Alexei Buyanov is vice president of investments and stock-market affairs for Mobile TeleSystems (MTS), Russia's No. 1 mobile telephone service provider based on the number of subscribers. The company, which began operations in 1994, recently surpassed the 1 million mark in the number of active customers.

Major shareholders in the company are Deutsche Telekom (40 percent) and Russian financial-industrial conglomerate Sistema (42 percent), according to the company. Meanwhile, U.S. investment house Bear Stearns & Co. recently reported that it had purchased a stake in MTS.

Buyanov spoke to The Russia Journal about the mobile telephone market's outlook and the company's plans for the future.

The Russia Journal: Your president, Mikhail Smirnov, has said that the company was launched by a group of 34 people. Who were they? How did they get the funding?

Alexei Buyanov: It happened in 1992-93. It was started by a group of people who appreciated the value of the new digital GSM [mobile telephone] standard and decided that it was worth developing and operating here in Russia. There is group of telecommunications devotees, among whom these types of brilliant ideas are always occurring.

There are still several people left from that group, such as Professor Yury Gromakov, vice president of technical issues. He embarked on implementation of the first technical task: creating a business plan for the network and gaining the license. We shouldn't forget that, at that time, there had not been a GSM license issued in the Moscow market.

Soon, foreign investors appeared [in the MTS project], for instance, Deutsche Telecom, through its affiliate DeTeMobil; and Siemens.

The network was built quiet rapidly. Tentative trials were made in spring 1994 at a telecom exhibition, and the commercial launch was in June 1994. It was only in 1993 that we reached a deal with Siemens for delivery of equipment. Thus, it took less than a year for us to create the network, the main [logistics] center and eight base stations.

RJ: Do you consider the cellular market as still attractive to foreign investors, especially after the recent row over frequencies and licensing?

AB: All the struggles over licensing are further confirmation that the cellular market remains quite lucrative. There are three significant companies in the Moscow market: MTS, VimpelCom and [analogue] MCC [Moscow Cellular Communications]. There are other companies, too, such as paging companies. The market is extremely interesting and the potential is enormous. We've only started approaching European penetration levels. The Moscow market right now might be compared to some Eastern European countries in terms of penetration and population purchasing power.

The recent granting of a third GSM 900 license to Sonic Duo is a sign of the attractiveness of the local market. One of the Sonic Duo founders, Finnish operator Sonera, has shown a lot of interest in Moscow. It is very determined to make a foothold here, even as a third player in GSM standard [after MTS and VimpelCom].

In the regions, the market has huge potential. There's a lack of infrastructure out there and very few operators. But things are starting to grow and develop. So, all the companies in the telecommunications field are casting their eyes on the regions.

RJ: What about frequencies? How will your newly arriving rival Sonic Duo manage to operate in the GSM standard if there is so little bandwidth remaining unused. It's not enough to provide proper services.

AB: There are some technical solutions, and the problem might be partly solved by taking some frequencies from military or navigational services. Plus, they can use extended GSM standard. We have been spoiled by the wide bandwidths that we use in Russia. In Europe, operators have usually narrower bandwidths. They operate successfully. The key is in investment in the infrastructure [for extended GSM bandwidth].

RJ: Do you think that Russian telecom legislation is underdeveloped, considering the recent scandals we've had over the seizure and return of key operating frequencies? Are better laws required?

AB: Yes, we think they are needed. I'm not talking only about telecom legislation – we need established guidelines

and laws in all industries

in Russia. There are some specific laws about communications and about licenses.

But that's not enough; the telecom sector needs a wider range of legislation.

RJ: MTS listed its stocks on the New York Stock Exchange in June. How do you assess that endeavor? Is MTS planning to do more of this type of action in the financial markets?

AB: The listing was one of the most successful accomplished by any Russian companies. MTS managed to bring home $353 million. This sum is comparable to the IMF credits that the Russian government works with. Bear in mind that MTS was the first Russian company that was floated on the NYSE after the economic crisis in 1998.

For that listing, we had to find an [underwriter] that could convince investors that it would be beneficial to invest in Russia. Investors check everything very thoroughly. MTS is not thinking at this time about another stock listing. MTS needed money for developing within a competitive environment. We needed a crucial breakthrough. Now we are performing buoyantly, even better than we had planned. That money [from the listing] helped us accomplish our goals and is allowing us to develop further. We will invest that money fully, and afterwards maybe think about another stock issuance. We have already invested $40 million [from the stock offering] in development of the network, plus we constantly reinvest our profits into our operation.

RJ: How do you assess further penetration of mobile communication overall?

AB: By the end of 2001, experts predict that the penetration of mobiles will be above 24 percent in the Moscow Oblast [from around 15 percent now]. Scandinavian countries give us good examples to follow, with penetration rates at 60 percent. Right now, the subscriber base of MGTS [Moscow's municipal landline telephone operator] is 4 million. We're at 1 million right now but, who knows, maybe someday everybody will want a mobile telephone to go along with their landline service.

RJ: Recently, the president of MTS, Mikhail Smirnov, announced that MTS would like to become a national operator. How will you do it if you don't even have licenses in Volga region, or the great territories of Siberia?

AB: We want to operate in all the Russian regions. We have declared it as our aim. MTS is attempting to get licenses in areas where it doesn't already have one. We will try to acquire them somehow from local operators. MTS will do this gradually. We are looking at the more attractive regions first.

RJ: How much have you invested in your network?

AB: More than $400 million overall.

MOBILE TELESYSTEMS (MTS)

Business: Mobile telephone services. Operates in 19 of Russia's 89 regions and has licenses in a total of 34.

SUBSCRIBERS: Surpassed the 1 mln mark Nov. 13.

INCOME: $28.56 mln (3rd qtr) vs. $28.08 mln (2nd qtr).

HISTORY: Founded in 1993. Major shareholders include Deutsche Telekom and Sistema.

STOCK PRICE 52-WK RANGE: $25.25-$32 (Current price $21.25.). NYSE SYMBOL: MBT.

Source: Company information