30 марта '09

The Russian Telecommunications Market Development March 2009

Analytical Report. Prepared by the Independent Institute of New Economics Study

1. General Trends of the Market Development

Operators are cutting investments in broadband Internet access

Communications operators has started cutting their investments in the project on broadband Internet access development and freezing their programmes on additional networks construction. So, Vimpelcom is completing projects, confirmed before. The operator refuses new networks construction. In 2008 the company invested around 2.7 bn USD in the projects. Currently the operator’s investments are not disclosed. Previously the company’s plans included construction of broadband access networks in 65 towns by 2009. By 2010 the network will have to cover 180 towns. At present the operator is providing services of broadband access in 47 towns and in 2009 its networks will operate in other 10 towns.
Comstar-UTS is not planning to start construction of new networks as well. After the operator improves networks of Stream-TV in 12 towns, it will cover 70 towns. In particular, Akado is stopping its regional expansion. National Cable Networks is correcting its development plans and focusing on projects with a short pay-back period. Svyazinvest’s MRKs have a chance to strengthen their positions on the market of broadband access since it is a priority in the holding. Besides, MRKs use ADSL technology in the sector so they can cut their CAPEX for the cable building.
According to analysts, reduction of CAPEX and operating costs is a necessary measure in crisis conditions. The main reason for reduction of projects on new networks construction is not decline in demand but growth of the dollar rate that impacts directly the growth of costs for equipment for new networks development. Thus, investments in the projects will be minimal. So, according to experts, Vimpelcom and MTS’ investments in the programmes are expected to be around 2 bn USD. The companies will focus on their subscriber bases maintenance and attraction of new users of broadband access services in already developed regions. In the nearest future redistribution of the market of broadband access between operators is expected, analysts say. Companies, possessing a large area of coverage, will become the leaders on the market.
Operators’ competitiveness may suffer from cutting their investment programmes and freezing new projects, analysts say.The situation on the market will depend on Svyazinvest’s subsidiaries’ positions. According to some experts, MRKs will be able to take the leading positions due to use of ADSL technology. However, some analysts believe, Svyazinvest will not manage to become the leader in regions since the quality of the company’s services is worse than that of its competitors. Besides, there is a question about modems acquisition for Internet access. Either users or the company will have to solve this problem and this will lead to additional costs for both parties.

Cell operators want to take frequencies for digital TV

At the International 3GSM Congress, held in Barcelona, the leading cellular operators made an offer about granting them 25% of radio frequency range, which was supposed to be given for digital TV. The offer was sent to the world regulators in this field. Cell operators offer to use these frequencies for mobile broadband access development.
The cell companies’ authorities asked for 100 MHz of 400 MHz of the digital dividend, which is cleared due to the transfer to digital television. According to the participants of the Congress, cell operators really need these frequencies while digital TV will not fill them completely. The matter of cell companies’ development due to new services introduction is of great importance under the world financial crisis and introduction of broadband access could improve the situation for cellular operators.
The discussed question is urgent for development of the Russian telecommunications as some European companies have already used successfully digital dividend. Frequency resource has been already cleared in Finland, Sweden, Switzerland, France and Great Britain. Russia’s representative at the Congress Alexander Izosimov agrees with the request to clear cell digital dividend for broadband access development. Cell operators may also benefit from that. Digital television development is not as rapid as it was expected and new frequencies may be occupied for prospective directions development. On other hand in Russia this matter is only started to be discussed and we do not expect for quick decisions making. According to representatives of the Ministry of Communications, the discussion may become urgent by 2015.
Experts agree that development of digital TV is slow today, but they do not see any alternatives. In Russia cellular companies will be hardly able to meet their needs due to digital dividend.
GSM operators have started expanding to neighbouring fields, experts note. In future the confrontation is expected between cellular companies and representatives of business in neighbouring spheres that will finally lead to creation of multisectoral holdings.

