MBT Mobile TeleSystems Public Joint Stock Company

LONDON—Vodafone Group PLC said Friday it had expanded a partnership with Russian telecommunications firm Mobile TeleSystems PJSC, agreeing to expand services in Ukraine and rebrand that service under the Vodafone name.

Vodafone said the non-equity partnership will allow it and MTS to roll out 3G mobile service in parts of the country, in addition to other services like international calling plans, roaming and bundled services. The two companies will offer 3G in Ukraine "in coming months" under the Vodafone brand, and will rebrand MTS's retail outlets and most of its dealerships under the Vodafone name.

The move comes amid lingering tensions between Moscow and the West over Russian involvement in Ukraine. Russia annexed Crimea from Ukraine in 2014, triggering sanctions by the U.S. and European Union. Ukraine accuses Moscow of supporting anti-Kiev rebels, who control territory in eastern Ukraine.

The Western sanctions don't target most Russian publicly listed firms, like MTS. Still, European and U.S. companies have been careful about new ventures inside Russia or with Russian partners amid the political tensions.

MTS is the biggest telecommunications operator in the former Soviet Union. It is majority owned by AFK Sistema, the conglomerate of Russian tycoon Vladimir Yevtushenkov.

Underscoring the delicate nature of the deal, Vodafone said its brand won't be used in territories "not under the direct control of the Ukrainian government."

The rebranding could help MTS, which has struggled with customer growth, compared with its biggest competitor in Ukraine, VimpelCom. It could also provide some insulation from any customer or government backlash against MTS's Russian ownership amid the tensions.

The conflict in Ukraine has led to a surge in hostility among Ukrainians toward Russia and increasing skepticism of Russian companies within the Ukrainian government. By switching to a Western brand from a Russian one, the company may assuage doubts among Ukrainian consumers and authorities.

The change could also help address security concerns about a Russian-owned firm controlling a critical Ukrainian mobile operator. In a Kiev news conference on Friday, Oleg Prozhivalsky, the head of MTS Ukraine, emphasized that the change meant the operator would upgrade the security of its network and the protection of its users' personal data.

The political tensions between Russia and the West didn't impact the deal, Vodafone spokesman Adam Liversage said.

The standoff has cast a pall over other proposed deals involving Russia partners. The U.K. government intervened earlier this year in an agreement by German utility RWE AG to sell its oil and natural-gas business to an energy firm controlled by Russian billionaire Mikhail Fridman, forcing the divestiture of the business's North Sea assets.

More recently, some European firms have become more comfortable engaging with Russian partners again. Last month, German conglomerate BASF SE and Russia's state-controlled OAO Gazprom revived a multibillion-dollar asset swap they had abandoned last year because of strained European-Russian relations over Ukraine.

Vodafone and MTS initially struck up a partnership in 2008 in which MTS gained access to Vodafone consumer and corporate products for its Ukrainian customers. MTS's Ukraine unit has more than 20 million customers. Vodafone provides mobile services in 24 countries, and in 55 markets where it doesn't hold equity but has partnership agreements with local mobile operators like MTS.

Paul Sonne in Moscow contributed to this article

Write to Tapan Panchal at Tapan.Panchal@wsj.com

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(END) Dow Jones Newswires

October 16, 2015 13:05 ET (17:05 GMT)

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