The Russian Telecommunications Market Development in April 2008

1. General Trends of the Market Development

Altimo intends to become a strategic investor

The head of the telecommunications holding Altimo Aleksey Reznikovich has stated a new concept of the business. Altimo is trying to become a strategic investor, selling its shares in MegaFon and Kievstar and focusing on development of VimpelCom and Turkcell, the business of which the company plans to control. Representatives of Telenor, owning big stakes in VimpelCom and Kievstar, declare they are ready to start negotiations with the Russian holding.

Alfa has already given its share holding in MegaFon to the depository Irkol in order to sell the shares. MegaFon opened an account of the nominal shareholder Irkol, where Alfa’s subsidiary CT-Mobile transmitted its 25.1% of MegaFon shares. Alfa had already tried to make Irkol a nominal shareholder in 2003. But MegaFon refused to open an account, referring to the violations in the document feeding.

According to lawyers, shares are usually transmitted to the account of a nominal shareholder in order to conceal end beneficiaries. Documents about meetings of shareholders and other notes are sent to a depository, which in its turn informs an ultimate owner. It allows the real owner to contest decisions of the meetings, referring to lack of information about the meetings holding.

Some analysts say Altimo can increase its stake in Turkcell by exchanging the share holdings with TeliaSonera: the shares of MegaFon, owned by the Russian holding can be exchanged for TeliaSonera’s 37.09 % share of Turkcell. To increase Altimo’s stake in VimpelCom, Altimo and Telenor should exchange their shares: the companies owns 43.8% and 29.9% accordingly in VimpelCom; and 43.5% and 56.5% in Kievstar.

Sitronix has entered the market of Eastern Africa

Following its old partner in Pakistan, the GSM-operator Warid Telecom, Sitronix has entered the market of Eastern Africa. The company has finished the first stage of IT infrastructure development for Warid Telecom, which is constructing the network in Uganda at present. The contract value comes to 22.7 mln USD.

The work on IT infrastructure development is carried out by the Greek company Intracom Telecom, which is included in the business direction Sytronix Telecommunications Decisions. Warid Telecom belongs to the Arabian investment company Abu Dhabi Group. Beside Africa it subsidiaries work in many countries across the world, including countries of Europe and Asia.

Within the last 10 years Intracom Telecom was always increasing it presence in the region of the Near East and Africa. When AFK Sistema bought Intracom Telecom, one of the company’s advantages was its strong positions in the Near East and Africa. The regions have good potential, which is being realized by AFK now.

Meanwhile, the telecommunications boom is only expected on the market of Africa. It is difficult to forecast the results of development and the nearest prospects. However, the partnership of Sytronix and Warid Telecom is an important part of the work. Abu Dhabi Group controls many telecoms assets, which can become clients of Sytronix, experts say. The contract with Warid Telecom makes stronger the position of the Russian company and creates the basis for further development in the region.

Ukraine privatizes Ukrtelecom

The government of Ukraine has approved the sale conditions for a 67.79% share of Ukrtelecom. The initial price is 2.38 bn USD. The tender will be probably announced in late April and it will be held in the middle of July. One of the applicants is AFK Sistema. The subsidiary of MTS MTS-Ukraine will also participate in the tender. According to Kirill Babayev, the senior vice president of Altimo, Alfa is not interested in Ukrtelecom.

After the sale the state will possess 25%+1 share. 3.5% of Ukrtelecom shares are floating on the Ukrainian exchange PFTS and 3.7% belong to employees of the company.

Ukrtelecom serves over 80% of subscriber lines. The company contributes 75% to the total revenue from fixed-line communications. Moreover, the company has over 10 000 subscribers of the 3G communications.

According to analysts, the tender conditions are attractive: the initial price (2.38 bn USD) is lower than the market price (2.54 bn USD according to the bidding on PTFS). The market capitalization of Ukrtelecom can grow by 30-40% if a new owner reorganizes the business.

The Ukrainian experts note that one of the applicants is the Ukranian System Capital Management (SCM), which belongs to Rinat Ahmetov. SCM is interested in the acquisition of telecommunications assets. Overseas companies have also shown interest to Ukrtelecom, for instance, Telecom Austria and Deutsche Telecom.

Real Penetration of Cellular Communications

The real penetration of cell communications in Russia is a little bit more than 70%, MTS president Leonid Melamed says. The rest 30% is a growth reserve. According to the data from AC&M-Consulting, in late February there were 166.4 mln SIM cards in Russia, 14.6% more than the population of the country. Nevertheless Russian subscribers, connected by MTS last year, return much, Melamed says.

ARPU, which was 10 USD at the moment of connection, has grown by 29% over a year. ARPU of those, migrating to MTS from other operators (90% of all MTS connections in February) is 10-11USD. ARPU of new subscribers is 6-7 USD per month.

According to Melamed’s estimates, a person, having 2000 roubles revenue per month, can become a subscriber of mobile communications. 7.6% of the Russian population (11 mln people) has the lower revenue. It means that 24% of the population can afford mobile communications, but they either do not know about it or cannot choose an operator. They must be helped and stimulated to use services more actively, Melamed concludes. Since the 2nd half of 2007 MTS has been traditionally a leader in terms of subscriber base in Russia. In February of 2008 the company’s share in pure connections of subscribers came to 50.7% (811 000 new clients over a month).

The executive vice president of VimpelCom Nikolai Prynishnikov says ARPU of Russian subscribers (old and new) in their company grew 31% in 2007.

According to experts, ARPU growth is caused by the growth of the population incomes and marketing initiatives of operators, responding to CPP principle introduction. Another reason is the fall in USD exchange. Experts remind the major source of new subscribers is migration from other operators.

MTT reduces prices

Since May 1 of 2008 the telecommunications operator Interregional TransitTelecom (MTT) is reducing prices for international long-distance (ILD) communications (up to 72% in some directions). The price-cutting will concern first of all the countries of the Big7, the CIS and Baltic countries. The price-cutting will not concern domestic long-distance (DLD) communications services of the company. According to representatives of MTT, prices for DLD communications have already reached the cost price.

The price-cutting for MTT subscribers will depend on the region, where a subscriber calls from, and on the time of a call. Thus, in “business time” the price for calls from Moscow to fixed-line networks in the Big7 countries will be 6.18 roubles per minute, in case a subscriber chooses MTT as a permanent operator (pre-select), and 6.5 roubles, in case a subscriber chooses an operator for each call (hot-choice).

According to MTT management, the price cutting will increase the amount of consumed services of the company and attract new clients.

According to experts, the price cutting for MTT is a way to increase revenues. On the free market the company may increase the traffic and cover expenses, caused by the price cutting. If the company’s experiment is a success, other operators will reduce prices too. It may result in price wars, which in their turn will decrease investment attractiveness of the telecommunications market.

2. The Market Players

Renova Media Has Announced About Restructuring of the Business

Renova Media holding has announced about its business restructuring before an IPO holding in the beginning of 2009. Now all subsidiaries of the holding will sell their services under Akado brand and their statements will be consolidated by the holding according to two directions: services to population (Akado-Stolitsa, Akado-Neva, Akado-Ural and so on) and corporative services (Akado-telecom).

The company will be altered in a close corporation Akado and its subsidiaries will be divided in two groups. The first group will consist of operators, providing broadband Internet services and other services in the mass segment (Komkor TV, Crossnet, Ikar-invest, the St.Petersburg company Neva and the Yekaterinburg company Ortikor). The Moscow companies will be consolidated in the close corporation Akado-Stolitsa, and the regional companies will be unified in the close corporations Akado-Neva and Akado-Ural. Akado-Telecom will consist of operators, providing services in the segment of Internet and business communications in Moscow and the Moscow region (Komkor and Komkor-Region).

Due to the restructuring Renova will create the structure, which will allow it to hold an IPO quickly. The part of the attracted investments will be probably spent on broadband Internet development in the regions, where the rapid growth is expected within the nearest three years. According to estimates of iKS-Consulting, presently penetration of broadband Internet is 6% in the regions. By 2008 it will grow to 13%, by 2009 – to 25%. In 2008-2009 Renova Media is planning to become a leader on the market of broadband Internet in Moscow, the Moscow region, St. Petersburg and Yekaterinburg.

MTS has offered 1 billion USD for SMARTS

MTS has become another applicant for the acquisition of SMARTS, offering 1 bn USD for the company. The offer was made to all owners of 97% of SMARTS shares, except Volgatelecom. 1 bn USD includes the company’s debt (200-250 mln USD). It also includes the bonus for settling of the company’s legal points. The amount of 1 bn USD corresponds to the rate of investment return, approved by MTS.

For six year SMARTS shareholders have been trying to sell the company either to Tele2 or to MTS, but they could not agree on price. It became known in December of 2007 that VimpelCom had sent an offer about the acquisition of 100% of the company for 750 mln USD. The shareholders were ready to accept the offer, but as the company was a close corporation, they had to offer their share holdings to other owners. The minority of SMARTS Volgatelecom accepted the offer and then it was disavowed. On February 22 SMARTS shareholders decided to transform the company to a public company. Volgatelecom is still contesting the reorganization.

According to the director general of Volgatelecom, the price of 1 bn USD is overcharge. The source, close to VimpelCom, stated 1 bn USD was too much. Analysts have different opinions: some of them consider the price is good enough and profitable for both parties. Others say MTS will get nothing in that case.

AFK Sistema is selling shares of MTT to Sinterra

AFK Sistema is negotiating about the sale of a 50% share of long-distance operator MTT to the telecoms holding Sinterra. To acquire MTT Sinterra is attracting the funds, received from the sale of RTKomm.ru and from floatation of the rouble bonded debt.

Previously Sinterra singed the contract with Rostelecom about the sale of a 68.4% share of RTKomm.ru for 1.563 bn roubles (around 66 mln USD). Last summer Sinterra’s Board of directors approved the debut issue of the company’s bonds worth 3 bn roubles, the floatation of which is scheduled to April.

Sinterra declares it was interested in MTT last autumn. At that time the company sent letters to both shareholders of MTT, owning 50% of the company’s shares each: AFK Sistema and Gamma Capital, controlled by Jeffrey Galmond. Sinterra evaluated MTT at 500-900 mln USD.

