The Russian Telecommunications Market Development November 2008

1. General Trends of the Market Development

MegaFon is planning to acquire Dixis
MegaFon’s Board of directors decided to acquire a minority stake in the retailing company Dixis. According to the agreement, the cell operator can acquire Dixis, paying a part of the company’s debt. Dixis’ owners are ready to consider all partnership conditions of buying and selling. We remind the negotiations about the sale of Dixis to the cell company MegaFon had begun in September.
Over 2007 MegaFon’s free money flow has come to around 885 mn USD. The company can afford to acquire the retailing company (Dixis’ network includes 701 shops and 445 shops-partners). Over 2007 Dixis’ turnover has come to 960 mn USD and according to the prognosis for 2008, the turnover may reach 1 bn USD. Besides, MegaFon possesses funds to pay the company’s debt of 260 mn USD.
We remind VimpelCom acquired 49.9% of Morefront Holdings Ltd company (owns 100% of Euroset). Under the current conditions on the cell market MegaFon may become a VimpelCom’s competitor, expanding its network due to the purchase of Dixis. Another considerable player MTS focuses on the development of its monobrand retailing network. MTS aims at collecting money from its partners – retailing companies for the operator’s brand use.
Analysts agree in the opinion acquisition of retailing companies is a popular tendency in the frameworks of the financial crisis in Russia. One Big 3 operator, acquiring a retailing company, is followed by others. According to experts, it is mostly driven by the operators’ fears regarding their competitiveness. Under the conditions, when the value of cell retailing companies is going down, their acquisition is quite profitable for the cell market participants.
The acquisition of a cell retailing company is one of the ways to attract subscribers due to new services provision, experts say. Under the strong competition such decision is a forced measure, taken by operators in order to strengthen their position on the market. Analysts have different opinions on MTS’ future plans: the company is going to develop its monobrand networks or the operator will plan the purchase of one of cell retailing companies.

MTS has placed the bonded debt of RUB 10 bn
Under crisis conditions MTS has placed its 3rd bonded debt of RUB 10 bn with an offer price chargeable in 2 years. The debt is to be paid off in 2015. The coupon rate of interest is 14.1%. The operator’s 2nd bonded debt of RUB 10 bn had been placed with the same coupon rate of interest. According to the company’s management, they are satisfied with the placement since they have managed to obtain the loan, nominated in the revenue’s main currency, and to decrease currency risks.
MTS’ placement of bonded debt proves that investors are still interested in new placements on the market of corporate debt. It also demonstrates the operator’s solvency, experts say. Experts also wonder why MTS is borrowing money as the company does not disclose its purposes.
According to experts, the corporate rating BB of MTS under S&P scale with the “positive” prognosis allows to include the issuer’s rouble bonds in the list of collateral securities of the Centrobank. So, we expect in the nearest future the bonds of MTS will be included in the list.

AFK Sistema will abolish Tochka brand

AFK Sistema is planning to abolish Tochka brand. In the beginning of 2009 Tochka network is planned to be transferred under MTS brand. As a result MTS may become the 2nd cell operator in terms of a number of cell retailing shops. Within a year AFK Sistema has only managed to open 40 Salons of Tochka instead of the planned 500.
The company’s management is planning to abolish Tochka brand by 2009, though the decision has not been take yet. We note MTS possesses around 1400 salons, while TC-Retail has 320 shops, 40 of which work under Tochka brand. MTS (25%), AFK Sistema and its subsidiaries: Comstar-UTS, Intourist, MBRR, Sistema Mass-Media are owners of TC-Retail. The annual turnover of TC-Retail is RUB 1.006 bn. The investments in the company are 50 mn USD, including the costs for Tochka salons development.
In 2007 the project TC-Retail was started. It implied development of multibrand shops and was aimed at sales of Sistema’s subsidiaries’ goods and services. By the end of 2008 the number of shops would have to reach 500. Sistema approved the company’s business plan, according to which the total money flow had to be 150 mn USD and the number f salons had to reach 2000.
According to experts, MTS made the right decision since a monobrand network development is more effective since the company is under direct control of the owner and the brand becomes more recognizable. Moreover, MTS is aimed at its positions maintenance on the cell market and under strong competition it is necessary to take such measures as acquisition of a cell retailing company, further promotion of the brand.
According to analysts, Sistema’s decision was caused by financial crisis, affecting Tochka network development. The company’s work will be more effective under the recognizable brand of MTS, experts believe.

MegaFon will not enter the Iranian market

MegaFon is changing its plans on entering the Iranian market. The main reason is that the Iranian authorities have offered too serious tender conditions: the company would have to acquire a GSM license for 300 mn USD and would be obliged to pay 15% of the revenue to the country’s government. Besides, a foreign company can only own 49% of shares. The company’s management planned to invest 3 bn euro in the project. But under the current crisis conditions MegaFon’s management decided to save the money and to spend them in a different way, for instance to acquire one of the cell retailing companies.
We remind in May 2008 the operator opened its representative office in Iran, when it decided to take part in the tender for 3rd GSM license. The date of the tender is unknown. By November 29th the candidates for the license had to hand in an application to the Iranian telecommunications regulator. MegaFon received the documents for the tender, but it did not hand in the application.
Analysts agree in the opinion that MegaFon’s decision was right. There are several reasons for giving up the planned project. Firstly, the tender conditions are really very tough, experts say. Secondly, MegaFon has more profitable positions, for example in the CIS. Thirdly, according to the Russian cell market development, it is necessary to acquire a cell retailing company to remain competitive in comparison with other market participants. Besides, MegaFon hardly possesses the funds to invest in the Iranian project.
Thus, current development of many Russian companies is driven by political and economic situation. According to analysts, the elections in the USA as well as financial instability impacted partially MegaFon’s plans on entering the Iranian market. Currently the crisis gives Russia’s telecoms companies a possibility to take part in the market redivision and increase their competitiveness and capital. MegaFon has made the right decision since the operator will be able to strengthen its financial condition and invest its money in more profitable projects, according to analysts.

Compulink installs public telephones

The system integrator Compulink, installing public telephones in the frameworks of the project of universal service of communications for the North-Western Telecom (SZT), Centrtelecom, Volgatelecom, the South Telecommunications company and Dagsvyazinform, has completed basic works on the project. The participation in the project allowed the company to increase its turnover four times.
In 2006 there was an objective to make communications services available to every resident of the country. The tenders were held and they were won by MRK. The companies had a choice: either to hold a tender in order to choose a contractor or to install public telephones independently. Compulink won the tenders in 4 regions. In the frameworks of the universal service Compulink installed over 100 thousand public telephones. The price of one public telephone is 7-10 thousand USD. In 2006 Compulink’s turnover under MSFO was had been 178 mn USD. In 2007 the turnover increased 394% to 880 mn USD.
Each MRK organized public telephones servicing in its own way. Compulink provides outsourcing services to Centrtelecom. Volgatelecom will control the network independently, but the contractor will provide maintenance services. UTK refused outsourcing. And SZT has not decided yet since the installation works are not completed.
According to analysts, public telephones will be repaid in 5 years approximately. The universal service is important since it is a social project and it can’t bring big profit. Now people in remote areas are provided with communications services and in future these communications channels may be extended and Internet access services may be provided. All the funds, spent by MRK on communications channels construction, delivery, maintenance and installation of public telephones, will be compensated from the fund of universal service.

Gars Telecom started providing services of convergent communications
The alternate communications operator Gars Telecom started providing services of convergent fixed-mobile communications (Fixed-Mobile Convergence or FMS) for small and medium business. MegaFon acts as a host-operator. MTS creates convergence solutions as well. The company intends to start FMS service in 9 largest cities of Russia.
The new solution of Gars Telecom, named Mobile Office, is intended for companies with staff under 200 people. The operator offers customers a unified local number, united with mobile numbers in the frameworks of the corporate network.
Currently the service launch costs less than 100 000 USD. The operator has already introduced the solution in 4 Moscow companies, the names of which are not disclosed.
According to analysts, the service will be in demand of a certain segment of small companies, which need mobile communications. At the same time experts note such services are already available in mobile networks and office networks of fixed-line communications.

Technoserv held re-branding
Technoserv A/S has held re-branding, getting rid of the prefix A/S. Grey and yellow colours will become corporate colours of the company. Aleksey Ananyev, Chairman of Techonoserv’s board of advisors, stated in 2009 the company planned to increase its business by 20-25%, including due to acquisition of other market players. Besides, Technoserv does not exclude it may hold an IPO by 2012.
We remind in the beginning of 2008 Technoserv started to realize its 5-year development strategy. The strategy is aimed at the company’s leading position on the market due to two main conditions: knowledge of technologies, provided to customers, and the best knowledge of customer’s specific character.
Over 1H2008 Technoserv’s revenue under RSBU has come to 700 mn USD, 47% growth compared to the previous year. In 2008 the company intends to maintain its revenue growth. The company expects considerable revenue growth in its regional business. Technoserv considers it may hold an IPO by 2012.
Technoserv’s re-branding was held by BBDO Russia group of companies. The re-branding price is not disclosed. According to experts, such projects normally cost few hundreds thousands dollars. The new brand will allow the company to promote its services more aggressively, analysts add.
The company has all chances to realize its prognosis for 2008-2009, analysts believe. The major part of its portfolio is connected with orders big companies, government structures, which on one hand are long-term, and on other hand they haven’t been reduced considerably. Besides, the growth may be caused by the company’s active policy, aimed at absorption of assets in Russia and the CIS. Currently these assets are cheap and they may contribute to the operator’s revenue growth.

