[Federal Register Volume 66, Number 215 (Tuesday, November 6, 2001)]
[Notices]
[Pages 56140-56142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27788]


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SECURITIES AND EXCHANGE COMMISSION

[Rel No. IC-25249; 812-12646]


Russian Telecommunications Development Corporation; Notice of 
Application

October 31, 2001.
AGENCY: Securities and Exchange Commission (``Commission'')

ACTION: Notice of application under section 3(b)(2) of the Investment 
Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Russian Telecommunications Development 
Corporation (``RTDC'') seeks an order under section 3(b)(2) of the Act 
declaring it to be primary engaged in a business other than that of 
investing, reinvesting, owning, holding or trading in securities. RTDC 
is in the business of acquiring, developing, owning and operating a 
telecommunications business in Russia. Applicant also seeks an order 
under section 45(a) of the Act granting confidential treatment with 
respect to certain asset valuation information.

FILING DATES: The application was filed on September 27, 2001, and 
amended on October 31, 2001.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 23, 2001, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC, 20549-0609., Applicant, c/o MCT Corp., 555 
King Street, Alexandria, VA, 22314.

FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at 
(202) 942-0528, or Janet M. Grossnickle, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the

[[Page 56141]]

application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC, 20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. RTDC, a Delaware corporation, was formed in 1993 to acquire, 
develop, own and operate a telecommunications business in Russia.\1\ 
RTDC states that it is a holding company that conducts its 
telecommunications business through its wholly-owned subsidiaries, and 
its direct and indirect interests in eight wireless telecommunications 
ventures and an international gateway switching venture (the ``RTDC 
Ventures''). The RTDC Ventures include three entities in which RTDC, 
directly or through a wholly-owned subsidiary, has at least a majority 
interest, and five entities that RTDC controls within the meaning of 
section 2(a)(9) of the Act (the eight entities are referred to 
collectively as the ``Controlled Companies'').\2\ RTDC also owns a 
minority 22% interest in Moscow Cellular Communications (``MCC''), 
another RTDC Venture. Each of the RTDC Ventures is an operating company 
directly engaged in the telecommunications business.
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    \1\ RTDC is a wholly-owned subsidiary of RTDCH Holdings, Inc. 
(``RTDCH'').
    \2\ Section 2(a)(9) defines ``control'' as the power to exercise 
a controlling influence over the management or policies of a 
company. That section creates a presumption that an owner of more 
than 25% of the outstanding voting securities of a company controls 
the company.
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    2. RTDC historically has sought, and intends in the future to 
pursue acquisitions in operating companies in connection with RTDC's 
telecommuications business in Russia that will result in majority 
ownership of an acquired company or venture. However, RTDC has not and 
probably will not always be able to obtain more than 50% or more of a 
telecommunications venture due to the participation of local partners. 
RTDC states that relationships with local partners can be advantageous 
in facilitating the licensing procedure and ongoing compliance, for the 
local partner's experience in different regional markets and knowledge 
of local preferences and business practices, and for the existing 
relationships such partners have with suppliers, contractors, 
government agencies or potential customers.
    3. RTDC states that negotiations are actively ongoing for the 
purchase of interests that would increase RTDC's position in four of 
the non-majority owned Controlled Companies, with a view to obtaining 
majority ownership. RTDC further states that it has obtained strong 
stockholder rights that ensure its ability to remain actively involved 
in the operations of the RTDC Ventures in which it does not have a 
majority interest. These rights, as provided for in the charters of the 
RTDC Ventures, shareholder agreements and under the laws of the Russian 
Federation, enable RTDC to block transactions, the election or 
dismissal of the ``general director'' of any RTDC Venture, and to 
exercise influence over matters of significant importance to the 
business affairs of the RTDC Ventures. RTDC, through its wholly-owned 
subsidiaries, also provides the Controlled Companies with: financing 
services; managerial, technical, finance, accounting, legal, 
administrative and support services and staff; assistance with 
construction of distribution networks and hiring staff; planning and 
implementation of budgets; and the design, acquisition, operation and 
monitoring of subscriber management and information systems.

