K. Bedford / Bloomberg

The Indian subsidiary of AFK Sistema, Sistema Shyam Teleservices Ltd (SSTL), will be able to provide 800 MHz services (three 1.25 MHz frequency bands) in the districts of Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, Uttar Pradesh (West) and West Bengal. The licenses are issued for a period of 20 years and are technologically neutral, meaning the company will be able to deploy LTE networks on the frequencies received. AFK is considering this possibility in the next 2 years, the corporation's management said.

The lots were sold to SSTL at a starting price of INR 36.39 billion (or about $670 million) in total. In fact, SSTL will pay about $368 million for the frequencies. The remaining amount will be offset against the fees for the licenses issued in 2008 and cancelled in 2012. The cost of the licenses will be paid in equal installments over 10 years, starting from March 2016.

Sistema had to renew its licenses after the Indian Supreme Court in February 2012 cancelled the licenses of 11 operators, issued by the Ministry of Telecom in 2008. The court found that the licenses had been distributed in a non-transparent manner and that the government had received an unfairly low price for them. The licenses were put up for auction, but the starting price was so high that the first auction failed to attract any bids. On March 11, 2013, after the price was revised, SSTL applied and regained the right to operate in eight telecom circles in India.

Taking into account the state of Rajasthan, where SSTL has not ceased operations, the company, with the issuance of new licenses, will be able to operate in 9 districts of India, which cover 60% of the Indian data transmission market.

AFK Sistema is counting on the further development of SSTL's business and is ready to invest up to $1 billion in the company, including $415 million in 2013 and less than $500 million in 2014-2015, Sistema's management previously stated.

In addition to organic growth, Sistema's business in India may grow by participating in market consolidation. In September, the local Economic Times reported that SSTL was in merger talks with local Tata Teleservices (part of the Indian Tata Group, whose shareholders also include Japan's NTT DoCoMo) and Aircel (owned by Malaysia's Maxis).

AFK Sistema shares responded with growth to the news of receiving licenses in India. By 12:55 Moscow time, the shares had risen in price by 1.6%, and during the day they rose in price by 1.8%, to 35.39 rubles - the maximum since July 1, 2011. The MICEX index rose by 0.1%.

AFK Sistema owns 56.68% of SSTL, 17.14% belongs to Rosimushchestvo, and 23.98% belongs to the Indian Shyam Group.

AFK Sistema Returns to India