Sistema asks for 2 bn USD
AFK Sistema is preparing the application to Vnesheconombank to attract a loan of 2 bn USD for its foreign credits refinancing, according to Vladimir Yevtushenkov. Sistema looks at a number of absorptions in those sectors of economics, where it has been already working. A month ago Sistema’s major shareholder stated that due to the crisis the company had postponed transactions, which had been planned before, in particular the transaction on the acquisition of 50% of sky Link. Now he is more optimistic: “It is obvious we will not buy. The first shock is over, and now we are considering how to live within the restrictions and not to be in the position of self-protection”.
In October Sistema’s management informed in the nearest four quarters (including 3Q2009) Sistema would have to pay off creditors or refinance around 3.1 bn USD. 2Q2009 is the time of the biggest payments (1.37 bn USD). As of the end of July of 2008 Sistema’s own funds came to 1.9 bn USD.
Lawyers remind that according to the resolution, approved by the Vnesheconombank Supervisory Board, the first reason, for which a potential borrower can pretend to this state corporation’s funds is “the threat to economic security of the RF” and the risk of “loss of the borrower’s considerable assets that will cause considerable reduction of its operation on the territory of the RF and will lead to its bankruptcy”. Experts note once VEB Supervisory Board made an exception: it approved the credit of 4.5 bn USD to UC Rusal although according to the rules the amount of the assistance to one borrower can’t exceed 2.5 bn USD.

2. Market Participants

AFK Sistema is planning to introduce MTS brand in India
Shyam Telelink, a Sistema’s subsidiary, is planning to represent MTS brand in India. We note the company’s management’s opinions on the brand introduction are different. The decision has not been made yet. Sistema intends to work out a new brand for Shyam Telelink, instead of using its own “egg” logo. According to the other part of Sistema’s management, they have already considered the plans on Shyam Telelink’s brand withdrawal in order to fasten promotion of MTS brand. We remind currently the position of president of Shyam Telelink is held by Vsevolod Rozanov (former vice president of MTS on finance and investments), who replaced Raymond Armes.
It is necessary to mention that due to financial crisis of the operator the budget for MTS’ entering the Indian market, will be reduced considerably. According to the company, they assigned around 1 bn USD for the development of the programme on networks introduction in India by 2009. The budget reduction will not probably affect the networks introduction.
According to analysts, introduction of the MTS’ “egg” brand in India will bring positive experience and result. In the Indian tales the red egg is a symbol of wealth and plenty. Besides, in crisis conditions such strong logo may become one of the powerful instruments of the struggle with competitors.
According to analysts, reduction of investments in the project may decrease the company’s competitiveness. It is mostly the forced measure under crisis conditions. We remind the Indian market is attractive for cell operators. Sistema possesses a powerful instrument due to which the company can save significant funds without assigning additional money for re-branding..

MTS and Bentalink made franchising agreement
According to the franchising agreement, made by MTS and Betalink, all 650 Betalink’s salons started to be transferred to MTS brand from November 1st. Betalink will not sell contracts of other operators, but it can sell any mobile phones.
Until mid September MTS had been negotiating about acquisition of Euroset’s stake (over 5000 salons). However, the retailing company was acquired by Alexander Mamut, and later his 49.9% of shares were sold to VimpelCom for 226 mn USD. The current franchising agreement will allow MTS not to spend funds on acquisition of a retailing company and not to pay its debts accordingly. The current state of affairs on the financial market is causing more rapid agreements with federal and regional networks. We remind 1700 salons are working under MTS brand now. 500 of them belong to the operator and the rest 1200 salons belong to its partners.
According to the agreement, MTS pays a fixed bonus for its brand promotion and gives a part of the revenue to the retailing company. Betalink will get 3000-3500 USD monthly for each salon and the whole network will bring 1.9-2.3 mn USD a month.
Such decision will lead to increases of MTS’ operational costs, instead of investments, experts say. Analysts agree in the opinion that crisis stimulates the companies’ activity. MTS is in the same position as other market participants since attraction of funds is complicated by the state of affairs in the banking sector.
Analysts consider this agreement as a security measure in the fight with competitors and as a necessity to carry out certain obligations to Apple. The agreement between MTS and Betalink will contribute the development of MTS’ own brand network, analysts also believe.

Telenor: investment in the Indian market
Telenor acquired 60% of the Indian operator Unitech Wireless for 1.1 bn USD. The investment programme of 2 bn USD is planned to last 3 years. The Indian operator will probably start providing services in mid 2009. To assign funds for the programme of the company’s entering the Indian market, the Norwegian government (co-owner of Telenor, possessing 54% of shares) offers to hold additional issue of ordinary shares at 1.8 bn USD. The operator’s shareholders do not approve such actions since their stakes in the company may change. According to the shareholders, there is another way out: reduction of costs, reduction of dividends and sale of some assets.
Analysts agree in the opinion the acquisition of the Indian operator Unitech Wireless by Telenor is not quite reasonable. First, the operator’s networks only cover 22 states of the country in contrast to Sistema’s Shyam Telelink, which covers all the country. Thus, Unitech Wireless is less competitive that Shyam Telelink. Besides, currently it is difficult to speak of positive EBITDA since such prognosis is rather risky in crisis conditions, experts note.
Experts’ opinions on increase of investments due to additional issue of shares are different. Some of them say under crisis conditions it is the only way to obtain funds. According to others, additional issue of ordinary shares will change the stakes of the operator’s shareholders. It is not a logical measure under crisis conditions when companies devalue. The amount, which Telenor intends to assign for networks development in India, is not big. 2 bn USD for 3 years will not provide effective and fast development of the network on the Indian market. Such funds are insufficient especially if Telenor is planning to compete with Sistema and its Western “colleagues”.

Rostelecom confirmed new strategy of the company’s development

Rostelecom’s authorities confirmed the strategy for 2009-2013, which implies assignment of funds of RUB 82.3 bn in order to become a universal operator. According to the company’s prognosis, in 2013 its revenue will come to RUB 160.8 bn, OIBDA will be RUB 48.1 bn. Rostelecom is going to achieve such results due to its network construction, increase of services range and cooperation with Svyazinvest’s interregional companies, acquisition of companies in Russia, the CIS and South-Eastern Asia.
According to the company, it will spend on ROUB 30-46.7 bn on companies’ acquisition. The plan was confirmed for several reasons. The first reason is slowing down of the company’s growth and secondly, it is growth of competition. So, the company’s revenue from LD communications reduced to RUB 22.476 bn and the operator’s share on the market of private users decreased from 84% to 60%. In the end of June Rostelecom possessed RUB 2.53 bn of free money, according to the company’s report.
The company intends to solve the problem of growth rates slowing down due to development of new regions and provision of new services. So, Rostelecom is planning to provide services of broadband Internet access in 35 biggest cities of Russia, using Ethernet instead of DSL. The new strategy was initiated by Svyazinvest and its minority shareholder AFK Sistema. Broadband Internet access services are not developed in regions. Thus, Rostelecom and MRK will be able to increase their shares, not competing with each other.
Analysts have different opinions on Rostelecom’s strategy efficiency. The company expects it will increase funds due to services of wireless communications. In this case the company may face additional costs and it will be difficult to obtain free funds under crisis conditions. Another factor is strong competition on the market. According to other experts, Rostelecom’s plan may be realized since the operator possesses the developed infrastructure and the government support.
Thus, Rostelecom’s strategy is very complex. However, it may be realized. The operator is looking for alternate ways of development under current crisis conditions that is quite logical, experts say.

Synterra reported for 9 month
Synterra summed up for 9 months. The company’s revenue came to RUB 5.322 bn. Net income under RSBU is RUB 2.136 bn. OIBDA has increased 26% to RUB 2.887 bn. The company’s revenue from data communications services and broadband Internet access services has increased as well. In 3Q2008 its growth was 80%. The revenue also increased due to services of data processing centres. The revenue growth is the result of the company’s emphasis on the development in regions and attraction of powerful clients.
According to analysts, Synterra’s annual results are impressive. The company’s success is the result of the advanced technologies use for services providing and the staff reduction. The company provides profitable services, the recoupment period of which is very short. The company’s stable position is also provided by government contracts that prevent a problem of non-payment, experts add.
So, analysts agree Synterra has good outlooks of development. Such results have been achieved by the company due to the state support, the company’s competent management, high quality of provided services and the timely reaction of the managerial staff on the financial crisis.

Svyazinvest is planning consolidation
By the end of November Svyazinvest’s authorities are planning to work out the company’s development strategy. According to one of the scenarios, the holding is considering a possibility of its companies’ consolidation into a united federal operator. The new strategy will be submitted to the holding’s Board of directors in 1Q2009.
We remind the possibility of the company’s (75% - 1 share belong to the state) privatization and reorganization has been already considering by the government departments for a long time. According to the company’s authorities, Svyazinvest can be only a centre of the consolidation. However, the company’s authorities do not conceal there are other scenarios of the holding’s development. They also take into account financial and economic crisis overseas and in Russia. The strategy project will be ready by the end of November of 2008. Representatives of AFK Sistema, shareholders of Rostelecom, representatives of KIT Finance bank and minority shareholders of MRK are engaged in the project’s working out. The holding’s Board of directors must be created by the end of 2008 and the strategy will be submitted for its consideration.
The development strategy working out was expected, analysts say. However, experts have different opinions on the possible consolidation of the holding. They agree the consolidation is profitable from operational point of view since it will allow the company to obtain investments and to save money due to its large scale. However, the holding’s structure will certainly become more complicated: bureaucratic obstacles will appear and solving the problems of regions will be more complicated due to the long managerial chain.
On the whole we note that despite Svyazinvest’s development strategy analysts are not ready to make prognosis on the holding’s development. It is caused by absence of the owner’s efficient position regarding the asset.

Rambler published its statements for 9 months of 2008
Rambler published its non-audited financial and operating results for 3Q2008 and for 9 months of 2008. The company’s revenue has grown 114% y.o.y. to 80.1 mn USD, EBITDA profitability has increased from 8% to 18.7 % and EBITDA has become almost five times as much (14.97 mn USD). The company’s management speaks of “considerable slowing down of advertising costs in all sectors in Russia, especially since the last fortnight of October”, and of “reduction of contracts for advertising campaigns”. The banner advertising has suffered most of all, Rambler’s management adds.
Rambler’s statements have been assessed positively by analysts that evaluate the results for 9 months of 2008 as “good” and “strong”. They emphasize the considerable growth of the consolidated revenue, caused, according to analysts, by the growth in the number of users, open pages, retrieval requests, etc. Experts have different opinions on the company’s results in 4Q2008 due to the crisis. According to some of them, the Internet advertising segment is flexible enough to avoid negative influence. However, the crisis is already affecting financial results and the company’s results will slow down, others note.
Rambler will remain one of the key players in the Internet advertising segment. However, in order to improve its results under crisis conditions the company will continue reducing its costs, in particular, staff reduction is probable as well as reduction of some projects.

