Gazprom Eyes Megafon Aquisition

Hello! Our top story this week is about state gas giant Gazprom’s plans to expand its empire and acquire one of the country’s largest mobile operators. We’ll also cover the leak that illuminates the inner workings of Roskomnadzor’s online censorship machine and the lengthy prison sentence handed to a popular ex-governor.

Gazprom seeks to acquire one of Russia’s biggest mobile operators

Russia’s monopoly gas exporter Gazprom is planning to use its structures to acquire Megafon, one of the country's leading mobile operators. Six separate sources familiar with the market told The Bell about the proposed deal. According to one of them, Gazprom Media is the likely suitor for the telecoms network.

• Megafon is one of the hottest assets currently up for sale. The mobile operator is currently majority-owned by oligarch Alisher Usmanov’s USM, which in 2021 sold the VK internet holding (VK is the former Mail.ru Group, and includes the popular VKontakte and Odnoklassniki social networks). VK was purchased by Gazprom Media and the Sogaz insurance company. The latter is co-owner of a rival media holding, the National Media Group, which is controlled by Yury Kovalchuk, another Russian oligarch and friend of President Vladimir Putin.
• In late January, Usmanov’s newspaper Kommersant reported that USM was seeking a buyer for Megafon. The newspaper identified Rostelecom (Russia’s largest telecoms company, which counts Kovalchuk among its major shareholders) as the most likely bidder. According to Kommersant, Gazprom was more interested in a rival network, Vimpelkom’s Beeline.
• Between them, Kovalchuk’s National Media Group and Gazprom Media control a huge share of the Russian media market. They have full or partial ownership of the biggest assets in that sector: TV channels, film and television production companies, radio stations, magazines, news websites, entertainment resources and production studios. Kovalchuk and Gazprom’s media structure are joint owners of VK, one of the biggest tech corporations in the Russian market. They are now looking to reinforce their position in that market by acquiring one of the leading mobile operators.
• At the same time, we are seeing Usmanov — once one of the biggest media investors in Russia and abroad (for example, until 2018 he owned 30% of the world-famous English football team Arsenal) — steadily divesting from his businesses in Russia and retiring from the media market. He is not alone. Apart from VK, Usmanov’s USM group sold IT group ICS Holding last year. ICS includes IT security developers and projects associated with the creation of a low-orbit satellite data transmission system. After selling off Megafon, USM’s largest remaining assets will include Metalloinvest, one of the world’s leading iron producers; Udokanskaya Med, Russia’s biggest copper mining company; and the Kommersant business newspaper.

Why the world should care

Selling Megafon to either Gazprom or Rostelecom is another chapter in the story of how Russia is constructing its new media power vertical. Structures with close ties to the state continue to “capture” the media market. First, in late 2021, Gazprom Media bought the Mail.ru Group. Then, not so long ago, we saw the redistribution of Yandex (we wrote extensively about this, for example in this article). In the course of that deal, the tech giant’s founder Arkady Volozh took part of his company abroad, while Alexei Kudrin, once the most prominent liberal figure in Putin’s circle, joined the remaining Russian part of the company.

A regulator leak helps us understand how censorship works on the Russian internet

Last week, several Russian publications (1, 2, 3) published analyses of a leak of working files and internal communications from Russia’s main Radio Frequency Center, the de facto executive arm of state communications watchdog Roskomnadzor. The center was attacked by Belarusian hackers back in November, but Roskomnadzor played down the scale and significance of the attack at the time. Journalists — who analyzed more than 1.2 terabytes of data — went on to explain how the regulator imposes its censorship on Russia’s internet and which instruments it uses to spy on social networks and the media.

