The Russian Telecommunications Market Development in January-February 2006

1. General Trends of the Market Development

1.1. The Saturation Rate of the Cellular communications Market

In 2005 the total volume of the Russian telecommunications market was more then 36.4 bln USD, having increased by 30% for a year. It has provided 5% of the gross domestic product of Russia. According to the preliminary assessment, in 2005 incomes from the cellular communications services in Russia were 10.5 bln USD (+33% as compared to 2004). 67% of this sum was received outside the Moscow license zone.

In January data about the cellular market condition in Russia by 2006 were published. 125.8 mln people used mobile phones. Thus, the cellular communications penetration level in the country has reached 86.6%. In Moscow and St. Petersburg 135 and 118 SIM cards correspondingly accounted for 100 people.

According to data, taking into account active SIM cards, in 2005 more then 51.4 mln new subscribers were connected, and the subscriber base increased by 69% as compared to 2004. 45.5 mln people of them were connected in regions, 5.9 mln were connected in the Moscow license zone.

According to analysts, the penetration level in the country is approaching the critical point and it would be difficult to expect rapid growth later on. According to some forecasts, in late 2006 the mobile communications penetration level will reach 110 % in total in Russia.

However, not all experts agree with the assessment of the cellular communications penetration level in Russia, based on active SIM cards number. Operators often account non active subscribers as well for more then a year, so presently the real penetration level of the cellular communications hardly exceeds 55%. Thus, ARPU is significantly higher, then the declared 8.5-9 USD.

1.2. The Demand Evaluation

The past New Year boom of cellular operators and retailers was significantly lower then in previous years, that is connected with the market saturation, they think.

In 2005 in Moscow the number of MTS connecting subscribers was 176%. In Euroset subscribers bought Bee Line contracts more willingly. According to some data, an average cost of a mobile phone remained the same 210 USD at that time, and the price segment 200-400 USD was a leader of the demand growth. Sales increased by 156%.

In the 3rd quarter of 2005 8738 thousand mobile phones were sold. Samsung has remained the most popular model (2 152 thousand), followed by Nokia (2 046 thousand phones) and Motorola (1 768 thousnad).

In 2005 the mobile phones market increased by 20-25 %. In 2006 retailers do not expect the growth of more the 10-15%.

1.3. The New and Standard Services Offer

In 2005 MTS connected the most of subscribers in Russia – 17.7 mln people or 34.4% of total of new cellular subscribers. MTS was a leader in regions, but in Moscow and Petersburg the company yielded to Vimpelcom. The share of MegaFon in the subscriber base pure increase was 33.8% and Vimpelcom had 17.8%.

Before the New Year holidays all operator had offered various marketing actions. According to MTS, in December new connections were congruous to the previous year. As compared to the previous months the sales have doubled. The sales increase was caused by new year actions, active advertising campaign and joint measures with the largest dealer networks. The resembling evaluations concern Vimpelcom. MTS is introducing a programme, providing subscribers with a number of services, based on access to Internet and e-mail.

MegaFon’s management considers they should not emphasize dumping policy as artificial increase of contract sales (for instance, due to free distribution of SIM cards) reduces total figures of economic efficiency. They believe in the company, it is more profitable to compete for those consumers, who is ready to demand expensive services.

Nevertheless, before the New Year Holiday MegaFon had offered two SIM cards at a price of one. A consumer could get the second free SIM card of MegaFon if he or she increased an account by 100 roubles. Currently the company is advertising a group of “Call” tariffs, according to which each second minute of a talk is free.

In December 27, 2005 Vimpelcom got a license of the Federal Service on Supervision in the field of communications (Rossvyaznadzor) for providing services of far communications. According to the regulator’s conditions, an operator must start providing services not later then in two years after licensing. Presently, a working group is being formed to develop the project in the company.

Since February 1, 2006 a communications operator Interregional TrasitTelecom (MTT), involved in Sistema holding structure, has become a competitor to Rostelecom, providing Moscow operators of cellular communications with services of local, trunk and international communications and additional services on data communications in 86 subjects of the Russian Federation.