Rostelecom is getting universal
Rostelecom intends to become a universal operator of communications. According to the company’s development strategy till 2013, the company is planning to increase its geographical and innovative expansion and to strengthen its positions in those segments of the market, in which it is rather weak. In particular, Rostelecom intends to enter the market of broadband Internet access for private users.

The main directions of the company’s strategic development till 2012 were declared by the company in the summer. They include transformation into a united operator of Svyazinvest, entering the market of broadband access for population and overseas expansion. The company’s strategy also implies increase of the company’s geographical presence due to networks construction and partnership programmes, innovative services creation and improvement of servicing, interaction with MRK.
As a result of the strategy realization, by 2013 Rostelecom intends to take 15% of the retailing market of broadband access in 35 cities of Russia. According to the company’s prognosis, by 2013 its revenue from broadband access services to population will come to RUB 4.3 bn. In total Rostelecom is planning to obtain the revenue of RUB 168.7 bn by 2013.
According to analysts, the declared strategy of Rostelecom is a bit contradictory since it is linked to the vague future of Svyazinvest. Actually Rostelecom’s plans on entering the market of private users imply inevitable competition with MRK that is unacceptable in the holding’s view. The major elements of the strategy may be reconsidered in case the plans on Svyazinvest’s consolidation are realized. Thus, the document may be considered as temporal. However, Rostelecom’s wish to enter the market of private users is quite logical, analysts note. The company possesses the own IP-network and access to high-level providers. Broadband access solutions are cheap and the company may start this project easily on the federal level. Besides, financial crisis may make small and medium companies sell their assets. According to analysts, Rostelecom’s business depends a lot on transit relations between operators. To solve this problem Rostelecom has to become a universal operator.
One of the objectives of MRK’s and Rostelecom’s strategies is to consolidate positive items and to offer a user a package of services.
Comstar will do without credits
Comstar-UTS is planning to manage without credits next year, maintaining its capital costs at the level of 2008. At that the operator intends to acquire regional assets since they will cheapen by the end of 2009. The company suspended the programme of Eurobonds, they had intended to start in 2009. At that in 2009 CAPEX will remain at the level of 2008 – 360 mn USD approximately.
Under crisis conditions the company will be reducing its cost intensively. The operator also turns to address sale model that will allow to reduce marketing and advertising costs. MGTS brings the company over 60% of the revenue. The company’s management does not fear for the traffic drop as over 50% of subscribers use unlimited tariffs. According to MGTS experience of 1998, no one refused to use fixed-line communications.
Experts remind by the end of 2009 cheap assets will appear in the regions and purchasers with stable money flow will have an advantage. Big players of the market do not disclose whether they will increase their costs for acquisitions next year, referring they have not confirmed the budget for 2009 yet.

MegaFon is planning to enter the Syrian market
MegaFon is interested in the Syrian market. The company’s interest is confirmed indirectly by representative of the Communications Ministry. MegaFon’s management does not disclose any information about entering the Syrian market. However, according to experts, MegaFon is also considering a possibility of entering the markets of two neighbour countries – Lebanon and Jordan.
We note in Iran as well as in Syria MegaFon will have to compete with the South African cell holding MTN: in Iran it is a foreign investor of Irancell and in Syria it owns a mobile operator MTN Syria.
Analysts remind the population of Syria is around 18 mn people. Cell communications penetration does not exceed 40 %. The cell market is divided between two companies: MTN Syria (included in MTN Group – the operator in 21 African countries) and Syriatel (69% of shares belong to Rami Makhlouf, a cousin of Syrian president Bashar Assad). The state monopolist of fixed-line communications in Syria and simultaneously the major telecommunications regulator Syrian Telecommunications Establishment (STE) promised to substitute the permit for cell communications services provision, given to MTN Syria and Syriatel for licenses with 15-year period of validity in 2008-2009. Besides, STE is planning to choose a company, that will obtain the country’s 3rd GSM license.
Rostechnologii acquired WiMAX Holding Ltd
The state-owned corporation Rostehnologii has become an owner of the shareholding (25.1%) of the Cyprian company WiMAX Holding Ltd. The company’s main asset is Scartel. In the early autumn of 2008 Scartel launched mobile WiMAX networks under the brand Yota in Moscow and St. Petersburg.
After the acquisition of WiMAX Holding Ltd by Rostehnologii the stake of the former single shareholder of this Cyprian offshore company, the fund Telconet Capital Limited Partnership, reduced to 74.9%. The fund’s beneficiaries are unknown and Scartel does not disclose their names.
According to the official information, the state-owned corporation had possessed an option for redemption of shares of WiMAX Holding Ltd since the moment of Scartel’s foundation in May 2007 and the option term was over on November 1st of 2008. How Rostechnologii obtained the option is not disclosed by the parties. However, the federal law on Rostehnologii’s creation was only signed by the RF President Vladimir Putin on November 23rd 2007, six months after the declared option agreement had appeared.
The option terms, according to which Rostehnologii obtained a right to acquire the blocking shareholding of WiMAX Holding Ltd as well as the amount of the transaction are unknown.
We remind in September of 2008, when Scartel first announced its programme of wireless mobile WiMAX networks development in Russia, the investments in the project were 300 mn USD by the end of 2008, 200 mn USD of which had been already drawn..
According to experts, director general of Rostehnologii Sergey Chemizov was involved in the Scartel’s creation through the controlled structures from the beginning. Before the appointment for the position of director general of Rostehnologii in November f 2007 Sergey Chemizov had worked in FGUP Rosoboronexport: in 2002-2004 he was 1st deputy director general of the enterprise and on April 28th he was appointed director general. According to the transaction terms, to make a final decision about exercising the option Rostehnologii was evaluating WiMAX Holding Ltd for 18 months. The company was evaluated according to its ability to realize plans, staff qualification and professional skills, the condition of the infrastructure on Mobile WiMAX technology in Moscow and St. Petersburg, preparedness of the company for sales and services provision to subscribers and the company’s corporate management principles.
Microsoft will sell Office activation key through OSMP
Microsoft corporation made the contract with the company “United System of Electronic Payments” (OSMP), working under Qiwi brand. At the first stage of the cooperation Microsoft will sell activation keys for Microsoft Office 2007 through Qiwi terminals. A key will cost RUB 1 000. In case of the project success Microsoft intends to sell its other products for Windows through Qiwi terminals.
To receive an activation key a user must choose “Microsoft Office for home and studying 2007” in the electronic menu of a terminal, input a mobile phone number and pay in and then he will receive SMS with an activation key.
According to analysts, it is not only the first experience of Microsoft in Russian but in the world as well. The project with OSMP is considered as pilot in Russia and across the world. The company intends to sell its other products for Windows through OSMP terminals not only in Russia, but in the CIS, India and China. For the present it is difficult to evaluate how many consumers of Microsoft Office will pay for software through terminals. According to analysts, next year OSMP and Microsoft are planning to start the joint programme on support of the service Widows Live ID – a unified login and password for entering all Windows Live services, providing various communication and entertaining services on-line. Soon users will be able to receive mail from Qiwi They will use all Live ID services and users of Live ID will be able to use all services of Qiwi. Experts agree in the opinion the Microsoft and Qiwi’s joint service will be in demand.

Central Telegraph introduced its statements

Over 9 months of 2008 CT’s net income under RSBU has decreased 3.5% to RUB 208.5 mn. Svyazinvest, owning the asset, is discussing the possibility of CT’s consolidation into one of the subsidiaries. Revenue of CT has increased from RUB 2.347 bn to RUB 2.546 bn. The company’s cost price has increased to RUB 2.057 bn.
The situation on the market of new buildings in Moscow and the Moscow region allows the company to assess its position positively. Taking into account the company’s plans on its own broadband access networks construction in the Moscow region, the operator’s cooperation with building companies, which work in Moscow and the Moscow region, and the demand for its services from residents, Central Telecom may expect for its subscriber base increase.
According to analysts, Centertelecom and Rostelecom are the most probable purchasers of CT. Centertelecom’s interest is quite clear since the companies work on similar markets. And Rostelecom declared it intended to become a universal operator. According to its development strategy by 2013 the company is planning to increase its geographical and innovative expansion and to strengthen its positions in those segment where it is weak at present. For Rostelecom CT is an important element of the operator’s strategy regarding entering the market of private users. According to experts, Rostelecom may only acquire CT in 2H2009. Analysts agree in the opinion CT has constructed a powerful network on one of the most complex markets of Russia – in Moscow. Each of Svyazinvest’s subsidiaries is interested in CT’s acquisition. However, the holding’s authorities have not decided yet which of its companies will acquire CT.

MTT has introduced a new tariff for private users
MTT has introduced a new tariff for private users , using the operator’s services in pre-select regime. All domestic calls inside MTT network will cost RUB 1.5 per minute. Previously intranetwork tariffs were only used by cell companies. The new tariff plan is available to subscribers, that made a contract for DLD/ILD services provision (pre-select regime) with MTT or MTT’s representative from November 1st of 2008 to April 30th of 2009.
Despite lack of direct access to most subscribers of MRK as an operator of long-distance communications, MTT does not reduce its marketing activity even after Svyazinvest rejected the operator’s plans on introduction of automatic hot-choice regime launch for private users. Previously intranetwork tariffs were only used by cell companies. Besides, within 2008 all Big 3 operators have introduced favourable intranetwork tariffs for DLD services. In particular, in VimpelCom intranetwork domestic call costs RUB 1 per minute. MTS and MegaFon offer DLD intranetwork services for RUB 1.3-3 per minute. By the way MTT noted it would analyze cell operators’ experience in this filed.
According to experts, the company’s offer corresponds with the strategy of providing high quality communications services at favourable prices.

