Russia-based operator group MTS reported a second quarter net loss after being forced to record charges of more than US$1 billion as a result of its operations in Uzbekistan being terminated.

MTS recorded a US$579 million impairment charge for the three months ending 30 June 2012 against its assets in Uzbekistan, along with a US$500 million provision to cover tax, anti-monopoly and other liabilities that the management believes will be the probable result of the ongoing legal dispute.

The additional US$1.079 billion costs meant that a net operating income of US$794.6 million became a net operating loss of US$284.4 million, which contributed to a net loss of US$682 million. MTS reported a US$367 million profit for the same quarter in 2011.

Consolidated revenues for the period were down 0.2 percent year-on-year at US$3.12 billion in the face of “significant weakening” of the group’s core currencies compared to the US dollar, according to MTS president and CEO Andrei Dubovskov.

The Uzbek government cancelled the operating licence for MTS subsidiary Uzdonrobita in July, ostensibly for non-payment of taxes and licence violations. A court recently backed the country’s telecoms regulator and effectively cut off service for Uzdonrobita’s 9.5 million customers.

According to MTS, five of its employees are “detained illegally and arrested on the unwarranted and unsubstantiated charges”. The company added that MTS Uzbekistan's management team had been accused “of nearly every financial crime that exists”.

“While we continue to challenge the allegations against MTS-Uzbekistan and make use of the appeals process within Uzbekistan, we are also evaluating other appropriate legal strategies to defend our legitimate rights and investment interests,” said Dubovskov, adding that the company remains engaged to secure the release of its imprisoned employees.
 
The company saw “sustained growth” in voice and data usage in each of its markets, despite signs of “stability and moderate competitive pressures”. The group recorded US$2.9 billion in service revenue, a slight decrease, and US$209.7 million in handset sales, a slight increase.

Russia contributed the vast majority of revenue with RUB82.8 billion (US$2.6 billion), up 8.9 percent year on year, equating to net income of RUB10.2 billion, a 3 percent increase. Operations in Ukraine and Armenia contributed the remaining revenue with both markets seeing year-on-year increases.

Among the highlights for the period were MTS obtaining a licence and frequencies to operate FDD-LTE in Russia and receiving licences to resume operations in Turkmenistan.