MTT transit network is an infrastructure, uniting regional cellular communications networks of federal standards in one telecommunication field and providing internetwork cooperation of cellular operators with each other and with operators of wired communications. According to the regulators conditions, a new operator of far communications must provide services on the whole territory of Russia. MTT is planning to do that since March 1, 2006. The company has managed to use a gap in the legislation, as, according to new rules of the regulator, licensed operators of far communications must provide simultaneously services on the whole territory of the country.

MTT management think, junction and international calls will get cheaper by 15-20% minimum. According to experts, low expenses can be explained by the fact that MTT does not use old analog lines and does not have such responsibility as Rostelecom and Svyazinvest. But, we should take into account, the far communications tariffs are controlled by the Federal Service on Tariffs, and some Rostelecom’s tariffs, especially at night time, are quite competitive.

MegaFon does not show interest to far communications as development of the cellular communications services is a priority for the company.

Cellular companies activation on the market of trunk and international communications can become a challenge to the wired communications operators, in particular to Rostelecom and other companies, declaring their intention to become a competitor of Rostelecom. Federal mobile operators exist in all cities of the country almost and possess the network of a federal scale. So, expenses on the far communications networks constructions can be considerably small for them.

In February 16 a large Russian cellular retailer DIXIS declared about making a franchise contract with the Far East largest networks of communications saloons “DalTelecom”, controlling about 25% of the regional retailing sales market of mobile phones. DalTelecom has become the second partner of the federal player, getting the right to make subfranchising contracts with other companies.

The cellular communications market of the Far East is the least developed in Russia, but retailers take into account relatively small sales volumes and competitiveness from the part of small firms, importing illegally mobile phones from China

The group of companies DIXIS (founded in 1996) is an official distributor of the leading telecommunication companies: Alcatel-TCL, Hyundai, LG, Motorola, Nokia, ORA electronics, Panasonic, Philips, Sagem, Samsung, Sharp, BenQ-Siemens and Sony Ericsson. It includes more then 700 stores (own and franchise). Dal Telecom company, founded in 1999, has 70 saloons in 20 cities and settlements of the Far East.

Due to the subscribers market saturation and reduction of initial purchases of mobile phones sales can go down in the Central, Volga and Southern federal regions. That is why most federal companies have thought in advance about entering the Far East market. Beside DIXIS, Euroset, Cifrograd, Divizion and Telephone.ru have been already working there.

1.4. The Main Companies Potential (capitalization, profit)

MTS and the subsidiaries are key telecommunication assets of Sistema. MTS has licenses for cellular communications services providing in Moscow, most regions of Russia, Byelorussia (Minsk), Ukraine (Kiev), Uzbekistan (Tashkent). The company has 59.5 mln active subscribers.

Soon MTS can become a large international cellular operator and “a blue token” of the stock market. In 2005 Sistema’s revenue from the telecommunication businesswas 4.6 bln USD. By the end of 2005 MTS capitalization in RTS system had been 13, 738mln USD. By January 1, the company’s shares have taken the 4th place in Top-10 of RTS.

Sistema has successfully floated 35% shares at about 1 bln USD of the subsidiary “Comstar United Telesystems, specializing in wired communications services in Moscow. Surely, that contributes to increase of Sistema’s possibilities as a whole. In the opinion of most analysts, the received funds will be used mostly in the field of wired communications. In particular, the funds may be used for participation in the privatization of 75% state holding of Svyazinvest.

ADR of MTS bargain at the London exchange and exchanges of Berlin, Munich and Frankfurt.

Vimpelcom is a group of companies, including operators of the cellular communications of GSM 900/1800 standard, providing services under Bee Line brand in Russia, under K-Mobile and Excess brands in Kazakhstan, and also newly bought operators in Ukraine, Tajikistan and Uzbekistan. Vimpelcom’s licenses for cellular communications services providing covers the territory, where approximately 232 mln people live. By January 2006 the amount of Vimpelcom’s subscribers had been 46.6 mln people.

Vimpelcom’s main shareholders are the Norwegian holding Telenor East Invest (29% shares in the chartered capital, 25%+13voting shares) and Alfa Group consortium (13% and 25%+@ shares correspondingly). 48.4% shares are in free circulation.