Yota has started selling WiMAX equipment
The WiMAX operator Scartel, working under Yota brand in Russia, has started selling WiMAX equipment in communications salons. At that the company has postponed the launch of WiMAX network in Moscow and St. Petersburg till March 31st of 2009. WiMAX networks in both capital cities were initially planned to be launched by the end of 2008. Comstar-UTS, Scartel’s competitor on the market of mobile WiMAX has not changed the terms of the network launch. Postponing was caused by insufficient signal quality in Moscow and St. Petersburg. On November 1st of 2008 Scartel started selling equipment for WiMAX networks users. Clients, acquiring Yota terminals, will be able to use free services of Internet access till April 1st of 2009. When the company announced its mobile WiMAX network launch, its representative promised to put the network into operation in 2008. However, the technology is new and it probably needs completion so the network will be launched in the beginning of 2009 and in 2009 it may be only tested by subscribers.
According to analysts, the delay in the network launch is the result of Scartel’s problems when registering base stations. The operator redeemed companies, possessing WiMAX frequencies in Moscow and St. Petersburg, not caring for where the network’s sites would be disposed, and currently the company is settling these problems.
3. Tension Lines

Sky Link is looking for ways out from crisis
Sky Link has accepted a new conception of the way out from the current crisis for 2008. The Strategy Balance implies equalization of revenues from data communications services and voice services, creation of tariff plans, stimulating subscribers to use data communications services and voice services. Besides, Sky Link is planning to introduce a sufficient number of terminals to meet subscribers’ needs in voice services and data communications services. By 2009 the company is planning to launch a GSM network, the license for which was received by Sky Link last year.
We remind over 9 months of 2008 the company’s revenue has come to 268 mn USD and according to the operator’s prognosis, its income will increase to 380 mn USD by the end of the year. Crisis in Sky Link is mostly caused by the operator’s debt to its shareholders. The debt to banks is insignificant.
Sky Link is planning GSM networks launch in regions. Krasnodar will become the first region where the network will be launched by the end of 2009. By the end the period of validity of the operator’s license is over so Sky Link will have to launch GSM networks in most regions.
Analysts have different opinions on the operator’s way out of the crisis. According to some of them, the offered scheme is rather realistic since the operator focuses on its internal resources. However, Sky Link’s future is undecided since personnel changes are planned in the company and the operator may also be integrated into AFK Sistema, other experts note.
Sky Link’s strategy may be effective, analysts say. However, it is necessary to take into account crisis conditions in the country when the company’s plans may fail. Sky Link is the only Russia’s company, using CDMA. The problem of GSM networks launch is also doubtful. It may be possible due to obtaining additional funds, experts say.

Svyaznoy has to pay RUB 2.7 bn to the state

The 9th Arbitration Court of Appeal recognized the claims of RUB 2.7 bn of the Federal Tax Service against CJSC Svyaznoy. The court also recognized additional RUB 19 mn of taxes in comparison with the verdict of the court of the first instance.
The additional taxes are the result of 16 inspections for 2004-2006, held last year. According to tax officials, Svyaznoy had paid for its goods through short-lived companies, such as Telecom Profi or Trans Product. According to the documents, these companies were independent, but they were under Svyaznoy’s control that allowed the company to overprice goods, tax officials say.
After the appeal the verdict is coming into force.
Currently Svyaznoy is bankrupt; as of May of 2008 its property value was RUB 23.3 mn. According to the claims, CJSC Svyaznoy’ debt is around RUB 2.8 bn to its partners and the debt to the company is RUB 2.546 bn. The tax officials are going to try to call the companies of the Svyaznoy group to subsidiary liability.
According to analysts, if 9th Arbitration Court made such a decision, the company had not had serious proofs. Theoretically the company can appeal. The appeal may be favourable for the company since it may gain time while the verdict is being considered in three instances.

VimpelCom’s shares seizure prevented their transfer to the Deutsche Bank

The 8th Arbitration Court of Appeal has seized VimpelCom’s shares, which belong to Altimo and Telenor. The motion was made by Farimex Products Limited, owning 0.002% of VimpelCom. These situation is quite favourable for Alfa Group (Altimo’s mother company) since in the nearest time it will not have to give the pledged shareholding of VimpelCom to the Deutsche Bank.
We remind in spring 2008 VimpelCom’s shareholders were accused by Farimex Products of preventing VimpelCom to enter the Ukrainian market. Farimex Products assessed the loss at 5.7 bn USD and brought a suit to the Arbitration Court of the Khanti-Mansiisk Autonomous Region (AR). According to the court decision, Telenor would have to pay costs of RUB 460 000 and the claim of 2.8 bn USD. Telenor filed an appeal against the claim and the decision was made. We note Altimo was not involved in the case, though it will contest the seizure. Farimex went to the law because of the fear that a new VimpelCom’s owner would appear and the trail course could be changed.
Telenor is concerned about links between Farimex and Alfa. The conflict is favourable for Alfa Group. The pledged shares of VimpelCom at 2 bn USD are now in the Deutsche Bank (the London branch bank). By the end of October the amount of the loan reduced to 75.58% of the pledge since VimpelCom’s ADR price decreased to 10.08 USD. According to the contract, Alfa is to pay off the debt in advance or to give VimpelCom’s shares in case the company’s capitalization is 75% lower than it was when the bonded debt was placed, within 5 days.
According to experts, Altimo will make all efforts not to lose VimpelCom. Besides, the trial, started by Farimex, is favourable for the cell operator since its shares will not been given to the Deutsche bank. The situation was initiated by Alfa Group, analysts believe.
The connection between Farimex and Alfa Bank is obvious, experts resume. The current situation discloses the main problem of VimpelCom’s major shareholders that is fight for the operator’s shareholding.

Vnesheconombank (VEB) will help Alfa to pay off two credits
Due to Alfa’s financial problems the Norwegian Telenor wanted to redeem Alfa’s stake in Kievstar for money (the amount is not disclosed) and stop the conflict between the shareholders. However, Telenor’s plans failed since Alfa had already agreed with VEB that it would help the company to settle its financial problems.
Altimo (Alfa’s telecoms asset) and Telenor have been already discussing variants of breaking up for a long period of time. The conflict was caused by VimpelCom’s entering the Ukrainian market: in 2005 Altimo approved VimpelCom’s purchase of the Ukrainian Radio Systems for 231.3 mn USD and Telenor did not agree with this. Then the conflict applied to Kievstar. Altimo’s representatives stopped attending meetings of the operator’s shareholders and since 2005 the operator has had neither its Board of directors nor its confirmed statements and Telenor has not been able to consolidate the Ukrainian subsidiary in its statement within a certain period of time. Tens of claims were filed within the conflict.
After Alfa could lose its stake in VimpelCom, Telenor offered to redeem 43.5% of Kievstar. In fact the whole Alfa’s shareholding (44% of voting shares) was pledged as the security for two credits from the Deutsche Bank (DB) 1.5 bn USD and 500 mn USD. Since VimpelCom’s shares have dropped dramatically, the value of the pledge has decreased, so DB could demand of Alfa to pay off the biggest of the two credits.
According to analysts, Alfa’s actions are strategically justified. It is not logical for Alfa to sell “a strong asset” under crisis conditions, when its value is lower. The crisis will be over and maintaining the positions on the Ukrainian market will provide stable money flow in future. The transaction may be realized just after the situation on financial market becomes more stable, experts add.
It is hard for experts to speak of the conflict settling. The parties are not ready to accept each other’s conditions yet. The refusal to sell Kievstar’s shareholding evidences it.

Payment agents offered amendments to the Law

The payment system Quickpay sent the open letter to RF President Dmitry Medvedev, requesting to reconsider the clauses of the bill “On Activity on Payment Reception from People, Held by Payment Agents” that regulates payment reception from private users. First of all it concerns the clause about the compulsory contract between a bank and a payment agent for obtaining the bank guarantee or insurance of RUB 5 mn. In Quickpay they note it is a tough measure since companies with small turnover will not obtain any guarantee from the bank. They also note that small companies will not be able to afford controlling and cash equipment, which is to be introduced. We note currently 70% of companies, engaged in the business of payment systems, are small. The annual turnover is 15.5 bn USD. Quickpay offers to control payment systems instead of agents.
Companies of the market of payment terminals are not pleased with the bill. The bill introduces new requirements such as delivery of information about a payment agent, a compulsory bill with all necessary information to a user, installation of special fiscal equipment. The market participants have different opinions on the bill. On one hand it implies regulating and transparency of operations. On other hand small enterprises will not meet competition, and as a result they will not be able to survive on the market. In the frameworks of the government programme on support of small and medium business such measure contradicts the decisions. (06/10/2008).
Some analysts speak of healthy competition on the market of payment systems. The new law will obliterate it as strong players will appear. The system will be monopolized. According to others, the legislation will prevent financial and tax frauds, regulate the market, making it transparent, and protect consumers’ rights.
If the bill is approved, the market of payment services will become more expensive, experts note. It will become unprofitable for small companies and lead to their bankruptcy. However, some experts say monopolization is necessary for the market of instant payments since it is impossible to control numerous small enterprises. The regulator should take into account the market participants’ opinion, analysts say. The companies’ demands are quite reasonable, including those, concerning the control over payment systems instead of agents.

Angstrem was left by its authorities
Director general of one of the leading Russia’s producers of microelectronics, Vsevolod Vukolov resigned from his position. He was followed by the team of managers, created by him. The reasons are not disclosed. Alexander Lubimtsev, director on finance and economics, is acting as director general of the company.
We remind, in June 2008 Vsevolod Vukolov was appointed director general of Angstrem. Previously he had been holding leading positions in the government.
After he had come to Angstrem he created his team of top managers, who were from the government structures as well. So, Aleksey Sokolov (head of the Department for Development of Economics Sectors in the former Ministry of Economic Development and Trade) took the position of deputy director general. Viktor Prokopenko was appointed director on relations with the government bodies. Mikhail Ivankov was appointed director on organizational development and personnel management of the company.
In spring 2008 the company was given the credit of 815 mn euro by Vnesheconombank, which was planned to be spent on the equipment for 0.13 mcm chips production. After top-managers’ quit all the plans remain in force, including the plan on a new enterprise construction.
According to analysts, the resignations may be caused by internal problems in the company as well as by the company’s shareholders’ discontent with the authorities. Perhaps, the managers did not cope with their objectives, other analysts say. Besides, the resignations could be also connected with the forthcoming change of shareholders.
Thus, Vuklov and his team’s quit will not affect Angsterm’s development plans, experts believe.