Comstar-OTS is planning to increase revenue by 2011

Comstar-OTS is planning to increase its revenue from the regional business to 600 mln USD, i.e. over 30% of the total revenue, by 2011. To generate such revenue, the operator is trying to enter markets of all Russian towns, where the population is over 250 thousand. There are 39 towns of this kind in the country. Besides, there are 22 cities where the population is over 500 thousand people and 17 cities, where the population is over 1 million.

Such plans are included in the new regional strategy of Komstar-OTS, approved by the company’s Board of directors on March 28. In 2006 the company got 42 mln USD from the regional business.

Komstar has been providing services in 16 cities so far. By the end of the year the company is planning to enter 5-7 cities, investing over 50 mln USD in the regional development, (without taking into account acquisitions). The operator has offered the same services to new subscribers as to Moscow users.

MTS can buy Euroset

Euroset shareholders Evgeni Chichvarkin and Timur Artemyev are negotiating about the sale of their company to MTS. It was stated by the source, close to AFK Sistema. The deal can be structured as follows: MTS and its financial partners (unknown) found a company, which redeems the control share holding of Euroset: 50% from Artemyev and a part from Chichvarkin. MTS will not own the control share holding of the new company, so low profitability of Euroset will not damage high profitability of MTS in terms of net profit in the 3rd quarter of 2007.

To attract a strategic or financial investor to the company is one of the foreground objectives of Euroset shareholders. Any cell operator or a large retailer in the field of electronics could become a strategic investor of the company.

MegaFon cannot consolidate its subsidiaries

The agenda of the meeting of MegaFon’s shareholders , held on March 25, referred to consolidation of the company’s seven 100% subsidiaries. TeliaSonera and CY-Mobile voted for, but IPOC representatives abstained from voting and Telecominvest voted against.

The previous meeting, devoted to the same problem, had not taken place. Representatives of Telecominvest and TeliaSonera were absent, demanding guarantees that the consolidation would not affect their stakes in the company. Previously the subsidiaries’ consolidation had been blocked by Alfa.

According to the source, close to Telecominvest’s owners, the holding voted against the consolidation because they wanted to specify the conditions of MegaFon’s head-office transfer from Moscow to St. Petersburg.

According to the source, close to Usmanov, the delay of the consolidation does not affect the negotiations, held by AF Telecom, about the redemption of a 59% share of Telecominnvest from First National Holding.

The shareholders have not probably agreed about key matters, for instance, the property structure before an IPO holding, so they give formal reasons, analysts say.

According to experts, transfer of a company’s head-offices to St. Petersburg is an ordinary thing nowadays. For last three years head-offices of Vneshtorgbank, Transnefteproduct, Transaero, Sovkomflot and Rostelecom have moved from Moscow to St. Petersburg. At the same time it is unreasonable to change registration of a cell operator, as Moscow remains the economic capital.

Arktel is entering the telecommunications market

On April 1 of 2008 the alternative operator of communications Arktel entered the market of telecommunications for private and corporative clients. The operator promises to reduce prices for long-distance services and intends to take a considerable market share by late 2008.

Arktel is planning to earn around 100 mln roubles by providing of long-distance services in 2008.

Meanwhile, launching telecommunications services for corporative clients, Arktel is only planning to start providing services for private clients in May-June of 2008.The company’s tariff plans have not been announced yet. Tariffs for corporative clients will depend on ARPU of the client, but even without taking it into account the company is planning to offer prices, which are lower than prices of Rostelecom.

The company will start the mass advertising in September of 2008. In spring-summer of 2008 Arktel will hold local measures for long-distance services promotion.

According to MTT representatives, the price cannot be reduced much. MTT will estimate the situation and make decisions to remain an attractive long-distance operator for ultimate users. When reducing prices it is important to provide clients with high quality services and telecommunications.

Gascom is planning to enter the market of Africa

The satellite operator Gascom is planning to enter the market of Central and Eastern Africa in 2009, launching two satellites Yamal-301 and Yamal-302. Gascom expects to take a 5% market share. Its competitor Kosmicheskaya Svyaz intends to enter the market of Central Africa in the 3rd quarter of 2008 already, when Express-AM44 is launched.

Gascom is examining the rapid-growing market of Africa, especially the regions to the South from Sakhara. At the exhibition Satcom Africa-2008, held in Johannesburg, the company saw the local players, satellite operators and service-providers, were interested in Yamal-300 capacity. The territory is served by around 200 transponders that are not enough, according to Gascom, because the demand for satellite services is growing 9% a year. Gascom has already found applicants for 12 transponders, constructed on Yamal. Thus, after the operator makes contracts, it will control 5% of satellite market in Central and Eastern Africa. The main consumers of satellite services are large corporations, interested in running their business in the region, various governmental bodies, TV companies and humanitarian missions. The global operators Intelsat, SES New Skies, Eutelsat are main players on the market.

Experts emphasize other satellite operators are also interested in the market of Africa. Kosmicheskaya Svyaz is planning to launch a new Express-AM44 in the 3rd quarter of 2008 already, increasing its share on the African market. KS has been already working in the region, providing services of the Russian TV. The company also provides services in the countries of Northern Africa.

The market participants do not understand why satellite operators sell the capacity in Africa, being in great demand in Russia, where local players could offer a good price. Now 1 MHz is around 4 thousand USD. Working on the Russian market, the operators would be able to earn 40% more than on the market of Africa, where the competition is stronger and the solvency is lower, analysts say.

MTS will sell fixed-line communications services

In 2008 the cell operator MTS will start providing services of broadband Internet access, using its own brand, the company’s president Leonid Melamed declares. According to him, Komstar, Sistema Mass Media and companies of Svyazinvest will become partners of MTS on the project.

MTS expects for the partnership with interregional companies of Svyazinvest in the regions. (25% of the holding belongs to Komstar). Within the nearest 5 years the share of fixed-line services in the company’s total revenue will not exceed 10%. According to the results of 2007, the company’s revenue came to 8.25 bn USD. According to the estimates of Uralsib, in 2012 the company’s revenue will come to 14.232 bn USD.

According to some experts, this cooperation is not profitable for Komstar and Svyazinvest as they increase actively the base of broadband Internet subscribers. It will be difficult for MTS to agree with Svyainvest’s subsidiaries.

Sinterra is Selling RTKomm.ru to Rostelecom

The second largest Internet-provider in Russia according to revenue RTKomm.ru belongs to Rostelecom now. Sinterra has agreed to sell 68.4% of RTKomm.ru shares and the companies have signed the contract. Rostelecom will pay a minimal price, offered by the independent adjuster Deloitte, 1.563 mln roubles (around 66 mln USD). Due to the deal Rostelecom is increasing its share in the company from 31.1% to 99.5% of shares. The deal will be financed by the funds, received from the sale of a 11% share of Golden Telecom for 460 mln USD in February.

On April 2 the Board of directors of Rostelecom defined the price of the deal. Later the price was approved by the Board of directors of Sinterra. Sinterra had tried to redeem the partner’s share twice, but its offer had been rejected. Rostelecom had not agreed to the price.

According to estimates of the company’s management, Sinterra has received around 25% of its revenue as a channels leasing charge (according to the company’s statements its total revenue was 12.93 bn USD). However, recently Rostelecom has become a competitor of RTKomm.ru, because the company has started working successfully on the market of long-distance Internet access, dumping sometimes.

Another reason to sell RTKomm.ru is that the shareholders (Promsvyazkapital) demand of Sinterra to consolidate 100% of assets in order to transfer the control over all subsidiaries to a consolidated operating company later. According to analysts, the company’s assessment at 100 mln USD is quite reasonable. In case RTKomm.ru remains one of Sinterra’s clients and the company earns money on it, the deal is even more profitable.

SMM is ready to launch mobile TV

Sistema Mass-Media (SMM) has finished the mobile TV network construction. The investment to the construction comes around 60 mln USD. However, SMM has postponed the launch, waiting for an advanced broadcasting license. Presently the company can only broadcast its two own channels. SMM expects it will get an advanced broadcasting license from Rossvyazohrankultura by the end of the year.

The license, given to SMM, only concerns two TV channels. They are own channels of the company for vehicle drivers. SMM has several hundreds of channels. The company is only planning to launch mobile TV after it is able to broadcast a wide range of channels. The company’s network allows to broadcast 16 channels and SMM intends to increase the number to 50.

SMM representatives note, RSOK and GKRC have introduced a kind of a moratorium, suspending the licenses distribution according to the old scheme and not starting the distribution according to a new one.

According to experts, the problem can be solved by the introduction of a universal TV broadcasting license. An owner of such a license will be able to broadcast through any networks, including cable and mobile networks. Experts agree in opinion, the idea of the universal license is not new. It is caused by numerous ways for TV signal provision, including mobile and cable networks, IPTV, etc.

According to experts, the amount of 60 mln USD is a reasonable expense for such a project. The company will also have to invest 100 mln USD more in the mobile TV service. The number of subscribers in Russia is not large, analysts say.

Altimo is planning to acquire assets in India

After AFK Sistema entered the Indian cell market, Altimo tris to buy assets in the country too. According to reports in the local mass media, the Russians are negotiating with Unitech company, which has received the Indian license recently, about creation of a joint venture. However, investors from the USA and the Near East can become Altimo’s competitors.

The second largest developer company in India Unitech is negotiating with overseas telecommunications operators about collaboration on the market of cell communications. In January Unitech’s subsidiaries obtained telecommunications licenses across the country. Altimo is among possible partners of Unitech as well as the American AT&T, the South African MTN and Qatar Telecom. The company intends to possess no less than 51% of shares in the joint venture. The offer to acquire only a blocking share holding may not be interesting for such a strategic partner as AT&T. However, it is suitable for Altimo and Qatar Telecom as last year the companies agreed to acquire minority stakes in the consortium, created by the Indian Hinduja Group, the purpose of which had been to buy a local cell operator Vodafone Essar.

