Publication: Eurasia Daily Monitor Volume: 3 Issue: 211

A leading Russian mobile phone operator is poised to buy Armenia’s national telecommunications company, ArmenTel, further boosting Moscow’s economic presence in the loyal South Caucasus state. The Armenian government will almost certainly give its mandatory consent to the nearly $490 million takeover, having just ceded more energy assets to Russia’s Gazprom natural gas monopoly (see EDM, November 3). Its domestic critics have denounced these developments as another blow to the country’s national security.

Vimpel-Communications (VimpelCom) announced on November 3 that it had won an international tender for a commanding 90% share in ArmenTel that was called by the latter’s parent company, the Hellenic Telecommunications Organization (OTE), last April. In a press release, the Russian firm said it will pay the Greek telecom giant almost $437 million and assume its Armenian subsidiary’s debts totaling $51 million. Although OTE has yet to officially confirm this, nobody has questioned the credibility of the information.

The deal is the latest in a recent series of VimpelCom acquisitions of cellular operators across the former Soviet Union, including neighboring Georgia. Its official endorsement by the Armenian government, which owns the remaining 10% of ArmenTel, now seems a mere formality. In fact, Yerevan has reportedly played a decisive role in the outcome of the bidding. Russian and Armenian press reports said that VimpelCom did not submit the highest bid, with the Moscow daily Kommersant claiming last week that another bidder, the Dubai-based consortium Etisalat, offered to pay $600 million for ArmenTel. According to Yerevan’s Haykakan Zhamanak daily, Armenian Transport and Communications Minister Andranik Manukian warned the Greeks that the government would block the sale unless they give the tender to VimpelCom or Sistema, another Russian telecom firm that has shown interest in ArmenTel.

Assuming that this was the case, OTE had no option but to accept the price tag put forward by the Russians. The company bought the Armenian phone network for about $200 million in early 1998 and seems to have more than recouped the price since then. ArmenTel has apparently been OTE’s most profitable division, largely owing to its extremely controversial legal monopoly on all forms of telecommunication, which was partly abolished two years ago. It reported $58 million in earnings last year, compared to a net loss of $275 million posted by the entire Greek group. Explaining the surprise decision to put ArmenTel up for sale in April, its top executives said they have decided to focus on the company’s core holdings in Greece as well as subsidiaries in nearby Bulgaria, Serbia, and Romania. Michalis Tsamas, OTE’s managing director, also cited a “rather large interest from Russian companies and funds.”

The VimpelCom statement came just days after Armenian President Robert Kocharian’s visit to Moscow, which was dominated by economic issues. Receiving Kocharian in the Kremlin on October 30, Russian President Vladimir Putin described as “shameful” and “odd” the fact that Russia is only Armenia’s third-largest foreign investor. Some analysts construed the televised remark as a demand for a greater Russian presence in the Armenian economy. Kocharian responded by confirming that Gazprom will raise from 45% to 58% its share in the Russian-Armenian ARG joint venture that runs Armenia’s gas distribution network. ARG is also widely expected to gain ownership of an under-construction gas pipeline from Iran. All this appears to be part of a controversial April agreement that enables Armenia to receive Russian gas at a knockdown price until January 2009 in return for handing over more of its energy assets to Gazprom (see EDM, April 6).

Both the April deal and the imminent sale of ArmenTel have prompted serious concern from opposition politicians and media commentators. They believe that Armenia’s economic dependence on its former-Soviet master is turning into a dangerous stranglehold. But the influential Defense Minister Serge Sarkisian, who is closely involved in Russian-Armenian economic dealings, brushed aside such concerns as he spoke with journalists on November 6. “Give me a single example of Russian capital present in Armenia exerting political pressure on us,” Sarkisian said. “He knows very well that economic levers are the best means of political blackmail,” Vahagn Khachatrian, a former Yerevan mayor opposed to the Armenian government, countered in an interview with the Aravot daily. The Kremlin, he said, will now be better placed to hold Yerevan in check.

Proponents of the ArmenTel deal will insist, however, that VimpelCom, the first Russian firm to list its shares on the New York Stock Exchange in November 1996, is privately owned and unlikely to be used by the Kremlin as a political tool. They might also argue that, with almost 52 million mobile phone subscribers in Russia and other parts of the former USSR, VimpelCom has the resources to make more capital investments in the Armenian land-line phone network.

For many local observers, the key question is not so much who will own ArmenTel as whether the operator will be forced to abandon its exclusive right to provide Armenia’s Internet connection with the outside world. The legal monopoly is widely blamed for the poor quality and relatively high cost of that service. It is also seen as a serious obstacle to the development of information technology in the country. The Armenian government has reportedly asked VimpelCom to take its minority stake in ArmenTel in return for giving up the monopoly.

(Haykakan Zhamanak, November 11, November 7; Aravot, November 8; Kommersant, November 7; Statement by VimpelCom, November 3; Russian First Channel, October 30)