Altimo accused Telenor of divulgence of a trade secret
Altimo, a subsidiary of Alfa Group, accused Telenor of illegal actions, in particular, of divulgence a trade secret and shadowing the shareholders, divulgence of confidential information. The Russian company wrote a letter to the Norwegian partner in order to investigate Telenor’s actions. At that Altimo asked to examine the received evidence, expecting for further relationships, complying with ethical and legal requirements. We note these accusations imply 20-year imprisonment, according to the legislation.
According to Altimo, they have evidence of Telenor’s guilt: recorded calls, employees’ correspondence. This information was obtained from non-public sources. Besides, they are sure Telenor used services of detective agencies to shadow the company’s authorities. Telenor also published sponsored articles in mass media to blacken the Russian operator and tried to undermine the activity of Altimo’s advisory council, Altimo’s representatives add. Telenor denied all the accusations, noting they had been trumped up and the evidence had been forged. According to Telenor’s authorities, Altimo tries to draw away attention from the planned hearing on the Farimex case.
We remind in 2008 the companies started bringing charges against each other. So, Telenor accused Alfa Group of participation in the vanish of MegaFon’s head Lenid Rozhetskin. Altimo in its turn asserted the Norwegian partner had organized shadowing Mikhail Fridman and Petr Aven in the USA.
Analysts agree in the opinion the accusations, brought by Altimo against Telenor are not quite grounded. Besides, in the protracted conflict between the two companies, Altimo’s actions resemble black PR instead of real claims. Altimo tries to flatter itself, discrediting its opponent, experts say. The conflict between Altimo and Telenor will last for a long time, analysts add.

Betalink is terminating the contract with VimpelCom.
Director general of Betalink sent a letter to VimpelCom’s authorities, declaring that the cell retailing company was stopping providing services on reception of payments to the cell operator. The contract was terminated unilaterally. We note Betalink and MTS have singed a franchise agreement, according to which the retailing company starts working under MTS brand and is obliged to stop proving services to competitors.
VimpleCom in its turn has prohibited to receive payments from Betalink since Bee Line’s subscribers may become subscribers of MTS. We note VimpelCom received RUB 50 mn from Betalink every month. According to Betalink’s authorities, even after the contract was terminated it could receive payments. However, Bee Line has not lost much since it possesses 250 000 salons and recently acquired Euroset, 49.9% of which belong to the operator.
VimpelCom is an operator of mobile and fixed-line communications, the shareholders of which are Altimo (44%), Telenor (29.9%) and the rest 24.5% are in free circulation.
According to experts, the breakup of relations between Betalink and VimpelCom is the respond to MTS for the franchise agreement with the retailing company. Betalink only wins nothing in this situation, experts say. VimpelCom’s competitiveness will not be affected by the breakup since the operator may regulate its sales due to recently acquired Euroset and Svyaznoy.

Rossvyazkomnadzor settled the conflict between Synterra and MGTS
Rossvyazkomnadzor has declared legitimate MegaFon’s traffic disconnection by Synterra. However, they note the conflict should be settled by means of civilized way. In case the problem is not settled, the company, providing services of traffic transit, must inform the regulator about the problem since traffic disconnection is impossible without a permit of the corresponding bodies. Synterra is going to appeal this decision.
According to MGTS, the contract, made between the company and Synterra, did not imply cell operators’ traffic transit. The payment for use of MGTS traffic is more expensive fro cell operators, then for operators of fixed-line communications. So, MGTS received less income from provided services. The disconnection is mostly a result of non-observance of legal norms, as Synterra’s debts to MGTS are no more than RUB 400 000.
We remind in July 2008 MGTS disconnected transit of Vimpelcom’s, Sky Link’s SMATRS’ and Uralsvyazinform’s traffics through Synterra unilaterally. At that Synterra could use services of MGTS.
Analysts agree in the opinion, Rossvyazkomnadzor’s decision is quite reasonable. The regulator recommended how the conflict may be settled. MGTS had to inform Synterra about the disconnection. Such conflicts are the result of the legislative base’s imperfection.

The State Department for Internal Affairs (GUVD) is against second sales of mobile phones
GUVD of Moscow has offered to prohibit second sales of mobiles. According to the law-enforcement bodies, such measure may prevent thefts of mobile phones. Stolen mobiles are mostly resold (3520 thefts in 2008). The prohibition to acquire already used mobiles will decrease the number of thefts, GUVD’s authorities believe. They have also offered to prohibit sales of mobile phones on markets, near the underground and in kiosks.
We remind in October 2008 the Committee on Information Policy ad IT of State Duma started to work up a new bill on illegal redemption of mobile phones.
Analysts agree in the opinion, GUVD’s initiative will be ineffective due to several reasons. Firstly, there is a large network of illegal channels, through which mobile phones are redeemed. Secondly, such measure will not prevent thefts. Besides, the prohibition of second sale of mobile phones contradicts the current legislation.

It will be possible to pay debts through Internet or with a mobile phone
In the nearest time court officers are planning to simplify the process of debts payment. A fine or alimony can be paid through special electronic terminals and cash dispensers, through Internet and with a mobile phone. Officers will create a list of debtors, connected to the banking system. After a fine is paid a debtor should only enter the electronic system.
Maximal amount of a debt is RUB 20 000. Citizens only have a right to pay in such a way. Legal entities must pay through bank offices.
The pilot programme will be started in the Chelyabinsk region. Reception of debts payments has been already connected to the new system, named Gorod, in Chelyabinsk and Zlatoust. Soon this service will appear in Kopeisk. And in the nearest future other residents of the region will be able to use this service.
Many debtors are prevented by long queues in banks, office hours and complicacies of details search and filling. The new service is intended for such people.

Euroset has paid off its debt to Motiv
Euroset has paid off its debt to the Ural cell operator Motiv. As a result Motiv will not file a claim about the debt, but they do not intend to renew cooperation with Euroset. We remind the problem appeared on October 16th 2008 when the Ural operator broke up the contract with the retailing company, debarring Euroset to receive payments from its subscribers. As of October 16th of 2008 Euroset’s debt was several millions roubles.
The debt payment of Euroset does not mean renewal of cooperation between the companies. Motiv’s subscribers can pay for services in other cell retailing companies and through terminals. The share of Motiv’s subscribers’ payments in Euroset is only 0.1%.
Analysts remind that despite Motiv broke up the contract unilaterally, Euroset continues receiving payments from its subscribers. At that, Motiv was the only operator, subscribers of which could pay for communications services in Euroset’s salons without a commission fee. After the breakup Motiv’s subscribers can only pay through terminals in Euroset’s salons with 3% commission fee.

Intel requested to re-register brands
In October Intel brought two petitions to the Chamber on Patent Contests of Rospatent. Requesting to re-register SCS Sovintel and Sovintel brands to it. Currently both brands belong to SCS Sovintel, a subsidiary of Golden Telecom, 100% of which were acquired by VimpelCom. The session of the Chamber’s board is scheduled to June 2009.
Sovintel brand resembles the well-known Intel brand. Sovintel brand is not used actually now, but its registration has not been cancelled.
According to analysts, brands may be considered resembling when they concern similar goods or services. Intel may only stop the operation of Sovintel brand for those goods and services, which resemble Intel’s goods and services.

Big 3 have not come to the agreement with the Ministry of Defense.

Big 3 operators have not managed to come to the agreement with the Ministry of Defense about the full-scale launch of 3G networks in Moscow. However, 3G will probably appear in the Moscow underground and inside buildings soon.
We remind MTS, VimpelCom and MegaFon obtained 3G licenses over a year ago. By November of 2008 the operators put 3G networks in operation in 17 regions. MegaFon, first launching 3G network in St. Petersburg in October of 2007, provides 3G services in 10 regions (MTS - 6 regions, VimpelCom – 8 regions).
3G networks development in Moscow is prevented for lack of 2.1 GHz frequencies, which are used by the military. The operators cannot negotiate with the release or joint use of these frequencies with the Ministry of Defense.
Currently Big3 operators are developing EDGE networks in the Moscow underground. The networks will allow to communicate data with the speed 2-3 times as higher. By 2011 the investments in the project on the Moscow underground coverage will come to around 100 mn USD.
The joint tests in the underground and buildings will be held by the operators and the military in November. The results will be known by the end of 2008. 3G services in the underground will be popular, experts note. A lot of Moscow residents get to work by the underground and the possibility to look over e-mail, news will be in demand.

Rossvyazkomnadzor and FAS postponed their reconciliation
The Arbitration Court of Moscow have postponed making the consent decree between Rossvyazkomnadzor and FAS, contesting the results of GSM tenders in the Far East and Siberia, to December 2008.
We remind the GSM tenders in the Far East and Siberia were held in summer 2007 according to the conditions, worked out by the Federal Agency of Communications. The tenders’ results were a surprise for the market participants: most licenses had been obtained by Summa Telecom, having no experience of work in the communications sector. The company obtained 13 licenses for work in 11 regions. The cell operator VimpelCom only obtained licenses for work in 3 regions: the Magadan region, the Jewish Autonomous region and Koryakia Autonomous region. Meanwhile the right to hold tenders for frequencies was transferred from Rossvyaz to Rossvyazohrankultura. As a result in other federal region favourites changed: Summa Telecom obtained nothing, and licenses were obtained by Sky Link and Tele2.
These events caused a number of litigations, initiated by Summa Telecom, VimpelCom and FAS. After VimpelCom’s complaint FAS declared invalid the results of the tenders. Rossvyaz filed a counter-claim against FAS and in January the Arbitration court of Moscow declared the department’s decision invalid. However, FAS managed to appeal the verdict.
The companies do not comment the situation until the hearings are terminated. Summa Telecom has not started constructing its network in the Far East and Siberia so far. FAS and Rossvyazkomnadzor submitted the solicitation that the tender participants must be involved in the hearings since many of them invested funds in networks creation and development. it would be inadmissible to take decisions without participation of the companies. It may cause organizational and economic consequences.