Lately AT&T has considered various way to return to the Indian cell market, which it had quitted in 2004, selling the blocking share holding of the operator Idea Cellular. AT&T is negotiating about the acquisition of companies, obtaining the licenses, but lack for the working experience in the field of telecommunications

We should note, in India universal telecoms licenses are not provided with frequencies. Unitech is the forth company in the queue for licenses. At that among the three leading companies only one company aspires to get frequencies across the country. Shyam Telelink, Sistema’s subsidiary, is the seventh company in the queue, though it got the Indian license in the beginning of the year. . Sistema has already decided to aspire to CDMA frequencies. Altimo is only interested in GSM operators, because they have the most prospects for development.

Turkcell tries to get control over the Byelorussian operator Best

The Board of directors of Turkcell has decided to carry out the necessary research and to make an offer the shareholders of the close corporation Best to sell the most of shares. Several meetings have been held in Byelorussia so far. Goskomvoenprom (owns a 75% of Best) is negotiating with the Turkish investor about conditions of the sale.

A year ago president of Byelorussia Alexander Lukashenko spoke of the offer to sell Best for 500 mln USD. And in March of 2008 he met with the chairman of Turkcell’s Board of directors Mehmet Karamehmet and said the offer was interesting.

Best can hardly be called a successful operator. Over three years it has only collected 190 000 subscribers. At the beginning of 2008 the operator had to suspend the network construction and disconnect its base stations, because of the financial problems. However, in March the construction was resumed. Recently the operator has resumed the marketing activity .

MTS is planning to enter the market of Tajikistan 

The cell company MTS is negotiating about the acquisition of a 60% share of the Tajik largest cell operator Vavilon-mobile. MTS is the only operator of the Big3, which does not work on the Tajik market. According to experts, the value of a 60% holding of Vavilon-mobile is 126 mln USD. The parties have not negotiated a price for the shareholding, owned by the director general of Vavilon-mobile Behzod Faizullayev, yet.

The close corporation Vavilon-mobile was founded in 2003. The company provides services of cell communications. The subscriber base is 749 000 subscribers. ARPU is 8 USD. In 2005 the operator launched the 3G network. According to the results of 2007, the operator provided services to around 700 000 subscribers. According to some estimates, the market share of the company was 31.5% in the end of March. In 2007 the company’s revenue was 55 mln USD, experts say.

France Telecom intends to buy TeliaSonera and Telenor

France Telecom has confirmed its intention to acquire two Scandinavian operators: the Finnish-Swedish TeliaSonera and the Norwegian Telenor. If it happens, France Telecom will become the largest company on the cell market of Russia and the CIS and will be the first company on the post-Soviet area among the European Big3 (Orange/France Telecom, Vodafone, T-Mobile), the reporters from ComNews suppose.

In case Telenor is absorbed, the Frenchmen will become indirect owners of a 33.6% share of the Russian cell company VimpelCom, which also works in Uzbekistan, Kazakhstan, Kirgizia, Tajikistan, Armenia, Georgia and Ukraine. Moreover, France Telecom will be able to get control over the Ukrainian largest cell operator Kievstar: the Norwegian company possesses the control share holding in Kievstar.

In case France Telecom manages to absorb TeliaSonera, it will get control over the biggest share holding in the third largest operator in Russia MegaFon: TeliaSonera controls 43.77% of the operator’s chartered capital. MegaFon only works in Tajikistan, while TeliaSonera controls directly the cell companies in Uzbekistan and Tajikistan and owns the control share holding of Fintur, which possesses big stakes (around 100% mostly) of GSM-operators in Moldova, Georgia, Azerbaijan, Kazakhstan. Besides, TeliaSonera is an owner of a 37.09% share of the Turkish largest GSM-operator Turkcell.

If France Telecom takes control of TeliaSonera and/or Telenor, the British VodaFone and the German T-Mobile will probably activate on the Russian market.

Effortel Russia is entering the long-distance communications market

Leonid Melamed’s company Effortel Russia is entering the market of long-distance communications: its close corporation Optitelecom has applied for codes receiving. The operator is planning to start providing services in autumn of 2008. According to experts’ estimates, Effortel can take 2-5% of the long-distance market.

In the autumn the company is planning to provide services in the corporate and mass segments. In 2007 the investment in the long-distance communications project came to 20 mln USD. Effortel is developing long-distance services in the framework of the multi-service operator (MSO) project, which as of February of 2008 served around 3 thousand business-users and 27 thousand private clients. By the end of 2008 Effortel is planning to serve over 101 thousand users in the private segment and 6 thousand people in the corporate segment.

At present the licenses and codes for long-distance services provision have been obtained by six companies: MTT, Golden Telecom, Transtelecom (TTK), Orange, Arktel, Sinterra. However, not all operators have started providing services everywhere. AFK Sistema’s subsidiary Comstar is expecting for the codes receiving. According to the estimate of UniCredit Aton, in 2007 the lng-distance market came to 2.7 bn USD, by 2010 it will exceed 2.8 bn USD (Kommersant, 04.04.08)

In the nearest future some more players will appear on the market of long-distance communications, experts forecast. Effortel will be able to take no more than 5% of the market.

3. Tension Lines

Alfa has charged Telenor of doing damage to VimpelCom

Alfa Group has charged its VimpelCom’s partner the Norwegian Telenor of doing damage to the cell company and its shareholders. Alfa reminded the Norwegians their attempts to prevent the company’s entering the Ukrainian market. As a result, Alfa has not got 1 bn USD, say Alfa’s representatives.

Altimo informed its subsidiary Eco Telecom had brought the suit to the Commercial Arbitration Court of Geneva, where VimpelCom’s shareholders had agreed to settle all conflicts. According to Altimo, Telenor broke the shareholder’s agreement, when it blocked VimpelCom’s attempts to enter the Ukrainian market. The representatives of the Norwegian company in VimpelCom’s Board of directors were against the acquisition of the close corporation The Ukrainian Radiosystems (URS), because, according to them, the price was unreasonable. Ultimately Altimo submitted the deal to the meeting of shareholders and it was approved by the majority. In November of 2005 VimpelCom bought URS for 231.3 mln USD.

According to Alfa, Vimpelcom’s damage comes to 2.7 bn USD, its own damage comes to 1 bn USD. After the deal had been made in 2006, Telenor tried to declare it invalid. The Norwegian company brought three suits against VimpelCom’s management. However, the court decision were taken in favour of VimpelCom.

Because of the delay in entering the Ukrainian market VimpelCom remains a small player on the local market, though it is impossible to calculate its damage, experts say. They agree in opinion Altimo’s actions is an attempt to press Telenor and attract attention of mass media. The bad results of VimpelCom’s activity in Ukraine proved that the deal had been unprofitable for shareholders. In the 4th quarter of 2007 VimpelCom’s revenue in Ukraine reduced 15.4% to 30.691 thousand USD compared to the 3rd quarter of 2007, net loss came to over 17.5 thousand USD. OIBDA went down by 43.6% to 3.6 thousand USD.

RSOK against Summa Telecom: prospects of the court examination

Rossvyazohrankulturi (RSOK) intends again to appeal against the injunction, initiated by Summa Telecom, against the distribution of licenses according to the results of 8 GSM tenders, held in 2007. According to Summa Telecom, the body will have to prove it gave licenses to the tender winners before it received the injunction, not after. RSOK did not have a right to distribute GSM licenses according to the results of 8 tenders, held in autumn of 2007. Summa Telecom initiated the injunction and in December the court made the decision in favour of the company. RSOK contested the decision, but the court dismissed the appeal.

According to the results of first GSM tenders, most licenses were obtained by Summa Telecom. Later RSOK changed the tender conditions, drawn up by Rossvyaz, and as a result Summa Telecom got nothing in the next tenders, ceding to Sky Link (49 lots) and Tele2. Summa Telecom brought five suits to the Moscow Arbitration Court, the defendants on which were RSOK and Rossvyaz. Meanwhile, the licenses were given to the winners.

The Court has postponed the hearing on Summa Telecom’s claim to May 14, concerning the court decision, according to which the resolution of RSOK about GSM tenders were declared valid.

Summa Telecom has made an error, lawyers say. Licenses are distributed not according to a tender, but according to a decision of GKRC on the ground of tender results. The decision has been already signed. Moreover, the term of its appeal has already expired. Though some analysts believe the case can be won.

IT Personnel deficit in Russia can triple by 2012

By 2012 IT-personnel deficit in the RF can reach 550 thousand people, if Russia follows the innovative way of development, Minister of IT and Communications Leonid Reiman says. “In total the requirement in IT-specialists by 2012 will be 234 thousand people in case Russia develops according to the laws of the raw economics. If the country chooses another way of development: movement to the economics of knowledge, the increase of the economics competitiveness, the growth of outsourcing and the growth of IT services sector, the requirements in IT-specialists will come to over 550 thousand people”. According to Minister, today around one million specialists are working in the field of IT in Russia, in 2007 the sector lacked around 190 thousand new employees.

Reiman also noted IT-sector had become the key factor of the state development in the conditions of the information society generation and the knowledge-based economics.

Beside the problem of the specialists’ amount, the problem of graduates’ training in higher and high professional schools remains vital as well. Reiman reminded in June of 2006 at the session of the IT Council in the Ministry of IT and Communications they had taken the decision about working up of professional standards.

The court decided Alfa had redeemed the cell subsidiary’s shares on legal ground

The Norwegian Telenor was not able to prove that its partner in VimpelCom, Alfa Group, had redeemed shares of the cell company, using the inside information. But perhaps, Alfa had not informed other investors about the redemption properly.

The US Circuit Court of the Southern Circuit of New York has made the preliminary decision according to Telenor’s suit against five companies of Alfa Group – Altimo, Eco Telecom, CTF Holding, Crown Finance and Rightmarch. Primarily the suit concerned the redemption of VimpelCom’s securities in Alfa’s interests, which had been held from October of 2006 to March of 2007. Then the Russian group increased its stake in VimpelCom from 32.9% to 42.4% of voting shares and Telenor charged the company of the incorrect information disclosure about those deals. In particular, according to Telenor, Alfa did not let the investors know beforehand that the purpose of the redemption had been to get control over VimpelCom. By July of 2007 Alfa’s stake had grown to 44% of VimpelCom’s voting shares (in total the group spent around 1.6 bn USD on the redemption). Then the Norwegians brought the suit again, adding two more charges. According to Telenor’s information, three Alfa’s representatives in the Board of directors of Vimpelcom (the chief manager of Altimo Aleksey Reznikovich, the 1st vice president of Altimo Oleg Malis and the chairman of the watch council of Alfa Group Mikhail Fridman) had received the preliminary information about VimpelCom’s financial statements and dividends. After that, not waiting for the public information disclosure, Alfa undertook the redemption.