According to forecasts, in 2005 Vimpelcom’s proceedings on US GAAPmust have been 3.2 mln USD, the net profit must have been 630 mln USD. Vimelcom’s capitalization is more then 9.2 bln USD.

Vimpelcom is the first Russian company, included in the listing of the New York Stock Exchange (NYSE).

MegaFon is the third largest Russian operator of the cellular communications of GSM 900/1800 standard. The company was founded in May 2000 as a result of the rename of North-Western GSM and uniting with Sonic Duo (Moscow) and eight regional cellular companies in the frames of one brand. MegaFon is the only Russian company, having a GSM license for work in all subjects of the Russian Federation. In late 2005 the mount of MegaFon subscribers reached 22.8 mln people.

Telecominvest holding and TeliaSonera are the main shareholders of MegaFon (31.3% and 35.6% correspondingly). IPOC fund, registered in the Bermudans, controls 8% shares of MegaFon. IPOC controls First National Holding fund, owing 58% share of Telecominvest. IPOC also controls 29% of the operator Peterstar (through Telecominvest) and 50% shares of Sky link (through Carmarthen Trading Ltd.).

For 9 months of 2005 MegaFon’s proceedings on US GAAP have increased by 63% up to 1 648 mln USD, EBITDA has increased by 71% up to 781.7 mln USD, the net profit has grown by 65% up to 21 mln USD. The company’s annual statements have not been published yet. Accorting to a growth rate, MegaFon leaves behind Vimpelcom (55%) and MTS (31%). According to a net profit, the company is behind Vimpelcom. MegaFon is behind both competitors by EBITDA. According to the preliminary forecast, in 2005 ARPU in MegaFon must be between 10.3-10.5 USD, that is better then those in Vimpelcom and MTS.

In total, the struggle between the three leaders will be serious, but the present correlation of forces will not change significantly, until new technologies appear, able to provide a serious breakthrough.

Euroset (founded in1997) is the largest network of communications saloons in Russia. There is an opinion at the market , that an owner of the network is controlled by Timur Artemyev and Evgeni Chichvarkin .Currently the company has more 3.1 thousand communications saloons in Russia and the CIS countries, including Ukraine, Byelorussia, Kazakhstan and Kirghizia. The retail trade of cellular phones, digital cameras, accessorizes and connecting to the cellular communications operators are the main directions of the company’s activity.

For 9 months of 2005 the turnover of Euroset has been 1.67 mln USD, increasing by 71% as compared to the turnover for the whole 2004. In January-September 2005 the company’s retailing network sold 64 mln phones, increasing the volume of retail by 56% as compared to 2004. According to the company’s own data, by August 1, 2005 Euroset’s share on the cellular phones retail market had been about 29%.

1.5. The Market Extension Due to Overseas Expansion

Following MTS, owing the Uzbek largest cellular communications operator Uzdunrobita, in January 18 Vimpelcom declared about the purchase of 100% of Bakri Uzbekistan Telecom (Buztel brand) for 60 mln USD and about taking of the company’s promissory notes at 2.4 mln USD. Buztel is the forth largest operator of cellular communications of GSM standard in Uzbekistan. Before Buztel had belonged to Vimpelcom’s shareholder Altimo holding (Alfa Group). Vimpelcom also signed agreements with Germanos S.A. and EBRR about buyng of the second largest cellular communications operator in Uzbekistan Unitel. The cost of the purchase is 200 mln USD, the company’s promissory notes are assessd at 13/4 mln USD. The deal must be finished by the middle of February 2006.

Bee Line is planning to unite both companies under its brand within a year. The purchases will increase the consolidated base of the Russian operator by more then 400 thousand subscribers, 364 thousand of which are served by Unitel, controlling 31% of the Uzbek market. After the uniting Vimpelcom will take the second place on the Uzbek market but according to the local assessment the gap between Uzdunrobita and the united operator will remain significant, more then 150 thousand subscribers.

Presently the Uzbek cellular communications is represented by 6 companies: Uzdunrobita, Unitel, Coscom, Perfectum Mobile, Buztel and Uzbektelecom Mobile, a branch of the joint stock company Uzbektelecom. In late 2005 in the republic the amount of the cellular communications users exceeded 1 mln, doubling within a year. The penetration level of the cellular communications was 5-6%.

