Russia's largest mobile operator OAO Mobile TeleSystems (MBT) Tuesday confirmed that it has pulled out of the tender for Kazakstan's third-largest mobile operator Mobile Telecom Service.

"The payback period of the investments did not meet MTS's criteria," the operator said in an emailed statement, which confirmed earlier reports.

New York-listed Mobile TeleSystems, or MTS, controlled by conglomerate AFK Sistema (AFKS.RS), registered its interest in Mobile Telecom Service this summer.

In the statement explaining its decision, MTS noted that Mobile Telecom Service would need to invest substantially in order to increase its 3% share of the Kazakhstan's mobile subscribers.

State-controlled Kazakhtelecom (KZTK.KZ) is selling its 51% stake in Mobile Telecom Service as part of restructuring, and had set a deadline of Aug. 31 for binding offers.

"We would not have expected MTS to get any potential positive cash flow from the Kazakh operations earlier than in three to five years," VTB Capital said in a research note.

The are 17 million mobile subscribers in Kazakhstan. KaR-Tel, owned by MTS rival Vimpel Communications (VIP) is the country's largest operator.

Company Web site: www.mts-gsm.com

-By Will Bland, Dow Jones Newswires; +7 495 937 8445; william.bland@dowjones.com