The court did not prosecuted the charges, concerned with Alfa’s supposed use of the inside information. According to the verdict, Telenor was not able to prove that getting the information from Vimpelcom, Malis, Reznikovich and Fridman had given it to other persons of charged traders with the redemption of the operator’s shares. The charges, connected with Alfa’s incorrect disclosure of information, will be considered by the court later. According to the preliminary decision of the court, Alfa actually informed it intended to reach a 44-50% share of VimpelCom only several days before it increased its share holding to 44%. The company got guaranteed advantage at the meeting of shareholders. Investors could have no time to respond to the tardy information of Alfa, the court agrees.

According to lawyers, inside information use is a serious charge, but it is difficult to prove such facts. The tardy informing of investors will lead to a fine, the level of which will be defined by the court. According to the US legislation the punishment can be a fine from 20 mln USD for legal persons and a fine from 5 to 20 mln USD and up to 20 years of imprisonment for natural persons.

Experts remind only the preliminary hearing was held. If documents are drawn up properly, the court always decides to consider a suit. A verdict of the US court often depends on whose attorneys manage to convince the court.

Creditors brought suit against Ultra

The suppliers of Ultra Electronics, the retailing network of computer equipment, have brought 18 suits about collection of debts from the company. The indebtedness comes to over 9 mln USD. According to Ultra, the company has no money to answer the suits and it proposes to repay with Ultra’s shares.

The first suit about no fulfillment of the obligations under the contract against Ultra Electronic AG Rus was brought by Edifer Service on February 5 of 2008. The biggest demands were made by Monitoring (Disti Group) and Optimalny Vibor, the trade company of Rover Computers. The indebtedness was 2.4 mln USD and 2.7 mln USD accordingly.

According to Ultra’s management, the major part of the company’s revenue is being transmitted now to the accounts of Sberbank for repayment of the credit. The company is not able to return such money. They offer the suppliers to re-structure the debt: to get a stake in the company’s share capital and to get money from future profits.

The market participants note the indebtedness corresponds to Sberbank’s claims, which had brought the suit about the delay in payment on the credit (around 9.3 mln USD). As a result in February Ultra’s warehouses and accounts were distrained temporally. If considering the suits, the court decides to recover the debts, ushers will try to return money from the company’s own funds. Ushers may also put up the company’s property for auction. As of the beginning of the February the equipment worth 8.6 mln USD was stocked in the company’s warehouses. Besides, the company has its own funds worth 2 mln USD.

In case Ultra has no money or equipment, the ushers can put up the company’s fixed property, assessed at 60-80 mln USD.

Sui of RTRS against the Ministry of Financed has been answered

The Moscow Arbitration Court has answered the suit of the Russian Television and Radio Broadcasting Network (RTRS) against the Ministry of Finance of the RF. The company demands from the Ministry to pay out over 569 mln roubles for the TV and radio signal provision to the settlements, the population of which is less than 200 thousand people.

In late December of 2007 RTRS brought the suit. The company’s management declared about insufficient financing of the company’s activity by the state. The Federal Agency of Press and Mass Communications (Rospechat) and the 1st Channel were engaged in the process as third persons.

According to the existing legislation, since 2002 Rospechat has had to assign money from the federal budget, covering expenses of RTRS on the Russian TV and radio channels broadcasting in the settlements, where the population is less than 200 thousand people. Rospechat in its turn divided the budget between TV and radio broadcasting companies, which had backed RTRS.

According to experts, even in case the court decision comes into force, the Ministry of Finance may not pay RTRS. The exchequer, engaged as a third person, can state there is no money in the federal budget. The head of RTRS Gennady Sklyar will probably have to negotiate the money assignment.

Experts remind in April the RF President signed the decree, according to which Rospechat would reduce financing of RTRS. From 2011 RTRS will get compensation only for provision of TV and radio broadcasting services in the settlements, where the population was less 100 thousand people.

Sinterra has got problems with the project “WiMAX mini networks” 

The national operator of communications Sinterra has got problems with “WiMAX mini networks” project realization. The operator did not manage to launch 20 mini networks in the 1st quarter of 2008 and 22 mini networks, which were planned to be exploited along with Orange Business Services. According to Sinterra, the problems of the launch are caused by lack of frequencies.

Previously the operator had postponed the launch because of lack of the certified equipment and “instability of WiMAX devices usage”, promising to settle the problems in the beginning of 2008. Presently the launch of networks has been prevented by the changes in RSOK.

Sinterra has made agreements with 84 companies about WiMAX networks development in 217 towns of the RF in all federal regions so far. Now the company is preparing to the networks construction, which takes 4-5 month on the average.

Sinterra has also got problems, concerning the joint project with Orange Business Services, according to which the operators planned to launch WiMAX networks in 22 towns of the Moscow region. They supposed then, within two months Orange Business Services would choose providers of equipment, and TechnoServ A/C would put the equipment into operation. However, the project has not been finished.

Experts remind by late 2009 Sinterra is planning to draw operators – partners in the project – to over a thousand Russian towns, the population of which is less than 100 thousand people. Although the company’s management confirms they are ready to carry out the project, analysts have doubts.

The company from the British Virgin Isles has brought a suit against Telenor and Altimo.

Farimex Products company (the British Virgin Isles) has brought a suit to the Arbitration Court of the Khanti-Mansiisk region against Altimo, Telenor and their five affiliated companies. According to the suit, within a year the defendants have been blocking VimpelCom’s attempts to enter the Ukrainian market that caused the damage worth 3 797 818 500 USD to the operator and its minority shareholders .

The main claims of Firimax are addressed to Telenor. The company has charged Altimo indirectly “Altimo’s directors were not interested to start working as soon as possible <…> on the available Ukrainian market”. The plaintiff is well informed about the meeting of the Board: in particular, they note how VimpelCom’s independent directors voted, though the company has not disclosed the data.

The suit was to the court in the region where one of Altimo’s subsidiaries CT-Mobile was registered. CT-Mobile is one of MegaFon’s co-owners (25.1%).

In late March Altimo brought a suit to the Commercial Arbitration Court of Geneva against Telenor, which contained the similar demands. The losses of the cell company’s shareholders were assessed by Altimo at 2.7 bn USD and its own losses – at 1 bn USD.

Farimax asserts it owns 25 000 ADR on VimpelCom share (0.002% of voting shares).

According to lawyers, the suit has no future. Even in case the plaintiff proves that the intention of Altimo and Telenor was contrary to the minorities’ interests, there is no reason to demand compensation: the defendants exercised their right and took the risk of their shareholdings value.

The court has answered the claim of FAS against Rossvyaz

The 9th Arbitration Court of Appeal has answered the claim of the Federal Antimonopoly Service of Russia (FAS) and declared valid the decision of FAS regarding the Federal Agency of Communications (Rossvyaz). Thus, the court confirmed that during GSM tenders holding in the Far East and Siberia the law “On Competition Protection” had been violated and reversed the judgment of the Arbitration Court of Moscow, according to which Rossvyaz had appealed the decision of FAS.

Now it is possible to resume the case of VimpelCom against RSOK about declaring invalid the results of GSM tenders, which were suspended until the court decision according Rossvyaz’s claim against FAS comes into force.

The conflict between the operator and the regulator began because of the results of three GSM tenders, hold last July. Primarily the suit was brought against Rossvyaz, which had announced the tenders. The operator demanded to declare invalid the decision of the body about the tenders holding. However, after the tenders had been held, VimpelCom withdrew its suit against Rossvyaz and brought a new one against RSOK, which had been delegated the authorities on frequencies distribution.

At that the operator not only brought the suit to the Moscow Arbitration Court, but also turned to FAS. Considering the case, FAS in its turn decided to review the tender conditions and brought the suit against Rossvyaz, asking to declare invalid the tenders results.

In response Rossvyaz brought the counter claim against FAS to the Moscow Arbitration Court. On January 9 of 2008 the Moscow Arbitration Court answered the suit of Rossvayz and declared invalid the activity of FAS concerning GSM tenders. FAS of Russian appealed.

According to lawyers, the verdict of the Court of Appeal will not have serious legal consequences.

The group of companies Svyaznoi can get control over bankruptcy of the close corporation Svyaznoi

The group of companies Svyaznoi (one of the largest cellular retailers in Russia) can get control over the bankruptcy process of the CC Svyaznoi, which began in February. The Arbitration Court of Moscow has inscribed in the registry of creditors’ requirements the debts of CC Svyaznoi in the amount of 946 mln roubles to the Group structures. At the 1st meeting of creditors this amount can provide the Group with more voices, than tax officers have.

The Arbitration Court has begun to examine the requirements of CC Svyaznoi’s creditors and the registry composition. The petition in bankruptcy of CC Svyaznoi was received by the court on January 31. The Court introduced the control proceeding and appointed Eduard Rebgun the temporal manager of the company on February 20. Till July 15 Rebgun has to analyze financial condition of the company, to find out who creditors are, and to hold the 1st meeting of creditors.

According to the law “On Bankruptcy” creditors’ requirements are inscribed in the registry after the court examine them. According to the Court, the requirements of three companies are legitimate. (Svyaznoi Yug, Svyaznoi Ural (the members of the Group), the Group of Companies (GC) Svyaznoi. The total amount is 946 mln roubles.

The requirements of GC Svyaznoy, inscribed in the registry, concerned the loan, which had been received by CC Svyaznoy for GC. Moreover, GC demanded to pay the bill of CC Svyaznoi and the debts to providers of the company, which had been repaid by GC in the end of 2007 – January of 2008. The requirements of Svyaznoi YuG and Svaznoi URAL are similar: in May-June of 2007 CC Svaznoi got credits in Sberbank of Russia on the security of their property and in mid December the pledges paid the debts to the bank themselves.

