Svyazinvest

» see svyazinvest.ru as it lived, on the wayback machine

~ the obituary ~

Its legal name was Open Joint Stock Company "Investment Company for Communications", which tells you it was never meant to be a telephone company. Svyazinvest was a box built in Moscow to hold the Russian state's shareholdings in the regional telephone operators, created on a Yeltsin decree of 10 October 1994 and registered on 18 September 1995. The federation owned 75 percent minus one share. The point of the structure was to make the remaining quarter saleable.

I watched the Turkish version of this as a customer. Turk Telekom spent my entire adolescence being prepared for privatization, and my first ISP bills went to TTNet, which was the monopoly's own internet arm selling me access to a network the monopoly also owned. The Russian arrangement was the same shape at ten times the scale and with far worse manners. Plenty of countries with a state telephone monopoly in 1995 built one of these holding companies, and most were quietly dissolved later, once the thing they were holding had been reorganized into something else.

Between 2001 and 2003 Svyazinvest merged more than eighty regional and local operators into seven mega-regional companies, which then sat alongside Rostelecom, the long-distance carrier. In spring 2011 all seven were folded into Rostelecom directly. At that point the holding company was holding a stake in the company that had absorbed everything it used to hold, and by April 2011 it employed 170 people.

~ the case file ~

~ the auction ~

In July 1997 the Russian Federal Property Fund put 25 percent plus one share up for cash. Mustcom Ltd, a Cypriot vehicle assembled around Vladimir Potanin's Oneximbank with George Soros's Quantum Fund among the investors, won it for $1.875 billion.

This is the auction remembered in Russian political history as the one that ended the deal between the Kremlin's reformers and the bankers who had financed the 1996 re-election campaign, because for once the result was not arranged in advance and the losers did not take it well. What followed was years of press warfare. Soros's own verdict, delivered repeatedly afterwards, was that it had been the worst investment he ever made.

He got out in early 2004, when Mustcom was bought by Leonard Blavatnik of Access Industries for a figure reported at around $625 million, though sources differ by tens of millions. In December 2006 Komstar-OTS paid $1.3 billion for the same 25 percent plus one share, and then found, as the previous owners had, that the stake carried no control over the holding.

~ the software nobody finished ~

The clearest picture of how the holding worked comes from two contracts. In 2003 the regional companies were signed up to a $153 million Oracle deal for an E-Business Suite rollout across 70,000 seats. In 2004 came a $480 million agreement with Amdocs to put new billing systems into the same companies. The sums were comparable to a year of their profits, and the minority shareholder complaining loudest about tenders that had never been held was Soros.

By 2009 neither system was fully deployed. Svyazinvest wrote off RUB 2.02 billion in March of that year, split between Amdocs license support and the Oracle rollout, then another RUB 4.4 billion of billing costs in 2010. After the 2011 merger, Rostelecom negotiated with Oracle to convert the unused licenses into other products at no extra charge.

~ struck from the register ~

One detail in the Russian record does more work than any of the numbers. Svyazinvest had a board of directors, and the chairman of that board was never elected. Not once, in eighteen years. Vadim Semyonov ran it as director general from October 2010 to the end.

The last asset worth mentioning was Sky Link, a mobile operator Svyazinvest owned outright from October 2010, which held GSM licenses covering 45 Russian regions where the network was never actually built. It was sold off in July 2012. A presidential decree of 27 March 2012 ordered the holding merged into Rostelecom, and on 1 October 2013 Svyazinvest and twenty other companies were excluded from the Unified State Register of Legal Entities. svyazinvest.ru does not resolve. svyazinvest.com is for sale from a domain broker, which is a cheaper ending than $1.875 billion deserved.

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