APPENDIX

Press Coverage of the Assaults On VympelCom.

 

YUKOS IN THE GSM STANDARD

Yezhenedelnyi Zhurnal
09.02.04.
The Prosecutor General’s Office as a Weapon of Competition.
Last week the Prosecutor’s Office of the Northern Administrative District of Moscow opened a criminal case against VympelCom, the largest cellular carrier in Russia, operating under the trademark Bee Line. The prosecutors are accusing the company of unlawful business activity in the capital. It turns out that the license for operating in the GSM standard belongs not to VympelCom itself, but to its offspring, KB Impulse. Moscow prosecutors found support in the Prosecutor General’s office, which tasked the chief Moscow prosecutor, Anatoly Zuev, to take the matter under his personal control.
VympelCom’s director in public relations, Mikhail Umarov, confirmed that in Moscow and the Moscow region, VympelCom operates under a GSM license that belongs to its direct offspring, KB Impulse, on whose behalf VympelCom acts as an agent. In Umarov’s words, “this business structure was formed in 1997, and in the last six years has undergone multiple inspections by regulating agencies, not raising any questions until now.”
Towards the end of the week the cellular carrier launched a counter-attack, and filed suit against GSN in the Moscow Court of Arbitration; although this suit, if one’s to trust the Russian courts in recent months, is practically doomed. Loud scandals are a permanent feature of the cellular communications business in Moscow, the biggest and therefore most attractive market in the country – especially after the emergence in 2002 of a third company, MegaFon, to join in sharing the market with old-timers, MTS and VympelCom. MegaFon was created with direct participation of the Communications Minister, Leonid Reiman. At the time, a scandal flared up around the ways in which MegaFon obtained a GSM-license for Moscow. Although until recently cell phone carriers have preferred to compete by lowering prices or introducing new kinds of service, now there is a new weapon, the prosecutor’s office. And there is no defense against it.
VympelCom’s situation is complicated by its founder and former co-owner Dmitry Zimin, now retired, being one of the few members of the RSPP bureau who quite strongly reacted against the actions of Prosecutor General’s office in the arrest of Mikhail Khodorkovsky. Were the court to decide against VympelCom, Zimin could face indictment.

 

VYMPELCOM IS EXPECTING NEW ACCUSATIONS

Vremya Novostei
09.02.04.
The situation around VympelCom (the Bee Line network carrier) took the familiar pattern of the state machine applying pressure on a private company. The night of February 6 was the most stressful in the history of Bee Line: probably even more stressful than any New Year’s Eve night, when network call loads increase manifold. But in this case, the only thing that VympelCom could do was turn to the public for help: the company’s press service sent out a press release about a possible search of the VympelCom’s offices. The search, however, never actually took place.
Except instead of a search, the company got a different “surprise.” Information was leaked to the media that the Communications Ministry complained to UBEP about a carrier that was “undermining the foundations of statehood,” that is – Rostelecom’s monopoly on long distance communications. If we are to believe this leak, the Ministry uncovered the following violation: VympelCom does not always send international traffic through Rostelecom’s circuits, thus violating one of the provisions of the law “On Communications.”
VympelCom does not deny that a majority of its international calls do not go directly through the Rostelecom network, but they put the blame exclusively on the monopoly itself. “We would have loved to work with Restelecom only, but it is not ready. This is why we have to use the service of other carriers: Golden Telecom, Korbina, etc.” – says VympelCom Public Relations director, Mikhail Umarov. He stressed that there is nothing illegal about this: “The demand that traffic be sent exclusively through Rostelecom channels should be addressed not to us, but to the intermediary carriers, whose networks we use. This is a question for them, since we are free to choose. Look at MegaFon, for example: to lower the price of international calls it lets its customers not only circumvent Rotelecom’s networks, but uses non-traditional IP-channels.”
To be fair, the accusations of unlawful traffic channeling are sounding not very loudly. Much simpler and more accessible are accusations of tax evasion which, according to the same leak, may also be leveled against VympelCom soon. In response, the company pointed out that an inspection was conducted in December, uncovering no violations, although VympelCom’s representatives admit that they expected tax accusations to spring up now from all the bad publicity surrounding the company.
The assault against VympelCom did not start with the accusations of state agencies, but with those of a private subscriber, Oleg Chubarov. He refused to pay out his balance to VympelCom based on his assertion that the license for service in the Moscow area belongs not to VympelCom itself, but to its offspring, KB Impulse. The court later ruled in favor of VympelCom.
Last week the Moscow Northern district prosecutor’s office opened a criminal case against VymeplCom for providing service without a license (the company is appealing this suit in the Savelovsky Court district). Moreover, in the “absence” of a license, GSN demanded the impossible from VympelCom: immediately re-sign all of its contracts with all of its Moscow subscribers (the carrier will be appealing this too). This demand seemed especially strange, considering that GSN has previously consistently ignored the “violation.”
“It is obvious that the attack on Bee Line is connected to the pressure being exerted on Alpha Group (it owns about 25% of VympelCom’s shares – editor) with the goal of dissuading it from buying MegaFon,” a telecom expert who preferred to remain anonymous told Vremya Novostei. One can draw analogies with the “war” against Yukos and Media Most. The difference is that the other two companies were in conflict with those in power in general, while in this case the clash is with the interests of particular officials.”
The argument, as is well known, concerns the purchase by Alpha of a blocking stake in MegaFon, counter to the interests of the carrier Telecominvest, which holds 31.3% of MegaFon’s shares. One of the founders and leaders of Telecomivest during his work at the Petersburg Telephone Network was the current Communications Minister Leonid Reiman. Leonid Mayevsky, whose company, LV Finance, sold the MegaFon shares to Alpha has a question: “I, as a tax payer am asking: what was Leonid Reiman doing during his five years as Communications Minister? Why did he discover VymeplCom’s “missing” license just now?”
Meanwhile, the price of VympelCom and MTS shares fell at the New York Stock Exchange the day after the criminal suit was filed against the company. As a result, the capitalization of both companies fell by $500 million.