The president of GC Svyaznoi Maxim Nogotkov declared previously, that CC Svyaznoi had not already been a part of the Group in the moment of bringing the petition in bankruptcy. Experts suppose the network tries to restructure the debts with the help of bankruptcy, keeping off the mother-company’s bringing to secondary liability. In such cases an owner of a company must control the process of bankruptcy. In order to do it he must obtain a majority vote at the meeting of creditors. The voices can be obtained by inscribing of related companies in the registry of requirements.

4. Authority and Business

IT Sector has been included in competence of the government commission

The Government Commission on Federal Communications will be in charge of IT sector. Minister of IT and Communications Leonid Reiman has been appointed the head of the commission again. Prime Minister Viktor Zubkov has signed the resolution, according to which the Government Commission on Federal Communications is transformed to the Government Commission of Federal Communications and Information Technology.

According to the resolution of the government of March 28 of 2008 (#215) the Commission’s charge and composition were also approved. The Commission must form a working group to prepare materials for settling the matters about the development of qualified systems and networks of communications and secure information technology. The Commission will also have to work out recommendations on correction of the federal special-purpose, departmental and regional programmes, which contain measures on IT, to add new measures and to define priorities for their financing. The Commission will also assess and prepare recommendations on standards improvement.

In the nearest future the plan of the Commission’s activity will be worked out. The composition of the Commission has changed as well. It consists of 25 people beside Leonid Reiman. The Government Commission on Federal Communications was founded in April of 2006. The Ministry of IT and Communication initiated the foundation. According to the Ministry, the Commission must coordinate the activity of executive boards in the field of development and improvement of the federal communications.

According to experts, creation of the Commission is reasonable as previously there was no government body, engaged in the field of IT development.

Rosinfokominvest asks for the state’s support

Rosinfokominvst will propose the government to consider the matter about the state’s control stake holding for a long time. It was supposed previously the stake of the state in the company’s fund would be reduced to 50% +1 share due to the floatation of additional issue worth 1.45 bn roubles. By 2010 the state would have to quit the fund. According to the market participants, the beginning of the fund’s activity has already lingered, causing considerable losses, and the ability of the state to work on the venture market is very doubtful.

The management of Rosinfokominvest fears: if the state quits the business in such short time, many projects the fund participates in, will not be compensated. If the state has the control stake of the fund, Rosinfokominvest will be able to re-invest its proceeds and increase its capitalization. According to the fund’s forecast, its capitalization can exceed 5.5 bn roubles by 2018.

According to some experts, in case the fund is guided by profit earning, it is not clear, how and why the state structure, managed by the controlling shareholder in the person of Minister of IT and Communications, will compete with private investing funds.

The state’s participation is reasonable if the fund focuses on the development of innovative sectors, which are important for the economics, though uninteresting for other investors. The state must invest in long-term projects, which are important for the infrastructure development and the growth of global competitive strength of Russia. Private business is only interested in profit. However, the state’s control over the fund can bring down the interest of private investors, especially, if to take into account that the state does not have so many managers, able to manage venture funds efficiently.

Radio frequency centres are subordinated to RSOK

The federal state-owned unitary enterprise “The Main Radio Frequency Centre” and macroregional radio frequency centres are re-subordinated to RSOK. On March 27 of 2008 the RF government signed the corresponding resolution, which extends the authority of the radio frequency service. Actually the new resolution has vested RSOK with the authority, delegated to the regulator when it was founded. The Ministry of IT and Communications has lost control over the Major Radio Frequency Centre and 7 regional radio frequency centres, located in the capitals of the federal regions.

According to experts, RSOK needs radio frequency centres to distribute frequencies for TV and radio broadcasting mainly. In the frameworks of the radio frequency service’s transferring to RSOK its authority are extended. Now radio frequency centres must also find new radio frequency channels, work out radio frequency spectrum and orbital positions of satellites for TV and radio broadcasting.

Deputies offer the Innovative Code of the Russian Federation

The State Duma Committee on information policy, information technology and communications has proposed to work out and to approve the Innovative Code of the Russian Federation. The document is a cluster of legislative initiatives, directed towards stimulation of the economics development in the field of information and communications technology.

The Code supposes introduction of a special taxation for innovative companies. According to the deputies, innovative companies should have a possibility to pay taxes according to the rapid design scheme, set for small business. The Code should involve a law about venture investments to stimulate creation and development of venture funds in the country.

The law on free software (FS) will also be included in the new Code. Adoption of the law on FS will contribute to the development of open standards and to the composition of government orders for working out of national information systems.

The Code will also involve the law on techno-parks, defining, what techno-park is and what the order of its residents’ support is, and the law on the uniform state computer-based system (SCS) “Management”, establishing rules of electronic documents circulation in public authorities.

Local telecommunications services value

The Federal Service on Tariffs declared the limit tariffs on fixed-line communications services would increase by no more than 7-7.5% in 2009 and by 6% in 2010 and 2011. It will result in the reduction in income of Svyazinvest’s subsidiaries. Positive news from FST was only received by Rostelecom, the price regulation of which can be abolished next year. It can improve competition on the market and result in the reduction of prices for domestic long-distance communications. If Rostelecom’s prices are not regulated, the company will be able to reduce tariffs on long-distance communications and meet requirements of the market.

North-Western Telecom, Dalsvyaz, Uralsvyazinform, Centertelecom and Sibirtelecom refused to increase tariffs since April 1, which were 50-70% of a limit level, imposed by FST. Unlimited tariffs must be increased by 7-13% on the average.

According to analysts, this news will affect Svyazinvest’s subsidiaries. It will lead to the reduction in their income and in their shares appeal.

In 2008 and later the revenue of regional operators from local communication will be limited probably. Taking into account the big programmes of investments for the nearest years, the companies’ characteristics are weak.

After the government stops to regulate Rostelecom’s tariffs, the operator will be able to react to the market changes more rapidly. In order not to reduce its tariffs, the company has to adjust them with FST concerning each region and it takes a lot of time.

Tatarstan Pochtasi has been given to Post of Russia

Minister of IT and Communications Leonid Reiman came to the agreement with the president of Tatarstan Mintimir Shaimiyev that Tatarstan Pochtasi would be included in Post of Russia. The agreement will probably finish the longstanding litigation concerning Tatarstan Pochtasi between the authorities of Tatatrstan and the Federal Agency of Communications.

The head of Tatarstan Pochtasi Farit Fazilzyanov explained that “the question of the Tatar mail will be included in the Federal programme on the mail branch development”. According to Fazilzyanov, the details will be discussed during the next meeting of Reiman and the authorities of the republic in May.

According to the Ministry of IT and Communications, the process of TP’s integration in Post of Russia will start within 6-8 months.

The property conflict regarding Tatarstan Pochtasi began in 2002, after the Russian government had approved the concept of the mail service development, according to which all regional post departments were consolidated in the uniform company Post of Russia. Tatarstan’s authorities did not agree, referring to the contract of 1994 about the distribution of powers between the Russian and the Tatar governments, according to which the mail service had remained under the jurisdiction of the republic. After in April of 2006 the Supreme Arbitration Court declared invalid the resolution of the Tatarstan’s authorities about the privatization of TP, the enterprise had to be given to the federal authorities. . However, the authorities of the republic continued to assert their rights to the property of TP. The last hearing was held in February of 2008, when the Arbitration Court of Tatarstan dismissed the claim of Rosimushestvo about the obligation to register the federal regulations. Now the enterprise belongs to the republic.

According to experts, TP’s integration is profitable to Post of Russia, because it is logical for a mail structure to cover all territory of the country. The conflict settling may be connected with the powers’ plans to create the federal bank structure on the basis of Post of Russia and Svyaz-Bank. Tatarstan is one of the largest territories of Russia and in case the created bank does not operate in the republic, it will cause serious competition with other bank structures.

Sitronix has presented a new strategy of cooperation with the state

Sitronix has presented a new development strategy for 2008-2010. One of its key clauses is close cooperation with the state: by 2010 the company is planning to increase the number of the government orders up to 500 mln USD. The considerable lobby opportunities of the company’s shareholders allow the company to cooperate with the state today already. The state has not been considered as the main client yet.

Previously Sitronix was working as a system, integrator, providing its clients with production of many companies. Today the company is aspiring to become a product concern with its own products and a small number of partners. The company is planning to make the state its main client and to increase its revenue from the government orders several times.

Sitronix expects to become a provider of IT-decision for the Olympic Games in Sochi. The concern has already made the presentation for representatives of the IT-department of the organizing committee Sochi-2014. The proposal concerns the construction of the uniform control system over various Olympic objects, the creation of the control and accounting system of luggage in the airport, and the production of tickets for transport, turnpikes and parking.

The second big government contract for the company is delivery of chips for biopassports. Last May the company won the tender, announced by Gosznak, according to which it must deliver 10 000 chips to the direct customer FGUP NPC Atlas. After the customer must test the chips and make final decision about a provider.

By experts’ estimate, today the share of government orders in Sytronix is around 10%, i.e. around 160 mln USD (2006). According to experts, the company has chance to get a sufficient amount of contracts from the state. The powers are planning to give 26.9 bn roubles to the company to build a chip production factory in Zelenograd. Presently the powers are contributing actively to the creation of the national trade mark in the field of high tech. Such scheme has been used successfully in many countries, for instance in Southern Korea, so Sitronix can get profitable contracts.

Within ten years and more the state will be the largest customer in the field of telecommunications services. The total budget of federal and regional ministries on ICT came to 3 bn USD in 2007. Working with the state structures Sitronix will obtain new prospects.

At the same time cooperation with the state may cause risks, analysts say. The state may demand to control a final product value or correct its programmes in the frameworks of the budget reduction that will certainly affect the company’s profitability.

The bill on ‘significant’ operators of mobile communications

The deputy Maxim Korobov has introduced to State Duma amendments to the Law “On Communications”, which hallmark for a mobile operator, taking a significant position on the market. According to the amendments, the Big3 operators are considered as ‘significant’ ones and the state can regulate them.

According to Article 2 of the Law “On Communications”, an operator is considered as a significant one if it owns no less than 25% of numbers on a certain zone of numeration or is able to transit no less than 25% of traffic. ‘Significant’ operators must take stock of their incomes and expenses separately and their tariffs for traffic connection and transit are regulated by RSOK. At present a fixed-line operator can only be a significant operator though the Big3 operators has surpassed fixed-line operators in terms of subscriber base.

