MOSCOW Russian state-controlled telecoms operator Rostelecom said it would focus the bulk of its investments on broadband after calls from the government to build out the backbone of Russia's Internet infrastructure.
The company said on Wednesday that 60 percent of total capital spending planned for 2013-2017 would go into development of wireline Internet connections, backbone networks and pay TV, with 25 percent earmarked for the mobile business including wireless Internet service.
Capital expenditure will average 14 percent of sales in the next five years, Rostelecom said in a statement, which followed a board meeting requested by its state shareholder, the Federal Agency for State Property Management, to update its strategy.
It also plans to cut costs in core fixed-line telephony, aiming to maintain its total core profit margin, or operating income before depreciation and amortisation (OIBDA), at 39 percent until 2017, while targeting annual sales growth of 6 to 10 percent in 2013-2017.
The former fixed-line monopoly was transformed last year into a universal operator by merging with several regional peers in a move to boost its presence in high-growth areas such as broadband, mobile and Pay TV and offset declines in its core business.
It said in April that efforts to challenge rivals in these segments would keep its capital spending at more than 20 percent of sales over the next two years, with 30 percent of the total going to fixed broadband and 25 percent to mobile.
Since a cabinet reshuffle in May, however, officials have questioned the priorities and efficiency of Rostelecom's investments, suggesting it should not splurge on expanding in the highly competitive mobile market.
This criticism has fuelled speculation that the government wants to oust Chief Executive Alexander Provotorov, whose home also was unexpectedly searched by investigators last month in a fraud probe unrelated to Rostelecom.
Reports have suggested that Vadim Semyonov, the head of Rostelecom's state shareholder, holding company Svyazinvest, could be a potential candidate for replacing Provotorov.
Dmitry Strashnov, who recently stepped down as CEO of Swedish operator Tele2's Russian unit, has also emerged as a candidate amid talk of a possible merger of the two firms' Russian mobile assets.
Rostelecom is Russia's fifth-biggest cellphone operator with 13 million subscribers, behind the 'Big Three' operators - MTS, MegaFon, and Vimpelcom - and Tele2.
The government, which controls 53 percent of Rostelecom, has long planned to sell more of the company and is eyeing a sell-off in 2015 after the restructuring of state telecoms assets is completed.
As part of the reorganisation plan, Rostelecom is due to merge with Svyazinvest, in which it in turn holds a one-quarter stake, in 2013, absorbing Svyazinvest's assets and simplifying its ownership structure.
(Editing by Douglas Busvine and Jane Baird)