The merger of Svyaznoy and Cifrograd is doubtful
The transaction, within which Svyaznoy would absorb Cifrograd and then sell 30% of its share to the group of investors with VTB capital representatives, is held up. The plans on the merger of Svyaznoy and Cifrograd became known in October just after Alexander Mamut had agreed about the acquisition of 100% of the biggest Russia’ s cell retailing company Euroset (in the end of October he completed the transaction and sold 49.9% of the company to VimpelCom for 226 mn USD). It was planned primarily Svyaznoy would redeem 100% of Cifrograd and then 30% of the acquired company would be purchased by the group of investors, consisting of the former shareholders of Cifrograd and VTB Capital bank. However, at present the negotiations are suspended.
According to the source, close to Cifrograd’s shareholders, the company’s owners received alternative offers from MTS and MegaFon.
In September 25% of Cifrograd were sold to the group of investors (including the banker Dmitry Ivanter) for no more than 16.7 mn USD. Thus, the whole network was assessed at 66.8 mn USD by the purchasers.
According to analysts, the fair value of Svyaznoy may be assessed at 5-6 EBITDA for the last 12 months, i.e. 350-480 mn USD. However, such price will be hardly paid in current conditions, experts note. At that experts say it is not so probable that MTS and MegaFon are actually interested in the acquisition of Cifrograd or Svyaznoy: they would have to spend the funds on the companies’ debts restructuring. It is more profitable for the operators to make agreements with retailing companies, which provided them with a guaranteed share in contracts sales. MTS made such an agreement with Svyaznoy a month ago. In such cases an operator pays a retailing company a monthly bonus of 2000-5000 USD for a salon, analysts say. So, the annual agreement with Svyaznoy may cost 42.5-106 mn USD for MTS. Such agreement costs 10-70 mn USD annually for operators, depending on the retailing company’s size.

The Ministry of Communications is delaying the preparation of frequency-territorial plan
Within 6-8 months the Communications Ministry intends to submit the frequency-territorial plan for digital TV introduction. Currently the Ministry’s representatives are working out the document. The draft project needs serious correction, especially where it concerns release of frequencies. We remind the frequency-territorial plan would have to be developed by the end of 1H2008. However, the document is still being worked out.
According to the international plan of radio frequencies distribution, Russia must start realizing its frequency-territorial plan in 2009. By 2015 these works must be completed.
RF President Dmitry Medvedev was dissatisfied repeatedly with the officials’ slow work on digital TV and radio broadcasting development. However, according to representatives of the departments, the government concept of digital TV and radio broadcasting development by 2015, confirmed last year, will be realized in time.
So, in July 2008 at the session of the Government Council on realization of Information Society Creation Strategy, Minister of Communications Igor Shegolev assured Dmitry Medvedev that the Federal special-purpose programme on TV and radio broadcasting development would be approved by the end of 2008. However, in October of 2008 Dmitry Medvedev had to pay the officials’ attention to their work slow down.
According to experts, the Federal programme on TV and radio broadcasting development will be hardly approved in the end of 2008, since the frequency-territorial plan will be only ready in summer of 2009.

4. Business and authorities

ADT will simplify the networks registration procedure

The Association of Documentary Telecommunications (ADT) has offered the Communications Ministry to reform the networks registration procedure. The Ministry’s representatives agree that the existing procedure is outdated.
We remind in July the Association of Regional Operators of Communications and the Infocommunication Union prepared a letter to the Ministry of Communications, where it offered to make the networks registration notifying instead of licensing. ADT prepared some proposals on making amendments to the law “On Communications”.
According to Deputy Minister of Communications Naum Marder, the problem of networks registration is urgent and in future networks registration will be probably notifying.
The existing standard acts have some inaccuracies and impede entering the market for new players. There are also problems with state-owned companies-monopolists, which lay down their ungrounded demands when making contracts.
It would be reasonable to make the network registration procedure notifying in order to decrease a number of administrative barriers for the business development.

Medvedev has legalized the Council on Information Society Development

Dmitry Medvedev has taken the decision on introduction of the specialized body – the Council on Information Society Development in the RF, which will be involved in the sector’s problems solving. Leonid Reiman has been appointed secretary of the new department. The main objective of the Council is to provide interaction of the government bodies on problems of informatization. Every year the Council must report to President about its work and the sector’s condition. The Council also must confirm the information society development strategy, prepared by the government.
The Council includes the expert-consulting group, which will assess effectiveness of bills in the sector, mechanisms of their performing and efficiency of the government support. The Council consists of 33 people: Dmitry Medvedev (Chairman of the Council), heads of the ministries (Igor Shegolev, Elvira Nabiulina), Yuri Luzhkov, Valentina Matvienko and others.
Analysts have different opinions about the new department. According to some of them the Council will be useful for the further informatization of the Russian society since it will order the existing legislative acts and clauses. However, the Council introduction will complicate the structure as it will duplicate functions of numerous ministries and departments that will result in bureaucratic barriers, other experts say.
Besides, according to analysts, the process of informatization is spontaneous and it can be hardly controlled by the government.

The government will reduce duties on imported electronics
The government intends to widen the list of electronic goods, which can be imported in Russia without duties. This measure concerns new goods, which are used in production. So, due to this measure the Russian company Depo Computers was among the five leading providers of PC in 3Q2007. In 2Q2008 the company only took 6th place.
Many Russian companies have two problems: grey import of goods and assemblers. According to companies, reduction of grey import and decrease of the number of assemblers is only possible in case duties on goods are abolished. When in autumn of 2007 the government abolished duties on processors, this impacted positively the development of Russian companies.
The government decision is also supported by producers of microelectronics. Abolition of duties on materials for chips will increase producers’ turnover.
According to analysts, abolition of duties on imported goods will lead to considerable growth of domestic production in the field of microelectronics and other advanced technologies. It will also enhance competitiveness of Russian companies. However, experts point to some negative factors: foreign companies will be able to start their production in Russia, competing with domestic companies, and the import of finished goods instead of components is possible.

Svyazinvest requested the government to redeem shares of MRK
 

In October 2008 Svyazinvest requested Rosimushestvo to consider the offer about funds assigning for the holding’s subsidiaries’ acquisition. The reason is to increase the regulator’s stake in MRK and to support quotations.
We remind in October MRK’s share prices drop 1.5 times. Under the current conditions redemption of MRK’s securities would be a reasonable measure. In particular, the price of 13% shareholding of seven MRK was 182 mn USD. Currently Svyazinvest does not have such money and MRK had RUB 20.05 bn in June of 2008. However, the interregional companies do not have free money and their debt is RUB 38.3 bn. In case of the shares redemption by Svyazinvest, MRK will be able to introduce a single class share without losses for minorities. We remind, the Ministry of Economic Development considered it necessary to remove Svyazinvest as a management company.
According to analysts, increasing the government stake in MRK will lead to washing out the part of Svyazinvest. The interregional companies’ shares have gone down in prices considerably and the regulator can acquire them on beneficial terms. Besides, Svyazinvest will lack funds for MRK’s shares redemption since the shares are planned to be realized due to net profit, which will not allow to increase the stake, analysts add. So, the regulator will probably wish to obtain a part of the shares, experts conclude.
So, the decision will demonstrate the government’s position in the matter of telecoms. In case the decision is positive, it will mean the government wants to consolidate fixed-line operators into a single holding. Under crisis conditions increasing the government’s stake in telecoms companies is appropriate, analysts note.

The government will make a list of compulsory channels
The government will make a list of 8 TV channels and 3-4 radio channels, which are compulsory for broadcasting by all TV operators regardless of the used broadcasting type – on-air, cable, satellite or IPTV. The corresponding requirements will be added to operators’ licenses. The list will be made by President’s order or the government’s resolution in the frameworks of the Federal special-purpose programme of TV and radio broadcasting development by 2015. At that neither the government nor TV channels will pay operators’ expenses for broadcasting.
Currently TV operators, especially companies, which are monopolists of cable TV in some cities, try to collect payment from Russian channels for access to their networks. If the negotiations with operators of cable television fail, it may cause problems for TV channels.
We note that Mostelecom is increasing the number of channels in its social package due to foreign channels (Discovery, Animal Planet, Eurosport, etc), and no payment is collected from them. The matter is which channels will be included it the social package by the government, the market participants say.
According to analysts, such channels, performing social functions: 1st Channel, Russia, Culture, Zvezda, will be included for free by any channel anyway. However, such entertaining channels as STS, TNT, Muz-TV, should pay the operators.

The Ministry of Communications made an agreement with Synterra

The Ministry of Communications and Synterra have signed two government contracts, connected with the programme of development the government system of production, execution and control of new generation passports and visa. Synterra won the corresponding contracts of the Ministry. The total value of both contracts is RUB 304 mn. RUB 2.8 bn were assigned to the Ministry for the programme realization from the federal budget 2008. However, according to experts, the Ministry is not able to realize the whole programme on biopassports this year and it offers to return RUB 2.4 bn of the amount to the budget in order that it will get them back in 2009. The Ministry reluctantly assigns money to departments, which had not managed to spend fully the funds from the federal budget once, analysts note. Meanwhile, according to analysts, the money, returned to the budget, would have to be spent on the certain works, which were undoubtfully important for the system functioning. In 2009 these funds must be already spend on the technical design of fingerprint. Fingerprints are already necessary to enter the UK and the USA; in a year such requirements may be introduced in EU. In Russia fingerprints for biopassports were planned to be introduced from 2010, but the outlooks of this idea are vague.