Korobov’s initiative is supported by the Ministry of It and Communications. “The fixed-line networks do not hold the dominating position any more in the unified telecommunications network. If to consider only fixed-line operators as ‘significant’ ones, it will cause misbalance on the market and impede price reduction for end user”, they say in the Ministry.

Experts remind, last year the same amendments were not even given the first reading. Maxim Korobov offered Duma to consider the corresponding amendments in 2006 just after CPP principle introduction. At that time the Big3 operators’ tariffs for regional companies were higher than those they had set for each other (1.10 roubles and 0.95 roubles accordingly). However, the deputies dismissed Korobov’s bill.

According to representatives of operators, regulating of tariffs for cell communications is inappropriate because there is strong competition in the sector. The tariffs for mobile communications have been reducing over previous years and in Russia they are one of the lowest in the world. According to analysts, cell operators are regulated indirectly through mutual payments with significant operators (inter-regional companies).

5. Economics of Innovations

Dmitry Medvedev on the Russian Internet -forum

Speaking in public on the Russian Internet-forum (RIF), Dmitry Medevedev declared that one of the major objectives in the nearest future would be e-government development, getting over Internet-divide between Moscow and regions, and the increase of Internet penetration into public institutions.

Dmitry Medvedev spoke against the freeze of all Internet sites, except educational at schools. “When schools were offered to be subscribed to educational portals only, I was against as it was not Internet any more” he emphasized, adding that “we should find the balance between the content filtering and a decision, made by a teacher and a school, because everyone has different level of training and fears are different as well”. President also believes the state should be tolerant to Internet development. “The state should be loyal, taking into account that this segment is developing and everything that is not a crime should be welcomed”. Medvedev also noted it was necessary to increase the Network’s penetration into public institutions: “Now 7 of 10 computers of state employees are connected to Internet, while each computer must be connected”. According to President all state employees must be full Internet users.

Minister of IT and Communications Leonid Reiman forecasted that the next year there would be great advance in the development of wireless Internet. According to Minister, in big cities of Russia “in all key places where people gather – hotels, cafes – you can use Internet, in many places it is free of charge, the next step is wireless Internet”.

The transition from Wi-Fi to Wi-MAX, the next generation technology, has already begun, says Reiman. According to him, several of such pilot networks have already worked.

Analysts have different opinions about Medvedev’s statements. Some of them have doubts about the powers’ position concerning Russian Internet development.

Amendments to the laws in the field of TV and radio broadcasting

The Cable Television Association of Russia (CTAR) has prepared proposals on the amendments to the laws “On licensing of some kinds of activity”, “On Communications” and “On Mass Media”. According to the initiative of CTAR president Yuri Pripachkin, the judiciary committee had summarized and prepared the proposals with amendments to the existing legislation, which were considered by the members of the Board. It was done in the frameworks of CTAR’s participation in the work on improvement of the legal base for TV and radio broadcasting during working out of the federal programme “Development of TV and radio broadcasting in Russia till 2015”.

The members of CTAR Board are planning to participate in the session of the Board of the Ministry of IT and Communications and to speak of cable operators, the members of CTAR.

In particular, CTAR intends to charge all operators, possessing licenses for operating in the field of service provision for TV and radio broadcasting, with broadcasting of compulsory Russian and regional television channels (including operators, using MMDS, DTH, DVB-T)

The corresponding amendments are proposed to be made to sub-section 1 of Article 29 of the law “On Communications”.

Besides, according to CTAR it is necessary to assign to a broadcaster to provide certain technical conditions when providing an operator of communications with TV signal and charge a broadcaster with expenditure for the quality of signal and broadcasting of signal in towns, where the population is over 200 thousand people.

The Association proposes to draw up a list of information, given to a regulator, which is necessary for the license receiving in the field of TV and radio broadcasting.

Analysts remind that at present several ministries and departments are working out the bill about amendments to some laws of the RF concerning the activity in the field of TV and radio broadcasting. The ministries intend to submit the bill to the RF government in June of 2008.

Enhancement programme of Post of Russia

The head of Post of Russia Andrey Kazmin has reporter about the results of the Board of the Ministry of IT and Communications, presided by Leonid Reiman. The Board has considered the enhancement programme of the mail service of Russia. Andrey Kazmin has submitted the number of crisis-proof measures and the programme of the mail service development till 2011.

The main objective of the crisis-proof programme is to get rid of losses, which in 2007 came to around 4 bn roubles. Over 75% of losses fall to the losses from providing of services to public organizations, so the management of Post of Russia considers necessary to raise tariffs for registered mail, especially for commercial companies and public budgetary organizations.

According to Andrey Kazmin, the losses of the enterprise, caused by understated tariffs, unprofitable post offices in rural area, construction of computer-based sorting centres, must be compensated by the state.

The 1st Vice Prime Minister of Russian Sergey Ivanov agreed that the tariffs had to be changed for public organizations. “Obviously, over 1-2 years the financial condition of the mail service has got worse. Despite the growth of the services volume, expenses are growing more rapidly. Expenses are growing because public customers, federal departments underpay the mail service, another federal department. The whole loss almost concerns the registered mail deliver to public organizations. It means that the state does not pay its expenses.”

According to Minister of IT and Communications Leonid Reiman, the main measures for financial enhancement of the enterprise are adjustment of tariffs and reduction of losses from services providing to budget organizations. If the question is settled, the financial condition of the enterprise will change considerably.

Leonid Reiman also believes it is necessary to solve the question of tariffs for periodical press delivery. At present the cost price of delivery is higher than the tariffs. The mail service must be compensated for the delivery of periodical press.

Moreover, the technological infrastructure of Post of Russian is very bad. The mail is sorted manually. Today the programme for construction of 27 new sorting centres in Russian has been already worked out. The document is being adjusted in the departments and the Ministry of Finance.

To make the mail service breakeven is a complicated objective, experts say. To achieve it Post of Russia should become more market enterprise.

RTKomm has connected networks with Rostelecom

RTKomm.ru company has organized an outlet of traffic exchange in Moscow, where the networks of the company and the long-distance operator Rostelecom are connected directly. Previously, the companies’ networks were connected through overseas operators, because of the political contradiction between Rostelecom and Sinterra.

The connection is a part of RTKomm’s program on provision of the best connectivity of its networks with all Russian Internet users. In the frameworks of the programme, the company is now establishing connections with several leading Russian Internet-providers.

The direct connection of networks extends collaboration of RTKomm and Rostelecom and improves connectivity and mutual penetration of the networks. The companies are interested in the cooperative business development.

The companies decided to connect their networks directly after the agreement about the sale of 68.4% of RTKomm shares to Rostelecom by Sinterra had been signed. Rostelecom will pay around 66 mln USD for this asset and increase its share in the Internet-provider to 99.5%. The deal will be financed by the funds, the operator received in February, selling 11% of Golden Telecom for 460 mln USD. Now Rostelecom will transit the traffic of its subsidiary free of charge, experts say.

Experts remind Rostelecom and RTKomm were competitors in terms of the remote traffic. Both operators were bringing the traffic from regions to Moscow. Later Rostelecom transited the traffic through overseas operators or Komstar. It resulted in low speed of the traffic and Rostelecom lost clients probably, the company’s network was not developed well and the traffic volume was small. According to experts, at that time it was more profitable for Rostelecom to transit the traffic through overseas companies.

New Federal Space Programme

On April 11 at the Security Council of the RF the major clauses of the new Federal Space Programme of Russia for 2010-2020 were discussed. However, the Federal Space Agency of the RF (Roscosmos) experiences serious difficulty, running the less complicated current programme. Though the budget of the sector has increased significantly over last years, according to the agency’s management, delays in space crafts launch is caused by lack of financing.

According to the plans of the new programme developers, the amount of Russian spacecrafts launchings will be increased. However, the less complicated programme for 2006-2015, approved by the RF government in October of 2006, is far behind the schedule. So, by 2010 they planned to launch 19 communications satellites, but only one satellite has been launched. 9 spacecrafts had to be launched for space sounding of Earth, ecological monitoring and control over cases of emergency, but only one space craft has been launched. Neither two space observatories for astrophysical research nor the space craft for research of the Sun have been launched. Moreover, in February at the session of the Account Chamber an auditor Mikhail Beshmelnitsin declared that the activity of Roscosmos was not directed actually to the market of space services. According to the auditor, it is the result of the improper production and use of spacecrafts and lack of development of spacecrafts group for space sounding of Earth, for purposes of cartography, hydrometeorology and science.

The popular in Roscosmos Programme of International Space Station, on which the agency spend around 70% of the budget is behind the schedule as well. Before the session of the Security Council the president of Energiya (the head-company on ISS project) Vitali Lopota had declared they would not finish the construction of the station by 2010 and would only finish it by 2015. Meanwhile, in 2015 according to the adjusted schedule, they had planned to finish exploitation of the station.

Regarding the new programme Roscosmos intends to pay special attention to the creation of a new Russian cosmodrome Vostchni (Eastern) in the Amur region. Within the nearest two years the experimental development of the new cosmodrome will be held in the region and in 2015 a spacecraft will be launched there for the first time. From 2018 a new Russian astronaut-inhabited spacecraft is planned to be launched from the cosmodrome. According to the head of Roscosmos Anatoly Perminiv, the spacecraft may be used for flights to the Moon and other planets. However, the tender on a new spacecraft, held in 2006, has been declared invalid.

Roscosmos will ask for significant financial investments to realize the new programme, experts say. The previous programme was invested with 305 bn roubles from the federal budget and 181.81 bn roubles from off-budget funds. Since 2005 the budget of the agency has grown 1.5 times already. According to unofficial information, Roscosmos insists the budget must be doubled.

6. Personnel Changes

The Russian long-distance operator MTT has created the Directory on new services sale, headed by Aleksey Tsimber. Previously he was working in the Russian company of satellite communications GeoTelecommunications. The reorganization is held in the frameworks of the work improvement of the company’s sales departments. The new directory’s objectives concern the growth of the company’s market share in the segment of intellectual communications network (ICN) and the sale of ICN prospective services to operators of communications, corporate customers and natural persons.

