Russian state-controlled telecom Rostelecom is negotiating to buy mobile operator MegaFon from the USM Group of billionaire Alisher Usmanov, according to a report by Kommersant citing unnamed sources.

Rostelecom already controls another "big four" mobile operator, Tele2 Russia, and the acquisition of MegaFon would result in large-scale state consolidation of the TMT sector. Unconfirmed reports claimed that another "big four" operator VimpelCom could also be re-sold to an anchor investor after its ongoing extraction from Netherlands-based mother group VEON controlled by the Alfa Group of billionaire Mikhail Fridman.

bne IntelliNews previously suggested that the Russian authorities could increasingly rely on Rostelecom in any new infrastructure and tech projects under sanctions. Even prior to the invasion of Ukraine, the state company has been the major recipient of B2B, B2G telecom and infrastructure contracts.

For Usmanov’s USM, the sale of MegaFon could be a way to completely pull out of the telecom and tech market and focus on heavy industry (another anchor asset is iron ore major Metalloinvest). Previously Usmanov handed over internet major Mail.ru to state-controlled investors, while Aliexpress Russia, its promising joint venture with Chinese Alibaba Group, is falling behind in the post-invasion e-commerce race. 

Usmanov owns the largest stake in the USM holding, which includes Metalloinvest, Udokan Copper, MegaFon and other assets. Forbes estimates his fortune at $11.5bn, ranking him seventh in terms of the richest people in Russia.

Usmanov's exit from the TMT market has been prepared by MegaFon's consolidation of all the other telecom assets of USM Group at the end of 2022, sources told Kommersant. The operator bought oneFactor AI division, software developer Naxain, and Inplat e-payment platform. 

Given Usmanov’s long track record of good relations with the Kremlin, it is unlikely that selling MegaFon will meet any regulatory hurdles.

MegaFon has over 74mn subscribers and is 100% owned by the USM Group. It owns 100% of Skartel (Yota operator), 100% of NetByNet, 100% of Megafon Retail, 25% of Start video service and other assets. Revenue for 2021 was RUB354bn and net debt stood at RUB245bn.