• The center is based in a modest, two-story red brick building in a business center on the banks of the Moscow River not far from the heart of the Russian capital. This division of Roskomnadzor is mostly tasked with ensuring the proper use of radio frequencies. However, it has another important yet unacknowledged responsibility – every day, it monitors the Russian internet for any content that could pose a reputational threat to the Russian authorities. Staff at the center seek out content that criticizes Putin or speculates on his health (one journalistic investigation reported that Russia’s president often travels with an oncologist, ear, nose and throat specialists and critical care doctors). Other hot topics include criticism of the war, rumors of mobilization, protests in the regions and negativity toward officials.
• Roskomnadzor systematically monitors internet resources to find this information, but its accuracy is limited. The department has commissioned Russia’s leading technical university, MFTI, to develop Vepr, a system for spying on social networks and media sites using artificial intelligence. They hope that this will do more than automatically flag “points of information conflict,” or hot topics at the national or regional level. They also want to predict the spread of “information threats” and the emergence of protests; publish automatic denials; block content and send data to “authorized bodies.” According to iStories, Vepr should rival the sophistication of China’s Great Firewall and is planned to go into service by the end of 2024. This deadline will almost inevitably be delayed due to problems with attracting qualified talent to work on the project amid the current sanctions.
• In leaked correspondence, the GRFC contacted Yandex, Russia’s leading tech company. Yandex denies doing Roskomnadzor any favors. However, internal documents show that GRFC used Toloka, Yandex’s platform for developing neural networks where users can analyze huge quantities of data at a low cost. In addition, GRFC’s “clean internet” service uses the Yandex search API to analyze online content (in simple terms, an API enables developers to use ready-made tools from other developers). GRFC staff asked Yandex to increase the number of possible API requests per day, but the company refused.
• All “negative” content found by the GRFC team is passed on to the security services: the Prosecutor General, the presidential administration, the Interior Ministry, the FSB, the FSO and the National Guard, reported iStories’ Alesya Marikhovskaya.
• In addition, the GRFC was reportedly preparing lists of foreign agents for the Justice Ministry long before this status was widely utilized in the latter half of 2021. For example, information about The Bell was compiled two years before we were officially recognized as a foreign agent. A significant part of that dossier has yet to be “used.” In Russia, the status of a foreign agent is used to discredit journalists, public figures, media outlets and human rights organizations that do not toe the official line.

Why the world should care

Analyzing these leaked documents helps us to understand exactly how censorship affects the Russian internet. Until now, we had no concrete details about the work of GRFC. Theoretically, any Russian citizen who criticizes the authorities online sees his activities passed through the state mechanism responsible for censorship. From there, the information is sent to the security forces. In this sense, the Russian internet is increasingly resembling its Chinese counterpart.

Former Russian governor gets record jail term for organizing murders

Former Russian Governor Sergei Furgal was sentenced last week to 22 years in a high-security penal colony. A jury convicted him of organizing two murders and an attempted murder in 2004-2005. Furgal became one of the 34 Russian regional heads and 19 serving governors to be prosecuted in post-Soviet Russia — and his sentence is the most severe in the country’s history.

• Furgal was regarded as “the People’s Governor” of the Khabarovsk region, a region in Russia’s Far East. He did not always enjoy such popular acclaim: in the 2018 elections, he was a Duma deputy from the LDPR and served as a convenient sparring partner for the serving governor. He then unexpectedly won an election to become governor, largely because he was an attractive alternative candidate for the protest vote in the region. The Kremlin responded by stripping Khabarovsk of its status as the capital of the Far East Federal District.
• In his new role as governor, Furgal started attending local protests and criticizing local officials. His ratings soared and, at times, he was even more popular than Putin. Moreover, Furgal was popular beyond Khabarovsk and citizens across Russia spoke of him as a potential future president. For example, members of a focus group in Moscow noted his achievements (reducing salaries for officials, introducing free meals for children) and commented on his popularity in Khabarovsk. They also said that Furgal “doesn’t hide himself” (during the pandemic, Putin stopped appearing in public) and since “the people are for him,” he was doing all the right things.
• After Furgal was arrested in early July 2020, Khabarovsk residents organized constant protests in his defense, which lasted more than 150 days. But the popularity of these rallies gradually declined: if they started with crowds of 20-30,000 people, the last protests attracted 100-150 diehards. They were unable to save the governor and at the end of July, Putin named Mikhail Degryarev, another LDPR member, as interim governor. He had no connection to the region, which he had visited just once, and previously he stood as a spoiler candidate in Moscow’s 2013 and 2018 mayoral elections, coming in last both times. However, he won the 2021 Khabarovsk gubernatorial election against the backdrop of a purge of Furgal’s supporters and open antipathy toward the “incomer” from many local residents.
• The case against Furgal was largely built on the testimony of his former business partner and former deputy in the local Duma, Nikolai Mistryukov, who was arrested in 2019. The investigation believes that they organized the assassinations of Khabarovsk businessmen in 2004-2005 due to personal conflicts and business rivalries. Furgal pleaded not guilty. “Your honor, the verdict is clear. Only one thing is unclear: Aren't you ashamed of this verdict?" the former governor said at his sentencing in Moscow.

Why the world should care

Furgal is one of many Russian regional leaders to have ended up in jail. Less than a year after his arrest, the head of the Penza region, Ivan Belozertsev, was arrested. He now faces charges of bribery and illegal possession of weapons. “The position of a Russian governor is truly in the firing line,” prominent political journalist Farida Rustamova wrote on her Telegram channel.