shares (about 17.1% of the increased capital), and the share of System will decrease from 73.7 to 56.5%. But the exact size of a share of Rosimushchestvo will be determined after summing up the redemption of an additional issue by the Indian partners of System, tells a source, close to AFK.

• In November, 2010, after the beginning of investigation around issue of telecommunication licenses in 2008, the become largest corruption scandal in India in recent years the Minister of Communications Andimouth of Andimuthu Raja holding the post since 2007 was forced to resign.

Scandal with distribution of telecommunication licenses was caused by the report of the Chief auditor and control of India as which affirmed that process of distribution of licenses was extremely opaque, and a number of receivers of licenses did not conform to necessary requirements. The main output of the auditor consisted that failure from auction model for benefit of issue of licenses on the fixed price in $367 million caused to the state damage at the rate from $12 billion to $40 billion.

• On December 20, 2010 it became known that Sistema Shyam TeleServices received official claims of the government of the country concerning non-compliance with license conditions of deployment of cellular networks in 10 of 22 states of India that threatens with oslozheniye up to revocation of licenses. The company is obliged to furnish the explanations within 60 days then the authorities will make the decision on possible sanctions which severity can vary from a penalty before revocation of licenses in problem states.

On the same day Vnesheconombank (VEB) at the request of the Ministry of Finance listed to Indian "subsidiary" of AFK "Sistema" — Sistema Shyam Teleservices Ltd (SSTL) company of nearly 27 billion rupees ($600 million)^[5]. In exchange the state will receive 17.1% of SSTL, but can sell them to AFK in five years. Told about it to Vedomosti the source close to SSTL and the representative of VEB confirmed.

"System" also signed with Rosimushchestvo the obligation under the redemption of this packet in five years, the manager of System says and the official of the Ministry of Finance confirms. The redemption should happen at the market price or at the purchase price plus the fixed percent, told sources of Vedomosti earlier. Yesterday representatives of Rosimushchestvo and AFK refused official comments.

The transaction was not prevented by the scandal which burst in India because of issue of licenses in 2008. The local regulator recommended to revoke 69 licenses, including 10 from SSTL, for failure to meet time constraints of the beginning of rendering services or their inadequate quality.

2007: AFK "Sistema" takes 74% of the shares SSTL

In 2007 Shyam Group belonging to Rajiv Mehrotra sold to System 74% of the shares SSTL, having remained the owner of 24%. Shyam Teleservices is the mobile operator working in CDMA-800 standard from the State of Rajasthan.

Soon the company received frequencies in the range of 800 MHz in other 21 Indian districts.

Notes