In 2009 cell operators’ incomes are expected to go down

The investment bank UniCredit published its prognosis regarding cell companies for 2009. According to the prognosis, cell operators’ financial results may be worse this year than it was expected before. For example, MTS’ net profit may reduce 2.3 times and Vimpelcom’s net profit may drop 15 times. Vimpelcom will manage to survive in crisis and its financial results will depend on the operator’s ability to raise prices for communications services.
According to the previous forecasts, MTS’ net profit would have to be 1.61 bn USD while in the current forecast the amount is 867 mn USD. Vimpelcom’s expected net profit reduced from 830 mn USD to 82 mn USD. This is mostly caused by the company’s big debt. The company’s results will depend considerably on the currency rates and oil prices. Another driver for the company’s results will be the position of the Ministry of Communications regarding the possibility of tariffs increase. Currently the regulator’s position is different from the position of cell operators. However, the situation may change depending on macroeconomic conditions.
Anyway the Ministry of Communications will try not to allow significant increase of prices. The regulator’s position on this matter was announced at the “governmental hour” in the Council of Federation of the RF on February 20th 2009. Minister of Communications Igor Shegolev declared that the collusion between operators was inadmissible and promised to take corresponding measures in cooperation with the Federal Antimonopoly Service and the Federal Service on Tariffs in the sphere of Tariffs Control on the market of cellular communications and Internet.
According to experts, UniCredit’s forecasts are quite real and they agree in the opinion that cell companies will raise their tariffs anyhow. Some operators have already started increasing prices for their services. The companies’ results will be mostly impacted by their debts and subscribers’ power of consumption. Perhaps, new directions of the cell companies’ development, such as broadband Internet access, will be frozen and postponed.
Experts do not exclude that financial results may change the state of things between Big3 operators for benefit of Megafon. The companies will hardly acquire new assets in 2009 and they will be engaged in their business strategies adjustment and reduction of costs. Anyway their debts will not become an obstacle in the companies’ activity. The operators will fight for end user of services.

Sitronics offers its bondholders not to present bonds for redemption

Sitronics offered its investors not to present bonds for redemption. In return the company’s authorities promise to double a coupon rate from 10% to 20%. Sitronics’ bonds issue is worth RUB 3 bn. Currently the company is not able to redeem its issue for lack of its own funds, which as of June 30th of 2008 came to RUB 2.5 bn under US GAAP. Sitronics’ major shareholder is AFK Sistema, owning 61.33% of the company.
The company placed the rouble inconvertible bonds on the market in September of 2007. The term for retirement of the bonds is March 25th 2009. Sitronics is engaged in three directions: IT and microelectronics, telecommunications solutions and consumer products and services. According to the results of 1H2008, the company’s revenue was 926.8 mn USD and its net loss was 20.2 mn USD. On LSE the company’s capitalizations is around 171.8 mn USD.
Sitronics is among the companies, trying to restructure their debts in crisis conditions. The company has to do this in order to avoid bankruptcy.
According to experts, the company’s position is really difficult and it is affected directly by the world’s financial crisis. Sitronics’ business model has been designed for long-term outlooks and currently the company’s main concern is to survive in current conditions. The company’s business profitability is assessed as negative by analysts and instead of development the company has to solve its financial problems.
Nevertheless, according to experts, the company possesses a good innovative potential and it will hardly vanish from the market. Sitronics’ vanish may cause the loss of more significant funds than those, necessary for the company to continue its business.

Crisis increase of prices for services of communications and Internet

From March 2009 the national monopolist of fixed-line communications services is increasing tariffs for local calls in all regions of its presence. On average the growth will be around 8%. This decision was taken by the Federal Service on Tariffs. Over two years Svyazinvest has not increased its tariffs while inflation has come to 20% over the same period.
Other operators decided to raise their tariffs as well. Vimpelcom declared about corrections in tariff plans, which are coming in force from February 27th of 2009. The increase will be over 25% of current prices (up to 100% for some tariff plans). The changes will only concern 7% of the company’s tariff plans. Such correction of prices is a normal business process on the market of mobile communications.
Increase of prices by Russian mobile operators is an expected event, experts say. Operators earned less than they could because of the rouble devaluation. Besides, Vimpelcom and MRKS, some other operators of broadband access stated the increase of their tariffs as well. In particular, from March 1st Comstar is raising its tariffs by 10% on average. According to analysts, besides the rouble devaluation, there is another reason for the increase of prices. Currently tariffs are raised by companies which have to refinance their currency debt. All segments of the telecoms market are now affected by crisis. Subscribers will probably choose cheaper tariff plans or change their provider. This may cause the market redistribution, experts note.