The Ministry of Communications does not mind Sistema’s shares acquiring

The Communications Ministry sent Vice Prime Minister Sergey Ivanov the letter, informing that the department does not mind acquiring 25% of Svyazinvest’s shares, which belong to AFK Sistema, by the government. Previously, Sistema’s owner Vladimir Yevtushenkov had assessed the blocking shareholding of AFK at 1.9 bn USD. However, according to analysts, in case the government accepts his offer the shares will be acquired at cut rates.
The Finance Ministry is working out various ways of the problem settling without assignment from the federal budget. The Ministry of Economic Development has not defined its position on Yevtushenkov’s offer yet.
We remind in the end of October Yevtushenkov sent Prime Minister Vladimir Putin the offer to consider a possible acquisition of Sistema’s stake in Svyazinvest for 1.9 bn USD. The stake was overpriced, experts say. They assessed the blocking shareholding at 780 -850 mn USD, noting that before the crisis its fair value had been 2.2 bn USD. Sistema needs money, its total debt was 9.5 bn USD as of the end of 1H2008, experts note. They also remind Yevtushenkov declared once that Sistema would be probably ready to sell its shareholding in case the government decided to retain its 75% of Svyazinvest’s shares.

5. Economics of Innovations

State Duma has prepared the Innovative Code in the sphere of telecommunications

State Duma Committee on information policy, IT and communications has prepared a number of legislative initiatives, which are to stimulate infocommunications technologies development. The initiatives were called the Innovative Code of the RF. We note currently there is not a body of executive authority, which such a document could be endorsed by. And it may lead to the delay in the development of innovative technologies in Russia, analysts say. Besides, there is not a legislative base for financing projects in innovative business while the government assigns money for innovative activity. RUB 200 bn were spent on innovations in infocommunications in 2008. The total costs on innovations are RUB 1.2 trillion
We remind the proposal about the Code working out was submitted this spring. The document implies implementation of a special simplified scheme of taxation for small business; laws on venture investments, free software and a law on technoparks.
Analysts agree in the opinion that it is necessary to make amendments to already existing legislative acts on problems, which are urgent for the sector. It would simplify the legal system’s work organization for legislators and enhance the existing laws efficiency. However, according to some analysts, the idea of introducing a body of executive authority in the sphere of innovative business seems improbable under crisis conditions.
Introducing a new executive body as well as a new code will be ineffective and will take a lot of time, experts say. Currently infocummunications technologies development is a first-priority objective for the government.

The Communications Ministry: crisis does not threaten the innovative sector

According to the officials and legislators, the world financial crisis does not threaten the Russian innovative sector. The government provides considerable financial support, investing great funds in the sector: according to Deputy Minister of Communication Dmitry Severov, in 2008 RUB 1.3 trillion (around 52 bn USD) were assigned for innovative projects development. RUB 1 trillion of the money were assigned from the federal budget.
The market participants should take more active part in the national innovative policy forming, Deputy Minister notes. The Communications Ministry will support all the innovations. For instance, in the frameworks of the Ministry they work out mechanisms of public control over effectiveness of innovative programmes realization.
The Moscow authorities support the government in this matter. They realize a number of measures on support of small and medium innovative companies that certainly will ease consequences of crisis.
Analysts assess positively the government’s support of the innovative sector. Supporting the sector, the government can ease consequences of crisis and many bankruptcies may be avoided. However, growth rates of the telecoms market may go down in future. At that competition on the labour market of IT may increase, impacting positively employers and business environment.

The Defense Ministry will release frequencies for cell operators
Rossvyazkomnadzor in cooperation with GKRC (Main Radio frequency Centre) has worked out a new strategy of frequencies release. The strategy is based upon the simplified procedure of frequencies distribution. Rossvyazkomnadzor will sent applications for frequencies to the Federal State Department “The Federal State Research Test Centre of Radio electronic Struggle and Evaluation of Visibility Decrease of the RF Ministry of Defense”.
We remind previously few departments had been involved in decision making on frequencies distribution: the General Staff, FGUP Voentelecom, staffs of regions, military research institutes. Every year the number of applications grows and the whole procedure of release lasts for a year almost.
According to the new strategy, names of potential frequency users will not be disclosed. Such measure is taken to avoid corruption in the military structure. The funds, received for the expertise, will go the Ministry of Defense. If within 55 days an operator’s application is not answered by the military, a decision will be made in favour of the applicant.
By the end of this year GKRC is planning to embody online-registration. The special section was created on the department’s portal.
According to analysts, the conception of Rossvyazkomnadzor and GKRC with the assistance of the Defense Ministry will impact 3G development. Besides, such measure may prevent corruption risks at the level of the Ministry.
Analysts have different opinions on online-registration. According to some of them, it will not expedite the registration process. However, the new procedure may reduce costs and time for mobile operators, others believe.
On the whole the new strategy is assessed positively by analysts since it may impact the development of cooperation between the Ministry and cell companies. The fact that an applicant’s name is not disclosed is positive as well since operators, not included in Big3, will be able to obtain frequencies. Payment for considering applications must be equal for all operators, experts note. Besides, the matter of frequencies conversion must be worked out in detail as the military give their frequencies reluctantly.

Implementation of RF domain is planned in 2009
The Cyrillic RF domain is planned to be implemented in 2009. According to analysts, around 25% of owners in RU zone will use RF Domain. The domain will be administrated by the coordinating centre of RU domain. The Ministry of Communications has initiated this project and charged the authorities of ICANN company with RF domain creation.
We note Internet users have approved the new system implementation (60-70% of users and 70% of owners of Internet sites). Many companies do not hurry to register their sites in the new domain because it is unknown yet.
Currently there are around 1.75 mn Internet sites in RU zone. At that they increase almost 30% every month. Supposedly the registration in RF domain will be 50 000 addresses. The prices will equal to those in RU. zone. (RUB 600 monthly).
According to some analysts, Cyrillic domains will not be popular since Russian users have already got used to the Roman alphabet. However, RF domain may allow many companies to expand their subscriber base, some experts add.
RF domains will cause confusion for users and it may lead to their attendance decrease, experts say.
The Ministry of Communications should pay more attention to the quality of the project instead of its name, analysts add.
The project is not as necessary, but urgent in the current political conditions. It is mostly expected to enhance the country’s image. Experts have different opinions on users’ interest to the new domain. According to some of them, the domain will not be popular because RU zone is more convenient and habitual for uses. Others say owners of sites will register in the new domain to avoid frauds.

The Ministry of Communications has taken the decision about creation of the Digital Alliance of Russia
The Ministry of Communications has taken the decision about creation of the Digital Alliance of Russia, which will consist of representatives of state-owned communications organizations, legislators, producers of equipment and content. The Alliance will also include media specialists and producers of end equipment.
The main objective of the Alliance is to work out principles of digital TV development in Russia. In particular, the State Duma Committee on information policy, IT and communications took the responsibility for working out a new law on digital television.
Igor Shegolev, Minister of Communications promised the programme of digital TV development would be created in the end of 2008. By 2015 the population is planned to be transferred to digital television. We remind previously the programmes on digital television introduction in Russia had been already worked out. So, the Communications Ministry, Rossvyazohrankultura and RTRS had introduced their own plans, but they had not been approved.
The Communications Ministry has not confirmed the budget of the programme on the country’s digitalization yet. The department intends to plan the budget so that the government’s costs will be reduced.
According to analysts, the Digital Alliance creation is positive on the way of digital television creation in Russia. Involvement of almost all representatives of the sector demonstrates the regulator’s thorough approach to the objective.
According to analysts, the project must be worked out thoroughly because of its large scale and importance. Besides, there are problems of terms, financing and methods of the project realization. These problems solving will depend on the consensus between the participants.

Synterra will earn due to biopassports

According to the results of the open tender, held in the frameworks of the programme of biopassports introducing in Russia, Synterra has been declared a winner. Rostelecom had applied for participation in the tender as well. According to the contract, Synterra will receive RUB 211.3 mn for connection of departmental institutions to the united telecommunications infrastructure.
In the frameworks of the contract Synterra will provide delivery, assembly, launch and maintenance of the equipment for centres of access and connection of new departmental objects to the united telecommunications infrastructure of the government system of new generation passports and visas. According to the contract, by November 20th of 2008 648 new objects of six defense and law-enforcement departments, including the Ministry of Defense, the Federal Agency for Sea and River Transport, FSB, the Federal Migration Service, the Federal Frontier Service of FSB and the Ministry of Internal Affairs, will be added to the already existing infrastructure of biopassports. Every object will have an access to the closed departmental network.
Experts remind last year Synterra had already participated in the tender for creation of the closed communications network for biopassports processing. Then the company was the only one, submitting the application for participation. The project worth RUB 187 mn, uniting 562 objects of passport and visa infrastructure on the territory of Russian, had been already realized: the access equipment had been delivered to all objects in the end of 2007, according to Synterra.
Rostelecom, possessing RTKomm.RU could easily provide all departments with VPN-network, while it would be a problem for Synterra, renting “ the last mile”, to provide all objects with the closed network.

State Duma will create a working group for working out a law on digital television

State Duma Committee on information policy, IT and communications offered again to create a working group for working out a law on digital TV. The group will include representatives of the Ministry of Communications, biggest TV channels and associations of TV broadcasting companies as well as representatives of the telecommunications and electronics sector.
The law is to regulate matters on content of the basic social package of digital channels, on the procedure of TV set-boxes distribution and on the principle of TV signal transmitting. Besides, the deputies were planning to include the role of the federal state-owned unitary enterprise “The Russian TV and Radio Broadcasting Network” in the informatization process in the law. However, according to the Communications Ministry, the law creation is inappropriate. In accordance with the concept of TV and Radio Broadcasting in Russia and the programme of transfer to digital broadcasting in particular, all the necessary amendments are to be made to three existing laws: the law “On Communications”, the law “On Mass Media” and the law “On Licensing”.
The working group creation and the bill development were postponed due to the changes of the regulator’s structure, analysts say. Now, when the Department for Digital TV has been formed in the Ministry of Communications, deputies are opening the question about the bill again. Experts remind the existing documents are quite efficient and viable and they only need amendments and additions in accordance with requirements, caused by transfer to digital TV. The number of departmental contradictions is so huge that the matter cannot be settled without participation of the sector representatives and State Duma deputies. The bill will be worked out this year since the matter of transfer to digital TV is the key national project.

