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Government looks to clean up mobile sector and increase competition

6 May 2004

The government of Georgia is looking for an overseas investor to take a 20% stake in mobile operator MagtiCom, as part of the cellco’s restructuring following the recent scandal surrounding its principal shareholder Gia Jokhtaberidze, the son-in-law of former president Eduard Shevardnadze. In January 2004 Jokhtaberidze was questioned by authorities investigating MagtiCom’s accounting practices as part of a widescale investigation into alleged corruption under Shevardnadze’s old regime. Following the investigation Jokhtaberidze was jailed for three months, but was released two weeks ago after his wife paid the government USD15.5 million.

Under the proposed restructuring plan, Jokhtaberidze, who currently owns 51% of MagtiCom, will exchange his stake for a 49.9% ownership interest in International Telcell Communications (ITC), a wholly owned subsidiary of the Metromedia International Group (MIG), as well as an undisclosed cash consideration. On completion of the deal, ITC will own 51% of MagtiCom, as well as 70.41% of Telcell Wireless, which itself owns the remaining 49% in MagtiCom. The government has yet to release the names of any prospective suitors for the 20% stake in the cellco which is available, nor has it attached any value to the shares.

Despite relatively low levels of penetration, Georgia’s mobile market is frequently referred to as a shining light in the country’s floundering – and corruption-riddled – economy. MagtiCom shares the sector with GSM operator Geocell (launched in 1996) and minor analogue operator MegaCom (1993). Between them the three companies had 647,000 subscribers at the end of 2003, up from 496,000 twelve months previously. In 2001 the Ministry of Post and Telecommunications (MoPT) licensed three additional new companies – Zamex Sa, Neocom and Ibercom – to enter the sector, but a combination of government red tape and insufficient funding meant that by April 2003 none of the trio had launched services and the MoPT’s successor, the GNCC, revoked their licences. The independent GNCC is keen to promote further competition in the sector and in September 2003 announced the auction of a fourth mobile licence – the third GSM concession – alongside the sale of additional spectrum for existing operators. The tender is for GSM-1800 frequency and is open to both domestic and foreign companies, with a minimum price of GEL1.026 million (USD491,000). The auction includes additional spectrum for the existing operators at the request of MagtiCom and the Commission is expected to offer the three incumbents frequency resources within the 1710MHz-1880MHz range. The deadline for applications was 12 March 2004, with the licence due to be issued seven days later upon payment of 30% of the final fee. However, the process has been delayed following the furore surrounding Magticom’s ownership.

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