IT costs may be cut dramatically

According to the data from IDC company, the demand for IT products (including equipment, software and services) has slowed down dramatically since 4Q2008. Over the year it has come to 10.5%. According to the company’s experts, in crisis conditions consumers will demand bigger rebates and suppliers will have to reduce their margin and focus on their business adjustment to maintain business in conditions of strong competition. Despite the total reduction of IT costs of 20% y.o.y. (in 2008 IT market in Russia came to 24.6 bn USD), IT costs will grow 5.8% on average annually and by 2012 they will come to 29.5 bn USD.
IT-companies started expecting such problems last autumn. In October the leading distributors of IT equipment informed suppliers that according to the results of 2008 sales growth rates would decrease by 5-10%. Besides, the distributors asked their partners to correct the terms of their products crediting to avoid situations when they would not be able to obtain money from a retailing company but had to pay a producer.
According to analysts, in 2009 IT market will reduce by 20-25 % in dollars and grow by 10-15% in roubles, mostly due to government orders. The private sector will reduce its cost by 20-30%. However, we note that a lot of companies are impacted by macroeconomic situation and they do not exclude they increase their IT budgets in 2H2009. IT security and outsourcing are the most protected segments (the expected growth is 10% and 15% accordingly). Costs for IT systems introduction may be cut by 40% and more.

IT and telecoms companies are reducing their staffs

In crisis conditions 29% of the biggest Russian telecommunications companies have been reducing their staffs. First of all, personnel reduction concerns subdivisions, which are not critical for business, for example, HR departments and managing companies. According to headhunters, layoffs in the telecoms sector do not exceed 10%, but in 2Q2009 they will increase. 54% of the companies also cut their costs on office supplies, tea and coffee in offices.
Such results are contained in the poll of Pyndex. The poll was held from January 15th till 27th 2009. 14 companies, working in the field of telecommunications and IT, participated in the poll.
According to the poll, first of all the companies have been cutting costs on recruitment: around 85% took such measures. Costs on personnel training are reduced by 69% of the companies and the same number of companies reduced or cancel budgets for corporate events. 62% reduced subsistence money. As of January 2009 the companies did not reduce almost costs on social benefits for employees, but within 1Q2009 29% of the companies are ready to reduce the social package.
MTS is limiting recruitment and increase of salaries, reducing administrative costs, costs on participation in conferences and external training programmes as well as advertising. Vimpelcom, the debt of which is the biggest among its competitors, is not planning layoffs, but it has frozen recruitment.
Among the most noticeable trends in the personnel policy of big telecoms companies are mergers of departments, that could double each other. Some expats are quitting the companies – as a rule they are expensive employees, hired for business improvement and they have already shared their experience with other managers.
According to analysts, reduction of salaries is not a very popular measure among employers. The companies mostly save on bonuses: 21% of the companies have reduced or abolish bonuses for employees and thus, expected salaries have reduced by 30-35% y.o.y. However, this mostly concern new employees. In March after re-estimating the results of the fiscal year the further staff reduction and cut of salaries are expected.