The competitiveness between MTS and Vimpelcom may contribute to the Uzbek cellular market development. Currently the market is on the initial stage of development. As a rule, ARPU is very high on such markets (1822 USD), and the cellular communications penetration level is very low (about 4.5-5%). But we must take into account the low purchasing capacity of the most of the republic’s population. In 2005 in Uzbekistan MTS subscriber base increased by 87.2%, that is one of the highest figures among regions, the company works in. It is necessary to mention , in Uzbekistan the wire communications penetration level is low as well.

In March-April 2006 Euroset is planning to open several saloons of the cellular communications in Uzbekistan. In the nearest future the Uzbek market may develop much quicker then the Russian market as the Russian cellular operators have been directed there. Subscribersa amount increase will be rather active ( by 100-150% annually). Being a large retailer, Euroset has advantages as compared to local companies. The company has profitable delivery conditions, and local companies can hardly compete in prices. Besides, in many CIS countries Russian channels broadcast and the company is actively advertised on them.

Markets of the CIS countries become one the most important strategic direction for other retailers, too. DIXIS group has opened 32 saloons in Kazakhstan. Betalink company is negotiating preliminary with partners in Ukraine and Kazakhstan. One more large retailer Division, using a franchise system, is informing about requests to be included the company’s federal franchising programme from companies of Byelorussia, Ukraine and Kazakhstan.

In February Sitronics concern (output of microelectronics, home electronics and telecommunication equipment), included in Sistema, made agreements about intension to buy 51% share of Intracom Telecom, 100% subsidiary of the Greek company Intracom Holding, for 120 mln euro and the Italian company Finmek for 80 mln euro. The first company provides a wideband access to Internet for wired and mobile communications and the second company produces telecommunication and computer devices.

2.The Regulator Activity and the Legal Field Dynamics

2.1. News in the Legislation and Other Changes in the Legal Field

In February the State Duma passed amendments to the law “On Communications”, prohibiting to collect payment for incoming calls on cellular phones from wired phones and from other cellular networks. Thus, all incoming calls in the cellular networks are becoming free, except roaming and a special number of “hot lines”, having a code “800”. The amendments will take effect since July 1 2006 if they are approved by the Federation Council and president of the Russian Federation.

According to mass media information, at one of the recent sessions of the government a question of uniting of Rossvyaznadzor and the Federal Service on Supervision of the Legislation Compliance in the Field of Mass Communications was discussed. The new body will be subordinated to Chairman of the government M. Fradkov. Analysts mention differences in those services’ objectives. The first service supervises the maintenance of technical regulations in the field of communications and sets tariffs. The second service supervises the law compliance in mass media materials’ content.

2.2. The Privatization of the State Assets and Svyazinvest

The question, concerning prospects of Svyazivest’s state share holding privatization is a key issue of the discussion. But after the State Duma passes the amendments to the law ”On Communications”, setting CPP principle for the cellular network, the issue is discussed mostly regarding possible profitability and acquiring of the holdings that include cellular companies.

Svyazinvest holding consists of 7 large interregional companies and 4 joint stock companies of telecommunications, not included in interregional associations. Svyazinvest has a voting majority in 7 interregional companies (CenterTelecom, the North-Western Telecom, VolgaTelecom, UTK, Uralsvyazinform, Sibirtelecom, Dalsvyaz), in the Central Telegraph, Dagsvyazinform, Rostelecom, a financial company Svyaz and Giposvyaz. Besides, the company owes non control share holdings of the Moscow City Telephone Network (MGTS – 28% voting shares), the Kostroma GTS (37% voting shares), Ruslisingsvyaz (38% voting shares). Svyazinvest also owes 1.22% shares of a commercial bank Svyazbank, 12.09% shares of Registrator–Svyaz company, 0.5% shares of one of the leaders of the IP-services national market RTKomm.ru. The company is a company promoter of MobiTel, Startcom, Ruslisingsvyaz, etc. Leonid Reiman is Chairman of the company’s board of directors. Valeri Yashin is general director. The main shareholders of the company are the Russian Federation in the person of the Ministry of Property Relations (50%+1 share), RFFI (25%-2shares), the Cyprian consortium Mustcom Ltd (25%+1share), which, according to experts, is stood by an American billionaire, a former Soviet emigrant Leonard Blavatnik.

