US Treasury sanctions against MegaFon. What can happen and whether subscribers need to worry

Hello.

Calm, just calm. On April 12, the US Treasury added a number of Russian companies to the SDN list, including

which PJSC MegaFon, as well as the USM holding.Getting into this SDN list means a complete ban on working with companies located in them, including any relationships and everything else. For American citizens and companies from the USA, but as we know, European countries tend to follow the steps of America. Plus, you need to understand that America is trying to expand the impact of sanctions and extends bans on the supply of any equipment and technologies, where there are American technologies in the amount of 25%. There is no calculation methodology, but formally it can be considered that any technology where computers were used during creation is already subject to the restriction. This, of course, if the interpretation of restrictions is taken to the point of absurdity, while we have not seen this in practice. The Ministry of Finance's statement on the new sanctions can be found here.

Let's try to figure out what threatensSDN list for PJSC MegaFon and subsidiaries, which are also now under sanctions. All operations must cease on July 11, 2023. In parallel, sanctions were imposed on the USM holding, as well as on Mr. Usmanov (an exception to the sanctions was previously made, now it has been withdrawn).

Let's look at the license with restrictions for Megafon(this is an exception to the restrictions, that is, a permitted activity) where they are deciphered: “...export or re-export, sale or supply, directly or indirectly, from the United States or by American persons, wherever located, to service organizations associated with services, software Internet messaging software, hardware, or technology, such as instant messaging, video conferencing, chat and email, social networking, photo, movie, and document sharing, web browsing, blogging, web hosting, and domain registration services names…”.

De facto, in addition to blocking all financialoperations involving American banks and not only, it is expected to block the supply of equipment and software. In a practical sense, this is the lack of renewal of licenses for hardware and software, for example, the operator will not be able to update their computers to new versions of Windows, the office suite will stop working, and so on. In three months, MegaFon's IT department will have to accomplish a small feat and switch to domestic solutions, replacing all or almost all foreign software in a short time. I think it's difficult, but possible. The problem has a solution.

The amount of American equipment thatuses MegaFon on its network, insignificantly, as a result, there will be no direct consequences from these sanctions. Since March 2022, the Russian market has been living under external pressure, and operators are well prepared for it, there are unlikely to be any changes, I do not see any immediate threats from these sanctions. Therefore, we can safely say: all this will not affect the quality of communication, the volume of services offered, the development of the network. He specifically emphasized that there was an understanding that nothing terrible had happened, the connection would not disappear anywhere.

Telephones

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Exist in Russia today American companies,and they would have to stop using the services of MegaFon, but there are none de facto today. Formally, there are no obstacles, given the license with exceptions, but in reality, many could play it safe. Today, losses in this area are not to be expected. Therefore, losses in this area should not be expected. Replenishment of the account in the App Store from the operator’s account ceased back in 2022 (in Russia, such replenishment is still working for MTS and Beeline), so this is also past.

Whether MegaFon had a close relationship withAmerican companies, problems could arise. In 2017, the largest failure occurred on the MegaFon network in Russia, equipment from Hewlett Packard Enterprise (HPE), a subscriber data repository, failed. In the same year, the operator abandoned this equipment, which today is perceived in a different light, every cloud has a silver lining.

Russia has already accumulated quite a wealth of experiencesanctions, and we can safely say that it is somewhat positive. For example, when sanctions were imposed on Sberbank, the entire infrastructure of both the bank and its subsidiaries remained operational, no catastrophe occurred. The damage was indirect, and it was quickly minimized. Of the highlights, one can note the failure of the Sberbank smart home (the decision of the Chinese company Tuya, they simply turned it off). As a result, Sberbank completely rewrote the system and made it their own, in principle, they were going to do it before, they just accelerated development.

In everyday life, you can expect that all applicationsPJSC MegaFon and its subsidiaries will disappear from app stores. For iOS, this is a problem, so try to download them now, they will become unavailable later. On Android, there will be no such problem, the applications will work, and they can be downloaded separately from the operator's website.

In Megafon TV, somethe number of foreign films and series, but we are used to it, this problem has become a commonplace for all online cinemas and similar applications. I do not presume to judge how important this is, the issue is also resolved.