 

Vedomosti
14.01.04
“We can hold sessions of anti-corruption councils, create anti-corruption commissions, talk about reducing bureaucratic interference in the economy. All this sounds ridiculous when bureaucrats that had kept silence for six years suddenly begin to interpret the law differently, erect obstacles to business and spoil life for millions of consumers.”

 

Vedomosti
15.01.04
“One of the principal open opponents of Alpha is Telecominvest holding. It used to employ many of the current chief executives of the Communications Ministry, including the Minister himself, Leonid Raiman.”

 

Vedomosti
15.01.04
“One gets an impression that it is in the Communications Ministry’s interests to ruin VympelCom… Chubarov’s attorneys were openly consulted by Ministry officials. When Prokhorov offered to postpone the hearing until Friday, he was supported by Ministry representative Dmitry Parkhomenko.”

 

Nezavisimaya Gazeta
15.01.04
“It is rumored that MegaFon is closely connected with regulating agencies and with the Communications Ministry, although there is no proof of that, and it is difficult to confirm this incontrovertibly.”

 

Gazeta
16.01.04
“A special relationship between the Communications Ministry and MegaFon is a given for market specialists. Nevertheless, no one talks about it out loud, since it is very hard to prove. We can only guess what (or who) has helped MegaFon become the only carrier from the “big three” which possesses a GSM license for all of Russia, keeping in mind that VympelCom and MTS have many more subscribers. …Analysts talk about lobbying by the Ministry for the interests of a particular carrier only in general terms, without naming anyone. Although they name the Communications Minister Leonid Raiman and the head of Svyazinvest Valery Yashin… as founding fathers of St. Petersburg Telecominvest.”

 

Expert
19.01.04
“Market analysts have no doubt that… the sudden zeal of GSN is motivated by considerations far from radio transmission… St. Petersburg shareholders of MegaFon under the wing of Communications Ministry are trying to squeeze Alpha out of the company. The administration has joined the battle. People with their eye on the ball are trying to hurt VympelCom through the actions of GSN.”

 

Vedomosti
19.01.04
“The Communications Ministry representative Parkhomenko is supporting Chubarov’s position in court.”

 

Kompania
19.01.04
“It is highly doubtful that the Communications Ministry will be able to be fair in this conflict. Many observers regard the “assault” on VympelCom as a “St. Pete Telecom” counterpunch to Alpha from MegaFon (to which the Communications Minister Leonid Raiman is thought to be connected). Alpha, which has a blocking stake in MegaFon (6.3 million subscribers), is creating difficulties for the company as it prepares to enter the stock market, and is even talking up financial problems at MegaFon. It is quite possible that St. Pete folks decided to squeeze VympelCom.”

