Russian state-controlled telecom Rostelecom is negotiating to buy mobile operator MegaFon from the USM Group (49%-owned by 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 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 USM sold internet major VK to state-affiliated investors, while Aliexpress Russia, its promising joint venture with Chinese Alibaba Group, is falling behind in the post-invasion e-commerce race.

USM holding includes Metalloinvest, Udokan Copper, MegaFon and other assets.

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

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.

This article has been updated  to incorporate comments from  Usmanov’s and USM’s press services and corrects factual errors.