COSCOM SUSPENSION ENDS, BUT PROBLEMS REMAIN

C O N F I D E N T I A L TASHKENT 000278

SIPDIS

SIPDIS

DEPT FOR SCA/CEN, EEB, AND INR/REA

E.O. 12958: DECL: 02/16/2017
TAGS: EINV ECPS RU UZ
SUBJECT: COSCOM SUSPENSION ENDS, BUT PROBLEMS REMAIN

REF: TASHKENT 214 AND PREVIOUS

Classified By: AMB. JON R. PURNELL, FOR REASONS 1.4 (B, D)


1. (C) Summary: Majority U.S.-owned cellular provider COSCOM
returned to service at the end of a 10-day suspension.
However, the company has only limited service, as crucial
connections to the national cellular network remain severed.
Important disputes with the state telecom agency remain
unresolved, and COSCOM managers believe the government is
continuing to muscle the company into accepting a buyout by
Russian investors. COSCOM's managers acknowledge that they
have exhausted virtually all recourse against the
government's actions. In reality, COSCOM continues to
survive only at the pleasure of the Uzbek government. It is
likely that authorities are preserving the firm until its
assets may be sold to a pre-selected bidder. End summary.


2. (SBU) On February 16, majority U.S.-owned cellular
provider COSCOM returned to service at the end of a 10-day
suspension. For the time being, service is only available
for calls within the COSCOM network, not to land lines or
customers of other cellular providers. Service is limited
because Uzbektelecom, the monopoly operator of the national
cellular network, disconnected COSCOM from the network at the
same time that COSCOM's license suspension took effect
(reftel). Those connections have not yet been restored.


3. (C) COSCOM's Amcit General Manager related to Poloff the
content of his February 14 meeting with a deputy director of
the state telecom agency. The official reportedly told
COSCOM that the government telecom inspection service had
given COSCOM a clean bill of health, and there are no further
legal grounds to prevent the company from operating.
COSCOM's General Manager noted, however, that certain crucial
technical obstacles ordered by the agency remain in effect,
severely restricting COSCOM's operations. The telecom agency
has reportedly refused to issue COSCOM additional phone
numbers for customers, saying that other providers purchased
all available numbers in 2006. In addition, there is a
dispute between COSCOM and the agency over permission to
operate transmitting stations outside of Tashkent. The
agency accuses COSCOM of illegally changing its name several
years ago, a charge COSCOM denies. Finally, the government
alleges that it accepted an unfair price when it sold its 26
percent stake in COSCOM in 2000. The most important obstacle
is Uzbektelecom's severing of COSCOM's connection to the
national cellular network. However, the telecom agency's
deputy director reportedly told COSCOM that the company would
need to resolve this dispute separately with Uzbektelecom,
which is a separate entity. (Note: This may be true in a
strictly legal sense, but in reality the telecom agency
controls Uzbektelecom. End note.)


4. (C) Cutting through the complexity, COSCOM's General
Manager and the Chief Executive Officer of its
Alexandria-based parent company, MCT Corporation, told Poloff
that they view the government's actions as a crude attempt to
muscle COSCOM into accepting a buyout by Russian investors
(reftel). The General Manager said that the latest meeting
with the telecom agency was an attempt to "gauge COSCOM's
humility" -- i.e., to learn whether COSCOM had gotten the
message that its continued existence depends on the goodwill
of the Uzbek government. MCT's chief told Poloff that, if
possible, the government wishes to send this message without
damaging COSCOM irreparably. Otherwise, there will be no
company left for the Russians to buy. However, he said, he
believes that, if faced with no other choice, the Uzbeks will
not shrink from destroying COSCOM.


5. (C) Comment: We see little reason for optimism. In a
process hauntingly similar to the politically-motivated
expulsions of more than a dozen U.S.-funded assistance
organizations over the past two years, the Uzbek government's
modus operandi has been to force COSCOM's American owners to
abdicate on ostensibly legal grounds, alleging that the
company has violated industry regulations. If the American
owners get the message and leave "voluntarily," the
government will likely deny all responsibility. Because the
judicial and administrative systems of the Uzbek government
are not, in reality, independent, COSCOM has no recourse if
the authorities force the company to liquidate or sell to a
pre-selected bidder.

PURNELL