 

Profil
19.01.04
“Analysts agree that the persecution of VymeplCom is in the interests of some MegaFon shareholders, who include, according to unofficial sources, the Communications Minister Leonid Raiman.”

 

Russkiy Focus
19.01.04
“The Communications Minister is avenging Mikhail Fridman for MegaFon… There’s a growing conviction in the market that we are witnessing a retaliatory blow by the “St. Pete Telecom” against one of the VymeplCom owners, Alpha Group, which in August, 2003 grabbed 25.1% of the shares of another carrier, MegaFon, from them. The Communications Ministry is taking steps to revoke or put on hold the licenses of these companies (VympelCom, KB Impulse, Focus). There is no doubt that the recent events swirling around VympelCom are but retaliation by the MegaFon owners, who are close to the Communications Ministry. Using administrative resources for attacks on competition is nothing new for these folks.”

 

Finance
19.01.04
“There is an opinion that VympelCom’s problems are caused by Telecominvest, which is a significant MegaFon shareholder and, it is rumored, enjoys powerful support from the head of the Communications Ministry, Leonid Raiman. The attacks on VympelCom are meant to put pressure on one of the company’s shareholders, Alpha Group, which in the summer of last year acquired a blocking hold on MegaFon… Attacks on VymeplCom have all the markings of a contract hit.”

 

The Economist
24.01.04
“Industry analysts allege that senior figures in the telecoms ministry have ties to MegaFon, another mobile operator. One of VimpelCom's shareholders, the Alfa group, bought a blocking stake in MegaFon last summer. Disputes over that acquisition and the running of MegaFon are thought to have set off the regulatory spat…”

 

Financial Times
24.01.04
“President V. Putin’s economic adviser hinted that there may be personal motives behind the recent campaign by a state oversight agency against the largest Russian mobile operator, VymeplCom. Andrei Illarionov announced in Davos that he cannot offer investors favorable conditions in Russia, as they could conclude from the recent events surrounding VympelCom that adherence to the law in Russia is uncomfortably random.”

 

Izvestia
27.01.04
“The attack by GSN on VympelCom hasn’t gone unnoticed in the West. The situation with VympelCom, whose blocking stake belongs to Alpha Group, has especially puzzled the Western community in that… the telecom business has been built from scratch and has always been regarded as a safe haven for investors. Western analysts have concluded that no one is untouchable in Russia.
The Presidents’ economic adviser, Andrei Illarionov, tried to convince investors in Davos that there were no political motives behind GSN’s accusations against VymeplCom. But when asked if he could assure investors that there were no private motives in this attack either, Illarionov answered: “If you want a guarantee that there were no private motives behind the attack on VympelCom, I can not give it to you.”
From the point of view of the West, the conflict surrounding VympelCom looked strange… The situation went outside the normal framework involved in checking a company’s adherence to the conditions of its license… The situation has reached a high level of public exposure…”

 

Vedomosti
04.02.04
“The Moscow Northern administrative district Prosecutor’s office opened a criminal case involving illegal business activity by AOA VympelCom (trade mark Bee Line). Prior to that, GSN and a private person accused VympelCom of illegally connecting its subscribers. The prosecutor of the Northern district, a senior council of jurisprudence, Yevgeniy Zalegin, signed a ruling opening a criminal case # 320316, part 2, point “b,” Article 171 of Russian Criminal Code, “Unlawful business activity without a special permit (license), with an exceedingly high profit (above 1 million rubles),” in connection with business activity by VympelCom. The case is opened on the basis of a report by the company OOO Mobilnyi I Sovremennyi, filed in conjunction with the results of an inspection by OBEP of the Department of Internal Affairs of the Moscow Northern administrative district. The department’s investigative operational unit is charged with conducting a preliminary investigation.”

 

Izvestia
05.02.04
“The criminal suit that has been filed by the prosecutor’s office against the cellular operator VympelCom is threatening current and former leaders of the company personally. In this observer’s view, the reason for VympelCom’s problems lie in the secret antipathy of certain state structures for certain excessive activity on the part of the cellular operator’s shareholder, the group of companies Alpha. According to the article 171, cited in the ruling, the leaders of the company may be personally brought to justice; those were, in different periods, Dmitry Zimin, the Norwegian Jo Lunder, and Alexander Izosimov. The violators may face imprisonment for up to five years, or a fine of up to 6 times monthly income. The attorney Argunov believes that if VympelCom is found guilty, it would have to be fined. Zalegin: “If VympelCom violated the law, it will have to answer for that. If not, we’ll drop the case.”