The draft of president’s order about Svyazinvest’s state share holding privatization was introduced to the government in early 2005. The holding was included in the list of privatization objects for 2005, later it was excluded from the list as a strategic enterprise, not liable to be privatized. The draft order was returned to the Ministry of Economic Development and Trade for agreement with the force departments.

In late 2005 Svyazinvest was excluded from the list of strategic objects again. In November 27, the Ministry of Economic Development and Trade introduced to the government a draft of president’s order , concerning privatization of Svyazinvest’s state share holding (75%-1 share). In Gref’s opinion, the privatization may be carried out in the second half of 2006. Before that, amendments about protection of rights of communications services special consumers must be introduced in the order.

In February 27 M. Fradkov signed a government regulation about ratification of rules of the united communications network resources use with a view to provide qualified communications networks. That was initiated by the Ministry of Information Technology and Communications of the Russian Federation. Thus, the main obstacle on the path to issue of president’s order about Svyazinvest’s state share holding privatization was removed. Besides, according to analysts, “a golden share”, giving a right to the government to block decisions of the company’s board of directors in case the decision threatens the country’s national safety, will be issued.

In the middle of February as soon as the draft regulation was introduced in the agenda of the government sessions, the company’s shares increased on the market.

While preparing the privatization last year, officers assessed the state share holding at 2.5-2.7 bln USD. But the company’s capitalization can change significantly by the moment of the privatization.

Alfa Group, Sistema and Telecominvest are the most probable pretenders for the state share holding. According to Reiman’s words, the holding has already attracted attention of the European Bank of Reconstruction and Development and German financial institutes. It has been unknown yet, if the state share holding will be sold as a whole or in two parts.

Some analysts suppose, a monetary auction is more profitable to Telecominvest group as they possess very big financial means. Other probable participants of the deal, especially Alfa group, have actively brought their capital out to participate in overseas (the CIS primarily) telecommunications projects, and currently they are not able to collect financial resources, necessary for the auction. That leads to some doubts in their readiness to take an active part in the privatization this year.

The renewed interest of Sistema to Svyazinvest sale is connected by analysts with the recent company’s investment of mere then 0.5 bln USD to assets of the Bashkirian TEC. That is regarded as reservation of funds, saved for Svyazinvest privatization, in order to get a blocking share holding and sell it profitably when appropriate.

Some analysts point to the possibility for Telecominvest to use an administrative resource in the company’s favour.

A possible alliance of Sistema and Alfa group, stated by L. Reiman, is unlikely. The relations between the competitors on the market are quite tough, and their interests fields are too close to each other.

2.3. The Legislative and Law Enforcement Authorities’ Evaluation of Legality of the Deals Held

The property relations in companies are often unclear, hampering control over their activity. At the session of the Council on Competitiveness and Entrepreneurship Minister of Economic Development and Trade G.Gref has criticized a corporative policy and force methods of property seizure, used by the large Russian business representatives.

In the opinion of many experts, that concerns chairman of board of directors of Alfa group Mikhail Fridman as well. The struggle between Alfa group and MTS for the Kirghiz operator Bitel, and raider’s attacks on the Volga operator SMARTS, undertaken by Sigma group, that probably works in favour of Alfa-group.

The arrest of a large lot of contraband cellular phones (at 10 mln USD) by the Ministry of Internal Affairs bodies in August 2005 has not been followed by actions of such a scale.

2.4. The Regulator’s Activity Evaluation by Entrepreneurs and Mass Media

While viewing conflict cases in the field of telecommunications, experts and mass media pointed out to insufficient completeness and integrity of the Russian legislation, to weakness and unreliability of the judicial system. All this creates too many possibilities for the aggressive business running.