In 2009 small providers may take a market share from big participants

According to the assessment of J’son & Partners, in 2008 11.4 mn houses were connected to broadband Internet access, 84% growth y.o.y. Penetration reached 21.55. Last year crisis did not affected considerably the growth rates of connection. In 2H2008 the growth of connections was 3.1 mn houses, doubling the result of the previous year. Meanwhile in the end of 2008 some big companies declared reduction of their CAPEX for 2009 and temporal stop of their expansion. In particular, Svyazinvest’s subsidiaries, Vimpelcom spoke of possible reduction of CAPEX and Akado declared about stop of expansion.
According to the forecasts of J’son & Partners, in 2009 the number of connections will increase by 33% to 15.2 mn houses and penetration will reach 28.5%. The results will grow mostly due to connections on the territory, already covered by the network and expansion will slow down considerably.
At that market shares may be redistributed for benefit of small providers. Those big companies, which have big debts, will have to change their strategies, cutting considerably their operating costs. Small participants, which as a rule do not have big debts, are able to spend sufficient funds on marketing. So, due to new connections their market shares may increase a little. In 2008 the share of operators, connections of which were over 100 000, was 60%. In 2009 this result may go down to 55-58%.
Some analysts do not agree that market shares will be redistributed for benefit of small providers. The main reason for this is big companies’ strong brands in marketing communications and more profitable and flexible possibilities in negotiations with equipment suppliers and main-line operators.
In 2009 the slowdown is expected, but it won’t be significant. The growth rates will only decrease by 10-15% and the slowdown is mostly caused by saturation in big cities. And within crisis big companies have a good opportunity to consolidate regional assets, the value of which may decrease.

Cell communication may go up by 40%

This year cell operators’ tariffs, nominated in roubles, may go up by 35-40%, according to analysts of IC Financial Bridge. Vimpelcom is the only of Big3 operators, increasing insignificantly tariffs in Russia – since January 27th the operator have increased prices in some tariff plans in Moscow, St. Petersburg and other regions. According to the company, it was not the increase, but correction, caused by introduction of new tariff plans. FAS sent a letter to Vimpelcom, asking to give reasons for the increase of prices. Minister of Communications Igor Shegolev declared he would not admit the collusion between operators. MTS and Megafon only stated about increase of roaming tariffs.
Operators do not want to raise tariffs considerably, fearing the outflow of subscribers. Since incomes of the population went down, increase of tariffs may be ineffective: subscribers may start speaking less or choose operators, offering lower prices.
According to experts, operators will hardly decide to raise prices by 40%. This will mean that in crisis conditions communications will be available to a limited number of people. On other hand the increase of prices is expected: MTS and Vimpelcom publish their financial statements in dollars and they don’t have to admit dramatic drop of their financial results.

Big3 operators are negotiating with Apple about softening the contract conditions

Big3 operators are negotiating with Apple regarding reduction of purchasing prices for iPhone 3G and softening conditions of the contract with the vendor. Since the beginning of the year sales of iPhone have gone down by 30-40% because of crisis. The sales could be increased due to new models introduction.
We remind that according to the contract terms MTS has to purchase 1 mn phones from Apple within three years, and Vimpelcom and Megafon have to acquire 1.5 mn each within two years. The purchasing price, set by Apple for Russian dealers, is around 400 euro for an iPhone 3G 8 Gb and 470 euro for an iPhone 3G 16 Gb. The prices do not include VAT and the custom duty (23% of the cost).
iPhones started to be sold on July 11th of 2008 in 22 countries, including the USA. Within the first three days around 1 mn iPhones 3G were sold. However, in Russia sales of iPhones were much lower. Last year Big3 operators sold around 180 thousand handsets and currently the sales are 230 thousand iPhones.
According to Svyaznoy, in 2008 Big3 operators sold around 100 iPhones 3G. Currently the decline in the sales is 35% y.o.y. in the retailing company’s network.
According to analysts, since the beginning of the official sales 400 thousand iPhones 3G were imported to Russia. 55% of them have been only sold. Indirect and direct losses of Vimpelcom, Megafon and MTS from the rouble devaluation reach 60 mn USD for each. Saturation of the Russian market with illegally imported Apple handsets affected the sales of iPhone in Russia as well, experts note. According to various estimates, by the moment of the start of iPhone 3G official sales, Russian users had already possessed from 100 to 400 thousand iPhones, illegally imported to the country. The sales may increase in the mid 2009 after Apple introduces a new model of iPhone on the market. However, everything will depend on prices, set by MTS, Vimpelcom and Megafon for a phone.