 

Stolichnaya Vecherniaya Gazeta
06.02.04
“The price of American Depositary Receipts of OAO VympelCom, which operates under the trademark Bee Line, at New York Stock Exchange fell by 6%. This was investors’ reaction to the filing of a criminal case against the company over alleged unlawful business activity. The plummeting of the shares was met with relative calm by investment companies. In their words, the players at New York Stock Exchange have learned to fear the Russian word “prokuratura.”
The jurists think that if the Moscow Northern District’s prosecutor’s office succeeds in involving 5.6 million civil plaintiffs in the trial, the case may end up having as much resonance as the confrontation between Yukos and the Prosecutor General’s office.”

 

Vedomosti
06.02.04
“The organized way in which the suits are filed, and the readiness with which criminal cases are being filed by prosecutors on different levels, lead us to believe that it is an organized attack,” – a high ranking VymeplCom official told Vedomosti. And the position of the Communications Ministry that is wholly on the side of our opponents and not even trying to discuss the situation with us is deeply puzzling to us.”
A representative of the Communications Ministry told Vedomosti, the Ministry has helped investigators uncover signs of tax evasion in the activities of VympelCom and its “daughter” company. According to the source, the papers of the Moscow Department of Internal Affairs appeared to allude to the possibility that the “unlawful” activity of the operator could concern avoiding paying taxes. Although we can’t detect any logic in the accusations against the operator, we will stay tuned to the continuation of this show.”

 

Kompania
09.02.04
“VympelCom continues to sustain unexpected blows from the authorities. According to the article of accusations, top managers of the company may face a fine of up to 500,000 rubles, or jail time of up to five years. Translating an argument between “private owners” into a criminal matter has already forced the most pessimistic observers to see the fate of Yukos or Media Most in the future of VympelCom. It is, of course, quite possible that various state agencies are simply trying to stay in tune with the standard procedure and show initiative that neatly falls into the “general line” of their superiors.
The situation is stupid in the extreme. VympelCom is being pursued not for economic crimes aimed at making a profit, but for not keeping up with a formality.”

 

Kommersant
16.02.04
“…we received information that the criminal case against the cellular company VympelCom, accusing it in providing telecom services without a license, has been dropped in the absence of evidence of a crime. After studying the evidence of the preliminary investigation, prosecutors have come to a conclusion that the dispute between the operator and the plaintiff, OOO Mobilnyi I Sovremennyi, falls in the category of civil cases.”

 

Nezavisimaya Gazeta
17.02.04
“The scandalous criminal case against one of the largest cellular operators, OAO VympelCom, owner of the Bee Line trademark, has been dropped. Speaking on the reasons for dropping “the VympelCom case,” the prosecutor Yevgenyi Zalegin stated that he made the decision to annul the ruling opening the criminal case because “after the opening of the case not a single investigative action took place.” By the words of the attorney Anatoly Kucherena, however, such motives for closing the case are ‘surprising at the very least’.”

 

Kommersant
18.02.04
“The hasty closing of the criminal case against the cellular company VympelCom surprised people in the market as much, if not more, than its opening. They are convinced that it is too early to call it yet. The same opinion is expressed by the attorneys of Mobilnyi I Sovremennyi.”

 

Vedomosti
20.02.04
“…we have learned of new problems for VymeplCom in its dealings with regulators from the Communications Ministry. At the December session of the State Commission on Radio Frequencies, 97 permits to use radio frequencies in the “expanded GSM” band were issued for the regions. MegaFon received the most permits (58 regions), MTS got 36, and operators within the Tele2 holding received three. But VymeplCom got nothing. VymeplCom has repeatedly filed both with the Main Radio Frequency Center, and the Communications Ministry for permits in the E-GSM standard, but was either refused, or got no answer at all.
This outrageous injustice has the same roots as the recent attack on VymeplCom by GSN and prosecutor’s office.
…infringement of VympelCom’s rights took place on a serious scale. If in the beginning these attacks were conducted in the legal arena, now they have all the tell-tale signs of discrimination.”

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