6. Personnel Changes

RF President Dmitry Medvedev has appointed Aleksey Malinin director general of the federal state-owned unitary enterprise “The Russian Television and Radio Broadcasting Network” (RTRS), one of the developers of the project of Russia’s transfer to digital broadcasting. Previously Malinin was holding the position of deputy director of the Russian State-owned TV and Radio Company” (VGTRK). D. Medvedev has also relieved Gennady Sklyar of his position of head of RTRS.
Within 15 years Malinin’s working activity has been connected with TV and radio broadcasting. Working on NTV he was in charge of transfer of the channel to digital broadcasting. Besides, Malinin is a member of the board of the National Association of TV Broadcasters and a member of the working group of the government commission on TV broadcasting development, where he is engaged in working out the concept of the federal TV broadcasting transfer to digital broadcasting. Gennady Sklayar is a member of this working group as well.
Experts do not know yet what Gennady Sklyar will do in future. He had been heading RTRS since the time of the company’s foundation in 2001. In June the company prepared the project of the departmental special-purpose programme “Modernization of the network of government radio broadcasting in the RF in 2010-2012”
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In the nearest time Advisor to RF President Leonid Reiman will head the Council on information society development. The new department will control the strategy of information society development, confirmed in February of 2008.
Creation of the Council on information society development was initiated by Dmitry Medvedev in Petrozavodsk at the session of the presidium of the Government Council, devoted to realization of the strategy of information society development in the RF, in July 2008.
At this session Minister of Communications Igor Shegolev supported President’s initiative on the new council creation, noting that maintaining the rates of new technologies spread Russia may draw closely near countries-leaders.
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The former IR-director of Golden Telecom Aleksey Subbotin has been appointed for the same position in OJSC VimpelCom. The former director on relations with investors Alexander Boreiko quitted the company. Boreiko had been working in VimpelCom since June 2007. Previously he had been working as a director on relations with investors in OJSC Sitronics
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Director general of Sistema Mass Media (SMM) Andrei Smirnov is changing the company’s team. His former deputies Artem Kudryavtsev and Vitaly Shub are now managing a SMM’s subsidiary CTV and SMM is forming a new staff of top-managers from the media sector.
Director general Andrei Smirnov is the only top-manger in SMM now. Recently the company has been quitted by deputy director general on property relations Julia Shumskaya. Previously she was engaged in operator business: supervised development of the cable assets of Stream TV and owned a shareholding in Comstar-Direct. In summer Stream-TV was transferred under control of Comstar-UTS, and Comstar-Direct was divided between Comstar-UTS and SMM, which obtained the media component of the business.
The former managers of SMM focused on telecoms business development, experts note. And now SMM is being transformed from a telecommunications company into a media one. So, the new strategy needs a new team since this business has many differences: different risks of the projects, greater importance of content. However, it is not always necessary to recruit profile managers for a new business direction, experts say.
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The former director of the state-owned corporation “The Russian Corporation of Nanotechnologies” Leonid Melamed has returned to his position of president of OJSC Effortel. He had been working as president of Effortel before his appointment a director of ROSNANO in summer 2007. Now has taken the position of president of Effortel. L. Melamed controls 100% of Effortel Russia through offshore companies.
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The National Media Group (NMG), the major owner of which is Yury Kovalchuk’s bank Russia, is changing its director general: Sergey Fursenko has been appointed president of NMG and his position has been taken by the group’s executive director Mikhail Kontserev.
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Deputy director general of Svyazinvest Vladimir Zhelonkin is quitting the company. Currently he is considering a few variants, among which are leading positions in other telecoms companies.
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Director general of Dixis Ruslan Filatov has quitted the company. The most probable candidate for the position of the company’s head is the former director general of Sistema Mass Media Eldar Razroev, who is now attracted by Alfa’s management as one of the major consultants on Dixis business running.
According to analysts, personnel changes in the company are linked to the change of Dixis’ owner. The company needs a strong anticrisis manager, able to settle serious problems of the retailing company. Currently the market is lacking for free directors and it will be difficult for the new Dixis’ shareholders to find a new manager. Eldar Razroev is the most probable candidate, he has big experience of work in Euroset. According to analysts, Razroev is a right choice for the company. Filatov’s quit is somehow caused by the change of the company’s owner, though it is not a key factor. Retailing companies are sold because of the change of business environment, conditions and opportunities. So, the change of the company’s head is the result of the new external conditions.
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Telecominvest’s Board of directors has appointed Ivan Streshinski new director general of the company. He is a member of boards of directors of other Alisher Usmanov’s assets: the publishing house Kommersant, OJSC MegaFon and Metalloinvest.
We remind a year ago Alisher Usmanov acquired 15% of Telecomivest from the North-West Telecom. To make this transaction Usmanov had created the additional legal entity AF Telecom holding with the chartered capital of RUB 10 000. In May 2008 Usmanov acquired the Luxemburg offshore company First national Holding S.A. possessing 58.9% of Telecominvest’s shares from Jeffrey Galmond. Thus, Usmanov’s stake in Telecominvest increased to 73.9%. Simultaneously Usmanov acquired 8% of MegaFon’s share from the Bermudan offshore company IPOC, which was also controlled by Jeffrey Galmond. Since Telecominvest’s stake in MegaFon’s chartered capital is 31.3% Alisher Usmanov obtained 31.13% of the third biggest cell operator in Russia. Previously the holding had been headed by Vladimir Pogrebenko.
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Valery Vasilyev has been appointed director general of CJSC AMT. The contract of the former company’s head Vladimir Kliger was over and AMT’s shareholder, the wireline operator MGTS has not prolonged it. We remind Vladimir Kliger had been heading the company since October 2005. He had come to AMT from Golden Line, which joined Comstar-UTS in April 2008. Currently Valery Vasilyev is preparing offers for the future business strategy of AMT, which are planned to be submitted to the company’s shareholders by him.
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Yevgeniy Chichvarkin, a founder of the Russia’s biggest cell retailing company Euroset, is leaving his post of Chair of the company’s Board of directors. He intends to be involved in “party activity” in “Pravoye Delo”, where he is in charge of branding.
According to analysts, Chichvarkin’s quit was not a surprise for the market participants. Within the period of the company’s growth and development he was acting as an ideologist. However, currently the company needs anticrisis management to regulate the budget, to reduce unprofitable shops. The company needs experienced managers for the company’s work in such conditions. The company’s structure must be reorganized in accordance with corporate standards of management. According to analysts, Chichvarkin has a special image and manners so he will be hardly supported by the traditional audience. He may expect for work with youth and special audiences.
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Nikolai Pryanishnikov, heading the block on international business development of VimpelCom on the position of executive vice president will quit the company and from January 2009 he will hold the position of president of Microsoft Russia. The block on international development of VimpelCom will be headed by Vladimir Ryabokon, current vice president, regional director of the Moscow region. He will be also a head of the Directory on corporation development. Natalya Chumachenko, heading the Directory on sales of B2C in the business-unit Russia, will be appointed for the position of vice president, regional director of the Moscow region.
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Igor Sherbik has been appointed director general of Comstar-Ukraine, a subsidiary of Comstar-UTS in Ukraine. Previously he was holding the position of director on development of Comstar-Ukraine. Before Sherbik the post of director general of Comstar-Ukraine was held by Vladimir Petrov, who quitted the company. We remind in 2003 -2006 Sherbik was working as director general of Optima Telecom, in 2006-2007 he was director of the Northern region of Farlep Invest and in 2008 he took the position of director on development of Comstar-Ukraine.
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Elena Glukhova has been appointed director on direct sales of OJSC MTT. The former director on direct sales Igor Poluektov quitted the company.
We remind E. Glukhov has been working in the company since 2005 and before the new appointment she was holding the position of a head of the Department for network sales. Before MTT in 2004 she was working as a head of the Department on work with regional operators of communications of CJSC Express Telecom and in 2002-2004 she was holding the position of specialist of the Department for regional development in CJSC Zebra Telecom.

7. Figures and facts

RUB 375 000 000 are intended to be invested in the new telecommunications project GeoLife – distance monitoring on the basis of GPS and GLONASS technologies – by Universal Telecom
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1 000 000 cell phones with GPS were sold in 2008. (MForum, 23/10/2008)
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$10 000 000 will be lent by Slavyanski bank to a developer of products for digital TV. These financial resources will be used for the group’s business development in the field of production of programming and hardware solutions for digital TV systems and in particular, for demo transmitting stations creation.

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The revenue of RUB 2 900 000 000 is expected by ER-Telecom holding by the end of 2008. over 9 months the company has increased its revenue 2.4 times to RUB 1. 966 957 mn y.o.y.
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$200 000 000 - 300 000 000 are planned to be invested in new cell networks construction by Tele2 Russia.
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15 000 special FON-routers are necessary to be distributed for the full-fledged launch of the Comstar-UTS’ project Wi-Fi FON, the development of which was announced in spring 2008.
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240 000 people use IPTV services in Russia
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100 underground stations of the Moscow Underground were provided with mobile communications by MegaFon.
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RUB 2 136 000 000 is Synterra’s revenue over 9 months of 2008.
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RUB 67 300 000 is Sitronics’ net loss over 9 months of 2008.
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RUB 4 680 000 000 is MGTS’ net profit under RSBU over 9 months of 2008
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$500 000 000 will be invested in the network development by MTS in 2009.
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$638 000 000 were spent by MTS on the own shares redemption in July-September 2008.
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RUB 357 000 000 is Svyazinvest’s net profit according to the results of 2008.
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RUB 390 000 000 is the revenue of the Sverdlovsk branch company of Post of Russia in 3Q2008.
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RUB 2 000 000 will be spent by Akado on replacement of old modems to the company’s subscribers.
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100 000 Indian subscribers use services of Sistema’s subsidiary.
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88 470 000 people used MTS services in October 2008.
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182 000 000 cell communications users were registered in Russia in October 2008.
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Sources: Vedomosti, Prime-TASS, RBK Daily Comnews, Cnews, Interfax, Kommersant.