The market of payments via terminals has grown by 36%

In 2008 in Russia the market of moment payments reached RUB 536 bn, 36% growth y.o.y. Representatives of the National Association of Participants of Electronic Commerce hope this year the turnover will exceed RUB 630 bn due to increase of the share of “hard payments” – repayment of credits, payments for housing and communal services and sales of tickets.
In 2008 the amount of an average payment increased by RUB 17 to RUB 100 and the number of points of payments receiving was 350 thousands, 50 thousand growth y.o.y. Points of payments receiving exist now in every town with the population over 5 thousand people.
According to experts, over the previous year payments via terminals have been increasing. The system of moment payments has proved its capacity in crisis conditions. Currently the structure of moment payments is changing. If in 2007 the share of moment payments for cell communications services was 96.1%, in 2008 this share decreased to 89.5%. Currently the growth is mostly driven by repayments of credits, payments for housing and communal services and railway tickets. It is a real revolution, according to analysts. Besides, payments via terminals are extremely reliable.

2. Market Participants

Comstar-UTS is planning to become an advertising ground

Comstar-UTS is preparing realization of a new project – launch of advertising when downloading Internet-pages. This service will be provided to users, who will subscribe for a special tariff plan. The subscribers will obtain such preferences as high speed of Internet access or lower prices for connection to the network. This strategy was worked out in 2008. The company is planning to start the project in summer 2009.
The company intends to start target advertising, i.e. users will visit websites, interesting for them, and look through certain advertisements with supplemental information for a user. The time of an advertisement downloading is 5-20 sec. The project offers subscribers to choose frequency of demonstration and a subject area of an advertisement. According to the company’s poll, around 60% of subscribers are ready to view advertisements. However, according to participants of the market of broadband access, the project won’t be popular since subscribers want to use the service without being interrupted by advertising.
Analysts doubt the project has good outlooks. The reasons are that low tariffs often mean low quality of services. It is known that the operator carried out the content analysis of the most visited websites in order to define subject area of advertising. This may be considered as violation of privacy and may lead to court hearings.
This program will hardly bring big profit to the company, analysts note. To make the project work the company has to create incentives for a user of the service.

The Investment Fund Icon is investing in WiMAX networks construction

The Russian Investment Fund Icon stated its intention to invest 200 mn USD in development of mobile WiMAX overseas. They suppose to invest in networks construction in Italy, Russia and Bangladesh. The investment period is 3 years. Besides, the fund will obtain vendor money of 100 mn USD for the purchase of equipment.
In each country the network will be developed in cooperation with various partners – representatives of regional companies of cellular communications. One of the possible suppliers of equipment for Icon projects may be the Chinese vendor Huawei.
These are not the first investments in WiMAX development for Icon. In 2008 the fund already invested in development of this technology in cooperation with Goldman Sachs and the group of independent investors. The amount of the investments was around 100 mn USD and the money was obtained by the Italian operator AriaDSL. Besides, Icon in cooperation with the Investment Fund Intel Capital invested in WiMAX development in Ukraine, where the regional operator the Ukrainian Advance Technologies is planning to develop the networks in 7 big cities of the country by the end of 2009.
Experts assess positively the outlooks of the Icon’s project. They emphasize WiMAX technology is quite new and outlooks of its mass development have not been defined yet. Investments in WiMAX development are rather risky and besides, they are connected with lack of available devices on the market. Recoupment of the project is also doubtful for lack of more precise forecasts regarding the current unstable situation in this segment of the market

