MOSCOW - MTS, Russia's largest mobile phone operator, plans to buy the local, privately-owned telecoms network operator Eurotel to boost expansion of its Internet broadband business and reduce leasing costs.

With mobile phone penetration exceeding 100 percent, Russian telecoms operators are counting on fast-growing broadband as the main driver of their future revenue streams.

MTS has filed a request to the anti-monopoly watchdog to buy 100 percent of Eurotel, which has a backbone network of large transmission lines carrying traffic from smaller cables, MTS's spokeswoman Yelena Kokhanovskaya told Reuters on Thursday.

The move to buy the Russian company Eurotel follows an October acquisition by MTS of a 51 percent stake in fixed-line operator Comstar for 39.15 billion roubles ($1.35 billion) and a $4.3 billion Vimpelcom's merger with Golden Telecom in 2008.

MTS Chief Executive Mikhail Shamolin earlier said the company would spend around $200 million to expand its main cable network over the next three years from 12,000 kilometres to 60,000-70,000 km.

The Eurotel acquisition would immediately add around 20,000 km, Vedomosti newspaper quoted Eurotel's General Director Mikhail Stolyarov as saying.

A source close to the negotiations said the deal was important for MTS as it is seeking to cut network leasing costs which have been rising by about 35 percent annually.

Uralsib Bank said the strategy of expanding MTS's own transportation network was reasonable, while the acquisition should not be a problem from a financial standpoint given the company's strong balance sheet.

In 2008, MTS, part of services conglomerate Sistema, spent $134 million on cable channel leasing. The figure includes $80 million spent in Russia alone, and in 2009 this cost will exceed $100 million, the source said.

The deal is under negotiations and the final decision will be made after we get clearance from FAS (Federal Anti-monopoly Service), MTS's Kokhanovskaya told Reuters. ($1=29.05 Rouble) (Reporting by Maria Kiselyova; Editing by Sharon Lindores)

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