Applicant's Legal Analysis

A. Section 3(b)(2) of the Act

    1. RTDC requests an order under section 3(b)(2) of the Act 
declaring that it is primarily engaged in a business other than that of 
investing, reinvesting, owning, holding or trading in securities, and 
therefore not an investment company as defined in the Act.
    2. Under section 3(a)(1)(C) of the Act, an issuer is an investment 
company if it is engaged or proposes to engage in the business of 
investing, reinvesting, owning, holding or trading in securities, and 
owns or proposes to acquire investment securities having a value in 
excess of 40% of the value of the issuer's total assets (exclusive of 
government securities and cash items) on an unconsolidated basis. Under 
section 3(a)(2) of the Act, investment securities include all 
securities except Government securities, securities issued by employees 
securities companies, and securities issued by majority-owned 
subsidiaries of the owner which (a) are not investment companies, and 
(b) are not relying on the exclusions from the definition of investment 
company in section 3(c)(1) or 3(c)(7) of the Act.
    3. RTDC states that more than 40% of its total unconsolidated 
assets consists of investment securities as defined in section 3(a)(2). 
Accordingly, RTDC may be deemed an investment company within the 
meaning of section 3(a)(1)(C) of the Act. RTDC states that as of June 
30, 2001, its interests in majority-owned Controlled Companies and less 
than majority-owned Controlled Companies were approximately 37% and 49% 
of its total assets, respectively, consolidated with its wholly-owned 
subsidiaries.
    4. Rule 3a-1 provides an exemption from the definition of 
investment company if no more than 45% of a company's total assets 
consist of, and not more than 45% of its net income over the last four 
quarters is derived from, securities other than Government securities 
and securities of majority-owned subsidiaries and companies primarily 
controlled by it. RTDC states that it may not be able to rely on rule 
3a-1 because it does not primarily control some of the Controlled 
Companies and because historically it has not had net income, but 
rather experienced net losses. RTDC further states that it will be 
unable to rely on rule 3a-1 because the nature of its business and the 
markets in which it functions makes it likely that there will be 
substantial fluctuations in and uncertainty with respect to future 
income.
    5. Section 3(b)(2) of the Act provides that, notwithstanding 
section 3(a)(1)(C), the Commission may issue an order declaring an 
issuer to be primarily engaged in a business other than that of 
investing, reinvesting, owning, holding or trading in securities 
directly, through majority-owned subsidiaries, or controlled companies 
conducting similar types of businesses. RTDC submits that it meets the 
requirements of section 3(b)(2) because it is in the business of 
acquiring, developing, owning and operating a telecommunications 
business through wholly-owned subsidiaries and the Controlled 
Companies.
    6. In determining whether an issuer is ``primarily engaged'' in a 
non-investment company business under section 3(b)(2), the Commission 
considers the following factors: (a) the company's historical 
development, (b) its public representation of policy, (c) the 
activities of its officers and directors, (d) the nature of its present 
assets, and (e) the sources of its present income.\3\
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    \3\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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    a. Historical Development. RTDC states that it was formed in 1993 
as a holding company for certain wireless telecommunications operations 
in Russia by MediaOne International Holdings, Inc. (``MediaOne''). RTDC 
was developed and expanded as a telecommunications holding company over 
the time that MediaOne owned the company. Since RTDC's acquisition by 
MCT Corp. through RTDCH in September 2000. RTDC has continued to 
operate as a telecommunications

