big brother

Russia’s big telecom IPO also happens to be a company that leaked 8,000 text messages online

November 27, 2012
November 27, 2012

The largest initial public offering by a Russian company since 2010 won’t involve an oil and gas conglomerate, a new internet property or a gadget maker. Rather, the hype surrounding the IPO of Russia’s MegaFon signals the world’s telecommunication companies are increasingly becoming global players. With their power and reach, though, come new responsibilities to users far beyond corporate headquarters.

Reports suggest Russia’s second largest mobile telecommunications company, MegaFon, will go public very soon. Today, the president and CEO of TeliaSonera, a Swedish telecom group, announced plans to privately invest $2 million in the IPO, citing “the future prospects of MegaFon.”

With more than 60 million subscribers, MegaFon looks to raise around $2 billion in a simultaneous IPO in London and Moscow markets, by selling some shares it owns, and some held by TeliaSonera, an early investor which currently holds a 35.6% stake in the company. Earlier this year, internet tycoon and Kremlin friend Alisher Usmanov took majority control of MegaFon.

What neither TeliaSonera nor other telecom executives foresaw at the dawn of Russian cellular networks in 1993 are the human rights implications of modern telecommunications, especially in the mobile arena. From location tracking to government ordered network shutdowns, and data breaches, leaks and unauthorized sharing by apps and providers alike, the privacy and free expression issues present in telecommunications are only growing.

Last spring, news reports showed that TeliaSonera provided the governments of Belarus, Azerbaijan, and Uzbekistan surveillance gear and direct access to its communications networks. Swedish investigative news show Uppdrag Granskning found “numerous opposition politicians, journalists, union members and ordinary citizens that have twothings in common: They are all TeliaSonera customers, and all had their human rights abused by the security services or police in their home countries after Teliasonera has made information from their mobile phone traffic available to the authorities.”

In July, its Tcell subsidiary complied with government orders and shut down networks in Tajikistan. On Sept. 26, Swedish prosecutors opened a probe into the company’s purchase of a license to operate in Uzbekistan, vetting allegations of bribery and money laundering.

Compared to its smaller neighbors like Tajikistan, Azerbaijan, and Belarus, the country where 99% of MegaFon’s subscribers live—Russia—is seen as a less risky market. This makes a stake in MegaFon more attractive to investors, according to Reuters. As the Pussy Riot saga proved, however, the Russian government can react to the exercise of free expression in harsh ways. Telecom users there will undoubtedly find their freedom to surf the internet curtailed in the short term, and need to fight to preserve what privacy, free expression, and innovation rights they have gained in the long term.

Like any big telecom, MegaFon itself does not enjoy a spotless record on privacy and expression. In 2011, the company leaked 8,000 text messages online, searchable and cached in Yandex; its English language website does not mention privacy or other user rights. But its corporate governance also draws fire: Freedom House decried its ties to a former government official, and Goldman Sachs declined at the “eleventh hour” to take part in its upcoming IPO. The Financial Times wrote that Goldman Sachs opposed owner Usmanov’s decision “to place his shares in an umbrella company, whose co-owners were set to include the father of businessman-turned-politician Andrei Skoch,” a deputy in the State Duma. MegaFon’s lack of transparency continues to raise serious questions about its relationship with the Russian state that is increasingly silencing dissent and jailing opposition voices.

Continued innovation in business and protection of human rights depends on transparency by telecom operators. Recent statements by TeliaSonera CEO Lars Nyberg show some realization of this: He admitted to major shareholders that human rights concerns “have not been at the top of my agenda,” and “[w]e have probably made mistakes along the way.” Nyberg emphasized, “Human rights in business are becoming more and more ingrained in our society and are here to stay.”

TeliaSonera already announced another significant change: to consider major government requests (such as shutting down networks) at the board level rather than by in-country staff. Company personnel on the ground are subject to local law, can be pressured by security threats, and may lack international human rights expertise. The TeliaSonera CEO also went on the record saying the company would debate terminating operations in rights-abusing nations. This and other options are considered in our Telco Action Plan, a pragmatic guide helping telecoms to prepare for and manage their human rights impacts. But what does this mean for their holdings in MegaFon and how will it play out as TeliaSonera’s investment matures at the IPO? This type of shared ownership is very common in the telecom industry, and one decision could ripple worldwide.

TeliaSonera’s new values could soon be tested by the Kremlin and its allies. The IPO will bring profits to the Swedish company—which is 37% owned by its home government—but neither MegaFon nor its owner Usmanov has committed to respecting the human rights of users. Surely TeliaSonera, with its remaining one-quarter stake, and two new positions on MegaFon’s board, could influence decisions affecting user rights.

This IPO also gives the Swedish government, a genuine leader on digital rights and sponsor of the Stockholm Internet Forum and numerous resolutions at the UN Human Rights Council, a chance to publicly stand for internet freedom. Given their welcome outcry over previous revelations on TeliaSonera, Swedish citizens do not want to support making another telecom’s infrastructure accessible to a regime unfriendly to human rights. Can the Swedish government maintain its duty to protect human rights with this investment, and push MegaFon toward due diligence and multi-stakeholder engagement?

Given the Russian state’s propensity toward authoritarianism, it is up to investors, Swedish taxpayers, government officials, civil society groups, and board members to push TeliaSonera and MegaFon to take all possible measures in support of the privacy and expression rights of Russian users. Otherwise, the world stands to lose the voices of a generation of young Russians who are unable to access an open internet.

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