Unlike banks, MegaFon haspotentially weak spot in terms of roaming. US operators can try to get permission to work with the company, if they do, then US roaming will work. But if this does not happen or such an exception is not issued, then MegaFon subscribers in America will not be able to receive services in roaming. It is unlikely that this will be the case in other countries, but this is a topic that will need to be closely monitored, since there have been no precedents and it is not yet clear how the situation will develop. For the majority of MegaFon subscribers, this issue will not become a problem and will not push them to change the operator.

The question remains what willApple, since it has already left Russia, has no relationship with MegaFon. Let me remind you that Apple did not add VoLTE support for Russian operators, in new phones the radio part and settings for Russia are not made at all or look ugly (the reason for the poor performance of the iPhone 14 in Russia on networks). One can imagine that Apple can turn off eSIM support for MegaFon, but this requires an effort, and this is additional money for the corporation, and it is unlikely that it will go to such expenses. That is, aggressive, targeted sanctions from Apple should not be expected. At the same time, MegaFon's retail stores will sell the same iPhones and other equipment. There is no need to wait otherwise.

Let's take a look at MegaFon's subsidiary, whichsupplies electronics to retail chains, Revo Charge. This year, the operator launched its own line of push-button phones under the Fontel name. They are made in China, these are different models.

Wait for the sanctions to somehow affect thesedevices, it’s not worth it, they are made in China, the latter looks at American sanctions through his fingers and definitely does not comply with them against Russia. If you look at the purchases of other equipment, then the question of payments arises, but it is easily solved through intermediaries and the same parallel imports. In a word, exactly the same status quo is preserved here, nothing de facto changes.

No catastrophic effects of sanctions onthere is no horizon, there will be no turning off of your phones (pah-pah-pah, I don’t want to croak, but it’s just like that, just in case), there will be no deterioration in the working conditions of the operator. A large load will appear inside MegaFon, it will be necessary to abandon a number of familiar tools and applications, develop new techniques for working with subscribers, primarily with those who use iOS. But the path has already been trodden by other companies, and it is clear what and how to do. There are no differences here.

In addition to MegaFon, another company is subject to sanctionsUSM's "daughter" is Digital Invest LLC. Most recently, MegaFon sold its stake in this company to USM. The company is focused on the Uzbek market. It will be interesting to look at transactions around these assets in the next three months.

Total of what subscribers can notice"MegaFon" - the disappearance of the company's applications in the App Store or Play Store, the possible disappearance of roaming in the US, and, in fact, that's all. The operator's pricing policy, tariff plans, or anything else within Russia will not change due to sanctions.

In recent months, there have been rumors aboutthat "MegaFon" will sell, different applicants are called. Of course, the imposed sanctions act as an additional burden, but they are unlikely to stop such a deal. Of course, if it is happening at the moment, which no one can say with certainty.

MegaFon's official commentary on the situation inas a finishing touch: “We consider the inclusion of our company on the US sanctions list as an unfair and illegal step, which has no basis. We are a commercial company providing services of high social value to millions of clients. We intend to challenge these restrictions in every way we can.”

"Office of Foreign Assets Control"The US Department of the Treasury (OFAC) has excluded the provision of communication services from sanctions restrictions on MegaFon, the corresponding license is published on the website of the sanctions regulator under number 65 (GL 65).

General License No. 65 (GL 65) allowsMegaFon to provide telecommunications services, as well as the export, re-export, sale or supply from the United States or by American persons, of services, software, hardware or technology for the provision of communication services via the Internet.

Megafon official comment dated April 13:

“Issued after the announcement of the incorporation of ourcompanies on the sanctions list, the OFAC license says that the restrictions imposed by the United States do not apply to us for any services in the field of communications and payments for them. This essentially means that the decision of the American regulator does not have a direct significant impact on our business, our subscribers and the services provided to them, including roaming.

However, we still consider the very factadding our company to the "black" list is unreasonable and illogical. We intend to challenge it, but now we are actively informing all our partners that the main type of activity of our company is not sanctioned and provide them with all the necessary explanations and documents.”

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