Shamil Sultanov, a member of the Committee on International Affairs of the State Duma, stated about intervention by the Russian special services in the economic dispute between Alfa group and the Norwegian holding Telenor, recommending not to permit the share increase of Telenor in Vimpelcom with a view of the national security. The deputy in his statement as well as mass media in the comments pay attention to frequent attempts of a large business representatives (Alfa group)in particular to use power and law enforcement bodies in their favour. Some mass media inclines to explain the delay of FAS respond to Telenor’s request, concerning the possibility of the company’s share increase in Vimpelcom by such circumstances.

Until now FAS has not made a decision regarding requests of a subsidiary Altimo and the Norwegian company Telenor about increase of the share holdings in Telenor from 32.9 to 60%+1 share and from 26.6% to 45% correspondingly. According to the statement of FAS head Igor Artemyev, the decision is planned to be made within February. All necessary checking have been carried out, but wishing to move away from the conflict FAS insists, the parties must settle the conflict before the decision taking.

The market participants do not have a common opinion, concerning a possible decision of FAS. Nevertheless, most of them agree, that a decision in favour of Alfa group would open new opportunities for Vimpelcom’s development. But that may cause Telenor’s capital removal from the company. Vimpelcom’s securities are on sale at the New York Stock Exchange, and such decision of Telenor may result in their falling. In case of status quo maintenance less risk is expected, but the grows will be slower.

Mass Media, including Western mass media, pay much attention to Minister of Information and Communications Leonid Reiman. They mention his Petersburg cooperation with V. Putin, speak about his participation in the telecommunications business. For instance, they point out to the connection of Reiman and Jeffrey Galmond, an owner of IPOC International Growth Fund (the Bermudas), that controls 8% of MegaFon and is in conflict of Alfa group. According to D. Galmond , he is a single appointee of IPOC. In 90s he and Reiman had business contacts, but Reiman was never and will never become an appointee of IPOC. Reiman’s role in founding of Telecominvest by dithering of the state shares of PTS, SPb MMT, the North-Western Telecom has still being discussed. In Western mass media (in the USA and Germany mainly) critical material about Reiman has got a form of the tough campaign, directed quite possible against president of the Russian Federation as well.

3. The Companies Activity and Decision Making, Influencing the Market Development

3.1. The Companies’ Activity on Stock Markets in Russia.

For 2005 RTS index has reached record growth (about 90%), but in 2006 analysts predicts rapid reduction of rates – the growth by 30% maximum as “blue token” have exhausted their potentialities. In contrast to that IPO boom is expected. 30-40 companies intend to carry out primary distribution. In the telecommunications sector the expected privatization of Svyazinvest is an incentive for the activity rise. But there no other catalysts, though the telecommunications branch is among the best for shares investment. This market can grow quicker due to acquiring of assets in the CIS countries.

3.2. Personnel Changes in the Main Companies

Large personnel changes have taken place in the supervisory personnel of Sistema’s subsidiaries. Sergey Shebetov has been appointed a new general director of the holding, managing Sistema’s assets in the communications market. The parent company’s influence to the subsidiaries may increase, as MTS remains behind Bee Line by development rates.

4. The Conflict Zones and Interests Opposition Fields

The active struggle for assets sharing and redistribution is being continued on the internal Russian market. However, at the same time the struggle is going outside, to markets of the CIS countries mostly. Alfa group appears almost in all conflicts of the recent time.

Alfa group has stated about an intention to found a multinational holding like Vodafone on the basis of its telecommunications assets. Tough and aggressive techniques, used by Alfa’s subdivision Altimo at the Russian market and the CIS markets as well as conflicts with most of the market participants, including large overseas companies, exclude almost the confidence, necessary for realization of such a business strategy.

4.1. IPOC against Alfa Group

IPOC fund, registered at the Bermudas, aspires to 25.1% shares of MegaFon, having been bought by Altimo from LV Finance company in simmer 2004. IPOC states, the fund had agreed upon the share holding purchase with a former owner of LV Finance and even paid for it before Alfa did. Some analysts suppose IPOC actions have been dictated by interests of Telecominvest, an owner of 31.3% shares of MegaFon, that is trying to get maximum control over the company.

