Putin removes Reiman and scraps Ministry following spat with VimpelCom

10 Mar 2004

President Vladimir Putin yesterday ousted his long-serving communications minister Leonid Reiman amid an ongoing dispute between the ministry and mobile operator VimpelCom, and replaced the outgoing regulator with a new agency under the auspices of an amalgamated Transport and Communications Ministry. In the reshuffle, 52-year old Igor Levitin – a novice to the industry – was plucked from obscurity to run the newly enlarged ministry, which will have a new communications agency under its control. The decision to demote Reiman surprised political analysts given the strong ties both the president and the outgoing minister have with the country’s third largest cellular operator MegaFon – Reiman used to run the cellco’s parent company Telekominvest – but came as welcome news to larger rival VimpelCom which claims to have been harassed by Reiman’s office for weeks.

VimpelCom has been locked in a legal dispute with the Communications Ministry’s watchdog Gossvyaznadzor which in January accused it of failing to meet its licence obligations by illegally selling services through its wholly owned subsidiary KB Impuls, and specifically that it was contravening Russian law on two counts related to technical details in its subscriber contracts. In late January VimpelCom managed to obtain a court injunction delaying the withdrawal of its licence and only days later a government economic advisor hinted that a personal vendetta could be the motivation for the regulator’s actions. Andrei Illarionov, President Putin’s top economic advisor, refused to assure concerned investors at the World Economic Forum that Gossvyaznadzor’s actions were neither personally nor politically motivated. Speaking in Davos, Mr Illarionov did little to stem growing concern over fairness in Russia’s judicial and regulatory system by saying: ‘If you want assurances that the attack is not a personal attack, I could not give you such an answer’.

The action against VimpelCom is believed to stem from a commercial dispute related to a decision by the cellco’s 25%-shareholder Alfa to acquire a 25% stake in rival operator MegaFon in the summer of 2003. Relations between VimpelCom and the Ministry have since taken a turn for the worse and in late February the operator demanded that the ministry explain its latest decision not to award it with any additional frequencies to extend its GSM services across the country. According to VimpelCom, by that date Gossvyaznadzor had not only refused to award the company a concession to operate in Russia’s Far East region, but in fact had turned down 97 of its requests for additional bandwidth to enhance the capacity of its existing GSM systems.

The Kremlin’s reorganisation announcement sent shares for New York-listed VimpelCom soaring: they closed up 3.1% at a new record high of USD94.5 per share. Meanwhile, shares of the country’s leading operator Mobile TeleSystems (MTS) were also up by 3.24% to USD116. Russia added an estimated 1.73 million mobile subscribers in January 2004, up from the 1.04 million added in January 2003. MTS added around 35% of the total while VimpelCom claimed 31% and MegaFon 22%.

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