***

The Board of directors of Rostelecom, the operator of domestic long-distance and international long-distance communications, has dismissed the member of the Board Dmitry Gurevich. The decision was made by absentee of the Board on March 21 of 2008.

***

Vladimir Pogrebenko has been appointed the director general of Telecominvest. Previously he held the position of the managing director of First National Holding S.A.

***

Jean-Pierre Vandromm will remain the head of Golden Telecom, absorbed by VimpelCom. According to the extended contract, he will be holding the position of the company’s Chief Executive till December 31 of 2009 at least. Vandromm’s duties and authorities will remain the same.

***

The former director general of Fujitsi Siemens Computers (FSC) in Russia and the CIS Vitaly Fridlyand starts working as director general of EMS company in Russian and the CIS on April 1. In late February of 2008 Vitaly Fridlyand declared he quitted FSC, where he had been working for 4 years. Within this period he made FSC one of the leaders of the Russian market of PC, increasing the business 8.5 times since 2004.

***

Svetlana Balanova has been appointed the director general of 3M Russia. Her main objective is to extend the company’s activity due to development of the existing business trends of 3M and launch of new local projects. Previously Balanova was working as the director general of 3M Ukraine.

***

Mikhail Kurbatov has been appointed the alternate director of the Departments of tariffs and infrastructure reforms of the Ministry of Economic Development and Trade. The department is engaged in the state policy in the field of natural monopolies: oil and gas sectors, transport and communications, power industry and pipeline transportation.

***

Elena Kuznetsova has been appointed the director on work with partners of EMS Russia and the CIS. Previously she was the head of the Department on work with partners of HP Russia and the CIS. Kuznetsova’ appointment to the corporation as well as the appointment of Vitaly Fridlyand is connected with new plans of EMS. Kuznetsova will develop the partner network of the corporation in Russian, which must result in sales increase.

***

Eduard Gordeev has been appointed the deputy director general of the Russian system integrator “Dialog-Seti”. He will have to found the department on foreign projects provision and the department of sales to corporate clients.

***

Aleksey Goltsov, quitting MGTS recently, has demitted the offered position of the vice president of Komstar-OTS. He gives no reasons for his denial. The position remains vacant. At that Goltsov did not informed, where he would work, but noted, his new place of employment might be connected to AFK Sistema.

***

Igor Nikodimov, the former deputy director general of MegaFon on foreign-economic relations and administration, has been appointed the deputy director general of Rostelecom. In 1994-1997 he was working as the administrative director of Severno-Zapadny GSM (the North-Western subsidiary of MegaFon at present). In 1998-2002 he was holding the position of the director general of Severo-Zapadny GSM. Since 2002 he was the deputy director general of MegaFon on foreign-economic relations and administration.

***

Andrey Manoilo, the former auditor of Sberbank, has been appointed the deputy director general (Andrey Kazmin) of Post of Russia. Andrey Manoilo had been working in Sberbank for 17 years, starting working as the chief of the currency department. Andrei Manoilo will become the second professional in the team of Andrei Kazmin: in late January the former deputy chairman of Sberbank Andrei Pogodin came to Post of Russia, too. The main objective of the enterprise in 2008 is to get rid of losses worth 4.5 bn roubles over 2007.

***

At the special meeting MegaFon’s shareholders elected the new Board of directors. Beside five old members, the Board now consists of the president of TeliaSonera on development in the countries of Turkey and the CIS Tero Kivisaari and the deputy director general of Telecomivest Grigori Tsuprik. The changes in the composition of MegaFon’s Board have begun this January already. At the session of the Board, held in Nizhni Novgorod on January 29, the head of TeliaSonera’ representative office in Russia Per Olof Shestedt declared about his intention to quit the Board of the cell operator. Tero Kivisaary has just took up his post. Previously, before taking up the post of the president TeliaSonera on development in Turkey and the CIS, he had been a member of the Boards of directors of Azercell and Moldcell, the chairman of the Board of directors of Fintur Holdings BV and the financial director of the holding.

***

The Board of directors of Komstar-OTS has been headed by the 1st vice president, the chief of the development complex of telecommunications assets Sistema Telecom of AFK Sistema Vitaly Savelyev. The company’s shareholders have also elected the new Board. It consists of the president of Komstar-OTS Sergey Pridantsev; the chief of the working group on IT between Sweden and Russia, the chairman of the Swedish-Russian/the CIS Chamber of Commerce Ingve Redling; the director of the Department of portfolio strategy of strategy and development complex of AFK Sistema Andrei Matukhov; the vice president of Access Industries (Eurasia) Anatoly Akimenko; the vice president on legal questions – the head of Sistema’s legal complex Anna Goldin; the senior vice president – the head of Sistema’s property complex Sergey Drozdov; the member of the supervisory boards of the companies: Allianz-Versicherungs-AG, BDO DeutscheWarentreuhand AG, Dresdner Bank AG, GEA Group AG, Hapag Lloyd AG, Hochtief AG, TUI AG Ditmar Kunt; and the chief of Sistema’s financial department Dmitry Ustinov.

***

Anton Ananko has been appointed the director on business development of British Telecom (BT) in Russia and the CIS. He will be in charge of development of extension of relations with partners, control over sales changes. He will also have to participate in development of the BT’s functional sales strategy. For over 10 years Ananko had been holding executive positions in the field of IT communications. Before coming to BT he had been the technical director on the CIS in Reuters SA company. He was in charge of the company’s budget forming, the team management according to business requirements, the management of technical support and clients’ loyalty, the management of relations with key suppliers.

***

The Board of directors of MTS has approved the 1st of 8 candidates to the new Board. The annual meeting of MTS shareholders, where the new Board will be elected, is scheduled to June 27 of 2008. Anton Abugov, the 1st vice president of AFK Sistema, the chief of the strategy and development complex of the company, has become a new candidate to the Board. Other candidates are the members of the Board already: Vitaly Savelyev, the 1st vice president, the chief of Sistema’s complex of telecoms assets development; Aleksey Buyanov, the senior vice president, the head of the financial-investment complex of Sistema; Sergey Drozdov, the senior vice president, the chief of Sistema’s property complex; Tatyana Evtushenkova, the advisor to MTS president; MTS president Leonid Melamed and two independent directors – Mahanbir Giani and Paul Ostling.

*** 

Andrei Kulishov has been appointed the director on client servicing of the fixed-line operator MTT. Previously, he was the head of the Department on work with clients of MTT. The post of the director on clients servicing was held by Marina Runova, who has come to St. Petersburg subsidiary of Sky Link.

***

Sergey Kruglov and Nikolai Voinov have been appointed accordingly the president and the director general of Armadillo company in Russian and the CIS. Kruglov was born o June 14 of 1961. In 1983 he graduated from MGIMO. Since 1983 he had been the leading expert of Soyuzvneshtrans. Since 1987 – the chief of the transport department of the joint venture Afsort. In 1992 he started working as the director on transport in Armadillo.

7. Figures and Facts

MegaFon: results 2007 

According to the results of 2007 under RSBY, MegaFon has reduced its net profit by 24.35 to 4 860 959 000 roubles. In the 4th quarter the operator’s net profit decreased over 4 times compared to the 3rd quarter of 2007. According to the information from the company, in the 4th quarter of 2007 net profit of the company was 487 690 thousand roubles. In the 3rd quarter of 2007 it was 2 097 220 thousand roubles.

The net profit decrease in the 4th quarter of 2007 is the result of seasonal instability of the cell market conditions, development of networks and telecommunications infrastructure. Moreover, presently MegaFon is acquiring special equipment that leads to the growth of non-circulating assets value. The net profit fall has been also caused by the growth of costs for services of associated operators.

According to analyst in such periods most operators suffer the reduction in income. Probably, in the end of the year MegaFon invoked the finds development in the frameworks of the investments programme that also affected net profit.

VAS Market

According to the results f 2007, the total volume of the market of value-added services (VAS) in Russian came to 2.8 bn USD. (ComNews Research). According to ComNews Research, last year the share of VAS in the total revenue of cell services was 13.5%. According to the results of the year MTS left VimpelCom behind in terms of the revenue from VAS.

In the 4th quarter of 2007 revenue from VAS in Russia increased by 17% to 830 mln USD compared to the previous year. The share of VAS in the total revenue came to 14.3 % in that period.

According to VAS rating in 2007, 54% of the total VAS revenue was contributed by SMS and MMS. The share of content services was 21% and the share of Internet services was 20%. The basic VAS (CLIP, etc) took 5% of the VAS market

In 2007 the share of mobile Internet was almost the same as the share of content services. Over the year the amount of mobile Internet users has grown by 25% to 20.5 mln people.

According to the data of ComNews Research, in 2007 the market of mobile content came to 592 mln USD, 29% of which falls to the last quarter of the year. MTS is a leader on the market, its share has reached 41% according to the results of 2007. MegaFon’s share in the segment has not changed almost and has come to 25%. VimpelCom’s share has decreased 5% to 27%. (ComNews, 02.04.2008).

According to analysts’ estimate, within the nearest 2 years Internet will grow more rapidly than other segments. It is also caused by the 3G networks development. After penetration of Internet becomes high, content services will take the leading position, analysts say.

According to experts, MTS is growing more rapidly than other operators due to content services. MegaFon and VimpelCom were promoting SMS and MMS, while MTS was engaged in content services development. MTS subscribers were attracted by the number of exclusive agreements with suppliers, the transparent policy and the user-generated content development. However, MTS could not reach VimpelCom in terms of Internet-traffic volume.

MTT has increased its figures

The long-distance operator MTT has doubled its shares in terms of subscriber base of fixed-line communications and revenue from long-distance services. In 2007 the consolidated revenue of MTT under US GAAP increased from 496 mln USD to 1.08 bn USD. 836 mln USD of them were contributed by traffic transit (+135% compared to 2006). The share of services for subscribers came to 208 mln USD (+126%).

The revenue growth was contributed by the acquisition of 66% of the British WaveCrest, specializing just in traffic transit, in January of 2007. Without taking WaveCrest into account, MTT’s revenue has grown 70% to 793 mln USD. The revenue of the recent monopolist Rostelecom has only grown 4.3% in 2007.