The British Privy Council, a supreme arbitrage instance in Great Britain, has cancelled the shares seizure. According to representatives of IPOC and Altimo, the case will be later taken up in the late February – early March in Zurich, and in the early summer in Stockholm.

It is difficult to predict a result of the court examinations. If the case is transferred to Russian courts, they will take into account a fact, that, according to informal data, IPOC is a structure, close to Leonid Reiman. Thus, on the one hand, the minister’s authority will have an effect, on the other hand Alfa group lobby potential will work as well.

4.2. Telenor against Alfa Group

The opposition between the largest shareholders of the Russian operator Vimpelcom, the Norwegian holding Telenor and the Russian Alfa group is increasing. Telenor states, their collaboration in Vimpelcom is impossible. Due to that, the board of directors was not able to approve a budget for 2006 for the second time. Tlenor’s management is trying not to allow Alfa group representatives to get majority in Vimpelcom supervisory board (9 members). Altimo is calling upon to a dialogue, but the companies activity is rather tough.

The Norwegians has presented a petition to FAS for increasing of their share in Vimpelcom from 26.6% to 45%. Alfa group in its part is planning to increase its share from 32.9% to 60% plus one share.

The conflict was started with finishing of the deal for Vimpelcom’s purchase of “The Ukrainian Radiosystems” in autumn 2005. The Norwegians considered the entering the Ukrainian market was unprofitable for Vimpelcom, and that the Ukrainian operator was overcharged. According to Telenor, a new participant is not able to take a significant share on the well developed market of the Ukrainian cellular communications. Telenor’s management has filed actions for termination of the business to the Moscow Arbitrage and to courts on the British Virginian Islands and in Cyprus. The Norvegians had previously tried to prevent he deal in Ukrainian and American courts and to use the Norwegian government authority.

According to Altimo, Telenor’s position is a rejection of searching of mutually acceptable decision making on the activity extension in Ukraine. They connect that with interests of Telenor, that has 56.3% shares of the Ukrainian Kievstar GSM and opposes to appearance of a strong competitor on the market. In February 13 head of Vimpelcom Alexander Izosimov confirmed the company’s intention to buy 100% shares of Kievstar for 5 bln USD.

The conflict has gradually got to the political level. In the middle of February the State Duma made an attempt to discuss a draft resolution about the Russian and Norwegian relations, supported by several committees and some representatives of United Russia, CPRF, Rodina and LDPR. According to commentators, this document appearance was initiated by Alfa group.

4.3. Alfa Group against Sistema

The Kirghiz company Bitel, a single telephone company in the country, having the modern technical GSM system, is an object of the conflict. Bitel’s former owner, a member of the family of the former Kirghiz president Askar Akaev, has sold a significant part of the company’s shares to Alfa group through Rezervspecmet company, entering Alfa group’s empire.

MTS is disputing that fact. In the middle of December MTS declared about buying of 51% shares of Tarino Limited from Allience Capital company. The Supreme Court of Kirghizia has made a decision in favour of Rezervspecmet. But Accoeding to MTS, the decision is groundless. Thus, the company intends to assert its rights for a share in Bitel company in overseas courts.

4.4. Alfa Group against TeliaSonera

Altimo has managed to intercept 13.28% shares of the Turkish cellular operator Turkcell from TeliaSonera with a prospect of getting control over the Turkish company. TeliaSonera continues to assert its rights in different courts.

4.5. SMARTS against Sigma group

By September 2005 in accordance with the claim of Sigma group, an owner of 0,125% shares of SMARTS, 20% shares of the company had been seized. The shares were a pledging on Vneshtorgbank credit. Sigma stated, the debt had been repurchased. Analysts think that Sigma’s action is a raider attack and do not exclude the company follows interests of one of the largest market players, probably Alfa group. The hearing of SMARTS appeal to Sigma about canceling of the seizure of 20% shares of the company is planned to be held in the St. Petersburg Arbitrage in February 15.

At the special meeting SMARTS shareholders have decided to change a type of a joint venture and the company public. The company’s management explains that by the intention to float the company’s shares (IPO) at the Russian Stock Exchange. If SMARTS becomes a public company, Sigma loses a priority in the company’s assets acquiring.