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holding company. Neither RTDC, nor any of the Controlled Companies, has 
any history of disposing of securities it owns or otherwise treating 
those securities as investment assets, rather than as the means through 
which RTDC operates and controls its telecommunications business. RTDC 
further states that it is not holding any of its current interests in 
the RTDC Ventures with a view of future sale.
    b. Public Representations of Policy. RTDC states that it has never 
held itself out as an investment company within the meaning of the Act, 
and has not made any public representations that would indicate that 
RTDC is in any business other than that of acquiring, owning, 
developing, owning and operating a telecommunications business in 
selected markets outside the United States. RTDC asserts that it and 
its parent companies have consistently stated in press releases, 
private placement memoranda and periodic reports filed with the 
Commission that it is a telecommunications company that provides 
wireless telecommunications services in Russia.
    c. Activities of Officers and Directors. RTDC states that its 
principal officers and directors have significant experience in 
pioneering the development of, acquiring interests in and managing 
telecommunications companies both domestically and in markets outside 
the United States. RTDC's other officers, who are responsible for 
various technical, operational, finance, legal and related matters, 
each have in-depth experiences in their respective areas. RTDC states 
that its officers and directors are primarily involved in, and 
responsible for, planning, development, engineering, operations, 
marketing, finance and administrative matters for RTDC and the RTDC 
Ventures. None of RTDC's principal officers or directors, with the 
exception of the Chief Financial Officer, Controller and Treasurer of 
RTDC, spends any time on securities investment activities. This person, 
who is primarily occupied with managing and supporting the budget, 
accounting, financing and administrative efforts of RTDC's 
telecommunications business, spends less than 1% of his time on cash 
management and performs no other activities that involve securities 
investment matters.
    d. Nature of Assets. RTDC states that, as of June 30, 2000, the 
Controlled Companies represented approximately 86%, and MCC 
approximately 6%, of its total assets, consolidated with its wholly-
owned subsidiaries. Less than 1% of RTDC's total assets, consolidated 
with its wholly-owned subsidiaries, consisted of cash and cash 
management investments. Approximately 6.5% of RTDC's total assets 
consisted of accounts receivable, prepaid expenses, property and 
equipment.
    e. Sources of Income. RTDC states that the Controlled Companies 
typically generate little or no income for RTDC in the form of 
dividends and have not achieved consistent profitability that fairly 
reflects their relative importance to RTDC's overall business. RTDC 
asserts that it is more appropriate to analyze RTDC's business by 
evaluating its proportionate share of the revenues of the Controlled 
Companies and MCC in light of RTDC's total revenues. RTDC states that, 
for the past year ended on December 21, 2000, its wholly-owned 
subsidiaries and the Controlled Companies represented approximately 
73%, and MCC represented approximately 27% of RTDC's total revenues. 
For the six months ending June 30, 2001, its wholly-owned subsidiaries 
and the Controlled Companies represented approximately 79%, and MCC 
represented approximately 21% of RTDC's total revenues.\4\
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    \4\ For purposes of this analysis, revenues of the wholly-owned 
subsidiaries, the Controlled Companies and MCC were attributed to 
RTDC in proportion to RTDC's interests in these entities. RTDC 
consolidates its wholly-owned subsidiaries and AKOS, a Controlled 
Company in which RTDC holds a 92% interest, when preparing financial 
statements in accordance with Generally Accepted Accounting 
Principles (``GAAP''). RTDC uses the equity method of accounting for 
MCC and the Controlled Companies, except for AKOS. Under GAAP, the 
equity method of accounting means that each entity's income or 
losses, but not revenues, are attributed to RTDC based on RTDC's 
ownership interest in that entity.
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    7. RTDC thus asserts that it qualifies for an order under section 
3(b)(2) of the Act.

B. Section 45(a) of the Act

    1. Section 45(a) provides that information contained in any 
application filed with the Commission under the Act shall be made 
available to the public, unless the Commission finds that public 
disclosure is neither necessary nor appropriate in the public interest 
or for the protection of investors. RTDC requests an order under 
section 45(a) of the Act granting confidential treatment to information 
submitted in Exhibit G to the application pertaining to the value of 
RTDC's interests in individual RTDC Ventures.
    2. RTDC submits that the data disclosed in the application is 
sufficient to fully apprise any interested member of the public of the 
basis for the relief requested under section 3(b)(2) of the Act. RTDC 
states that the application discloses the actual dollar values of 
RTDC's total assets, receivables, cash, cash equivalents, Controlled 
Companies and MCC (on an aggregate basis), and other assets. RTDC's 
interests in the Controlled Companies and MCC are also disclosed as an 
approximate percentage of RTDC's total assets within categories that 
correspond to the relevant categories set out in section 3(b)(2) of the 
Act. RTDC submits that given the ranges of the values within the 
categories presented and the nature of the analysis upon which section 
3(b)(2) determinations are based, more specific values are not likely 
to be relevant.
    3. RTDC also believes that public disclosure of the value of its 
interests in the Controlled Companies and MCC could result in harm to 
RTDC and its direct and indirect shareholders because it could 
undermine RTDC's negotiating position in the event RTDC were to find it 
necessary or desirable to negotiate a sale of all or part of its 
interests in a RTDC Venture. RTDC is also seeking to negotiate 
purchases of additional shares in RTDC Ventures in which it does not 
already own a majority interest. For these reasons, RTDC believes that 
public disclosure of the information in Exhibit G is neither necessary 
nor appropriate in the public interest or for the protection of 
investors.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-27788 Filed 11-5-01; 8:45 am]
BILLING CODE 8010-01-M