In 2007 50% of cell operators’ traffic were transited via MTT network and in 2009 this figure will decrease to 10%. MTT is planning to recoup costs by the increase of revenue from long-distance communications.

In 2007 the company’s subscriber base grew 2.5 times to 7 mln people, and 800 000 people choose the company as a permanent long-distance operator. According to the estimate of the Ministry of IT and Communications in 2007 the subscriber base of fixed-line communications came to 44.5 mln people, i.e. the share of MTT had doubled over a year. In money terms the share of MTT on the market of long-distance services for end users increased from 3.1% to 6.8%. By 2012 MTT is planning to take 20% of the market.

According to analysts, cell operators are now constructing their own transit networks and they will use MTT networks more seldom. MTT is able to take 20% of the market, though more and more competitors appear on the market.

Telefon.ru has increased its revenue

In the 1st quarter of 2008 the revenue of the retailing network Telefon.ru increased 71% compared to the same period of 2007 to 2.9 bn roubles. In March the revenue per a shop came to 2.2 mln roubles (1.8 mln roubles in 2007). In 2008 Telefon.ru intends to outstrip Svyaznoi company in terms of the revenue per a shop.

As of April 1 of 2008 460 shops, the total area of which was around 15.5 thousand sq. km, worked in 150 cities of Russia. An average area of a shop is 34 sq. m. Compared to the 1st quarter of 2007 the amount of the company’s shops has increased 20% and the revenue grew over 70%. In 2008 the company expects to become a leader of cell retailing in terms of an average monthly revenue per shop.

Simultaneously Telefon.ru will continue opening new shops in the regions. Since the beginning of 2008 the company has entered the markets of Sarov, Yugra, Dimitrovgrad, Yadrin, Prokopyevsk, Kolpino, Dobryanka and other towns. In April the company expects to increase its presence in Bashkiriya,, Ural and Siberia. Last autumn other cell retailers declared about their plans to close a number of shops in order to increase business efficiency.

In the 1st quarter of 2008 over 408 thousand contracts of cell operators were sold in Telefone.ru shops. 886 contracts fell to one shop on the average. In terms of connections MegaFon was traditionally a leader. The share of the operator is 38% according to sold SIM cards. MTS and Bee Line have 22% and 16% accordingly. According to the results of 2007 MTS is a leader in terms of connections in the sales of Euroset, DIXIS and Cifrograd. VimpelCom is a leader in Svyaznoi.

According to analysts, it is difficult to assess the dynamics of the mobile retailing market, because other companies are not willing to public their statements. At that it is obvious the network is growing more rapidly than the market. The growth of revenue is the result of the increase of total sales in shops instead of new shops opening. Telefon.ru’s objectives to take the leading position in terms of the revenue per shop are quite realistic, experts say.

MTS has reported for last year

The results of MTS for 2007 were almost the same as VimpelCom’s results, stated last month. The both companies’ revenues were growing at predictable for investors rates, and net profits were lower than it had been expected on the market. In 2007 MTS’s revenue grew 29% to 8.25 bn USD and net profit increased 93% to 2.07 bn USD. OIBDA came to 4.2 bn USD (+31% compared to 2006), OIBDA profitability increased from 50.6% to 51.2%, net profit profitability – from 16.8% to 25.1%.

In the 4th quarter of 2007 net profit of MTS was lower than the expectations of the market - 460 mln USD instead of 544.1 mln USD. OIBDA profitability of the 4th quarter was lower as well – 48.4% and 50.5% accordingly.

In the 4th quarter MTS attracted a lot of new clients that led to the growth of marketing and commercial expenses. Moreover, the depreciation expenses increased to 483 mln USD in the 4th quarter compared to 373 mln in the 3rd quarter. The market is growing: MOU is increasing, subscriber traffic is growing (over a year the traffic has grown 59% in Russia), that results in the investments growth in the country. OIBDA of the quarter has reduced because of the growth of marketing expenses and of payments to other operators. The growth of payments charged according to the option programme was less than 1 % in the 4th quarter.

According to analysts, in the 4th quarter the revenue of MTS was growing almost twice quickly as VimpelCom’s revenue: +5% and +2.8% accordingly . MOU has also increased in Russia over the quarter ( MTS – 12% growth to 187 min per month, Vimpelcom – 2.3% decrease).

According to analysts’ forecasts, the proceeds of MTS will increase 21% this year. The company’s management expects the proceeds will grow over 25%.

Net profit decrease has been caused by non money expenses, experts resume.

Komstar-OTS has increased revenue

Over 2007 the revenue of Komstar-OTS has come to over 1.5 bn USD, 39% growth compared to the previous year. The revenue of the company from regions has reached 128 mln USD compared to 39 mln in 2006. This year the operator expects 15-20% growth of the total revenue.

30% of the amount (around 600 mln USD) is expected to be received from regional subsidiaries. Komstar will continue acquiring leading companies on the regional markets. In the regions the company directes its efforts first of all to the corporate segment and VIP-habitation.

By the end of the year Komstar is planning to collect 1 mln active subscribers in Moscow.

In the 4th quarter of 2007 the company demonstrated the big growth of subscriber base, analysts report. In November the company is planning to launch WiMAX network in Moscow. According to analysts’ estimate, dozens of millions may be invested in the project. Perhaps, launching mobile WiMAX in Moscow, Komstar tries to compete with the 3G operators and Sky Link.

Analysts agree that according to the results of 2007 Komstar has surpassed expectations of the market. The company is a leader in terms of revenue and profitability among operators of communications in Russia. The revenue of Golden Telecom, the main competitor of Komstar, has grown 51.2% to 1.29 bn USD over the previous year.

MegaFon has reported for 2007

According to the results of 2007, MegaFon has almost overtaken its competitors, MTS and VimpelCom, in terms of the main financial characteristics, keeping high growth rates. MegaFon intends to become a leader among cell operators on the Russian market. According to the results of 2007 the company’s share in the total revenue of the Big3 operators in Russia has come to 31%. The shares of MTS and VimpelCom are 34.7% and 34.3% accordingly.

The operator’s share in the total EBITDA of the Big3 in Russian is 31%. EBITDA margin of MegaFon has reached EBITDA margin of competitors and has come to 51% (MTS – 51%, VimpelCom – 50.9%)

Net profit of the company under US GAAP has grown 70% over 2007 and has come to 1.4 bn USD. Over the same period net profit of MTS I Russian has come 1.6 bn USD, increasing 2.4 times. VimpelCom’s net profit has grown 66% to 1.4 bn USD. The consolidated revenue of MegaFon has come to 5.7 bn USD, 53% growth compared to 2006. (MTS – 32% growth to 6.2 bn USD, VimpelCom – 38% growth to 6.1 bn USD)

According to the results of 2007, MOU of MegaFon has come to 244 minutes, 15% growth over a year (MTS – 157 minutes, VimpelCom – 192 minutes). ARPU of MegaFon has come to 14.1 USD compared to 12.3 USD in 2006. MegaFon’s subscriber base has increased 20.1% compared to 2006 to 35.585 mln people.

In 2008 the operator is planning to increase the revenue under US GAAP by 20% in roubles. At that the company intends to hold EBITDA profitability on 50% level. Moreover, in the nearest two years the operator intends to outstrip the competitors and take the first place. In 2008 MegaFon is planning to increase its subscriber base by 20% to around 41 mln people.

The revenue dynamics and other characteristics of the company prove the company is getting stronger on the market, analysts note. 3% lag is insignificant and it can be reduced in future.

***

- 23% to 69.7 bn roubles – the growth of the proceeds of Post of Russia in 2007 compared to 2006. According to the results of 2007 the losses of the enterprise came to around 4 bn roubles.

- 2.4 times to 12 mln USD – the increase of sales of ads in Russian cell networks in 2008. The bonus segment of the mobile advertising market - the sale of big consumer trade marks - may treble.

- 28 100 000 of Russian (25% of the population) use Internet at least once in a half-year, according to the data of Obshestvenoye Mneniye.

- 7 500 000 000 roubles - the net profit of MGTS according to RSBU in 2007 (+18.2%)

The growth is the result of Komstar shares revaluation and return of debts of the state.

- 1.6 bn roubles – the turnover of the retailing project TS-retail of AFK Sistema in 2007. Over the 1st quarter of 2008 85 shops have been opened, 14 of which are Tochka shops in St. Petersburg, Petrozavodsk, Stary Oskol, Krasnodar, Abakan, Barnaul, Omsk, Saratov, Sizran, Perm, Yekaterinburg, Khabarovsk and Vladivostok. Now the total amount of TS-Retail’s shops is 245.

- 1.2 bn cell phones will be sold in 2008 in the world. Thus, the cell phones delivery will grow 6% to 1.2 bn handsets compared to 1.12 bn cell phones in 2007. In 2008 the growth of the market will be lower significantly compared to previous years. It is caused by sales decrease on the markets with high penetration of cell communications services.

- 116 900 000 USD were paid by Sitronix to Melrose Holding for 36% of Kvazarmikro. The company has increased its share to 87%.

- 9 500 000 cell subscribers (7%) were victims of telephone swindlers; handsets were stolen from 5.4 mln users.

- 2.3 bn USD - the volume of the Russian export of software over 2007 (46% growth compared to the previous year). Thus, the market has justified the expectations of last year. According to the preliminary estimate, in 2008 the total export of software will come to 3 bn USD.

- 234 thousand people - lack of IT-specialists in Russia by 2012, in case the country develops according to the laws of raw industry. According to Minister of IT and Communications Leonid Reiman, around 1 mln specialists are working in this sector at present. At that in 2007 the sector lacked around 190 thousand of qualified employees.

- 1 bn USD (50% of net profit) can be paid by MTS as dividends for 2007. VimpelCom – 588 mln USD (40% of net profit)

- 8.077 bn USD – the cost of MTS trademark according to the calculations of experts from Millward Brown Opinion. Thus, MTS is the first of Russian trade marks, becoming one of the hundred the most expensive trade marks of the world and taking the 89th place in the list. Google is the most expensive brand in 2007. The cost of the company has increased 30% over a year to 86.057 bn USD