Sky Link increased 1.4-2 times its tariffs for data communications services

From March 23rd Sky Link is increasing 1.4-2 times subscriber fee in two unlimited tariffs of mobile Internet access in the Moscow region. It concerns the tariff plans “Unlimited Night” and “Unlimited Weekend”. Sky Link is also introducing the minute tariffing for the most tariffs. Thus, the monthly subscriber fee in “Unlimited Night” will be RUB 1700 instead RUB 1200. The monthly subscriber fee in “Unlimited Weekend” will double to RUB 2000. The price for data communications traffic has also changed – in particular, on weekdays from 9 am till 11.59 pm the subscriber is to pay RUB 4.6 for 1Mb.
Sky Link has refused the major unlimited tariff due to its unprofitability. Currently the company is focusing on development of content-oriented tariffs. In the nearest future these tariffs will be realized as options. Thus, the subscriber will be able to from his own range of services depending on needs.
According to analysts, such increase of tariffs will lead to reduction of connections by 30% or even 50%. Perhaps, the company wants to obtain additional profit in such a way. But Sky Link may lose a part of its subscriber base in case it continues increasing tariffs. According to experts, the increase is caused by the rouble devaluation.

The project with Russia’s participation started in Cambodia

Another cell network under Smart Mobile brand has been launched in Cambodia. The network is owned by Latelz Co Ltd, which belongs to Timeturns Holding. In Cambodia Timeturns Holding is considered a Russian company (the holding’s office is located in Moscow), though there is not reliable information about the holding’s end investors.
The network Smart Mobile has been only working in the capital of Cambodia and the tourist centre Siem-Rip so far. Timeturns Holding also possesses GSM assets in Burundi (Africa). The amount of the investments in the network in Cambodia is not disclosed.
Around 14 mn people live in Cambodia. Penetration of cell networks is only 24%. Around 9 cell operators work in the country and this is caused by quite a simple procedure of obtaining a license. CamGSM is the leader in the GSM segment. The operator is controlled by the Swedish telecoms holding Milicom with subscriber base of around 2.5 bn people. Subscriber bases of other operators do not exceed 250 thousand subscribers.
One of the licenses for cell communications services provision belongs to Sotelco company, controlled by Vimpelcom. The launch of Vimpelcom’s network is scheduled to 1H209. The company stated it would invest up to 200 mn USD in the project within 3 years.
Outlooks of cell communications business in Cambodia and the whole region are assessed as positive by experts. South-Eastern Asia is densely populated and penetration is insignificant. The market participants possess now enough funds for networks construction and purchase of equipment, but in future everything will depend on cell companies’ ability to invest in marketing strategies and fight for subscribers due to reduction of tariffs and introduction of new services. On the whole, Vimpelcom and other operators have equal chances to take the leading positions on the Cambodian market.
The market of cell communications in Cambodia is at the very beginning of its development. Some time later assets will start to be consolidated and supposedly three big companies will absorb small ones. Outlooks of Russian operators will depend on their ability to invest in further development of their projects that may be quite a complex objective in crisis conditions.

Scartel will invest 170 mn USD in networks construction

The WiMAX operator Scartel (Yota trade mark), 25.1% of which were acquired by Rostehnologii last year, will invest 170 mn USD in construction of mobile WiMAX networks in regions. The credit worth 170 mn USD is given by Scartel’s major shareholder – the fund Telconet, which credits the managing company WiMAX Holding Ltd.
In September 2008 Scartel informed that within 3-4 years it would cover 40 Russia’s cities and invest around 1 bn USD in networks. Currently the operator is providing free of charge services in Moscow and St. Petersburg, but in April the company intends to set a monthly fee for corporate users. The funds attracted will be spent on the investment programme, including regional expansion. The investment programme also includes the launch of mobile WiMAX networks in Moscow and St. Petersburg and the networks construction in Ufa, Sochi, Krasnodar and two other cities. Last year Scartel spent around 300 mn USD.
According to analysts, in crisis conditions attraction of funds for WiMAX networks construction in regions is senseless. Laptops are not so spread in regions than in Moscow, so the need in mobile Internet is not so great. WiMAX networks have to be constructed as addition to other technologies: wired and wireless WiFi. Mobile WiMAX is not designed to provide Internet services in buildings as its signal is small. So, Scartel’s project will be hardly profitable.

Sistema is introducing compensations to members of the Board of directors in case of court hearings

AFK Sistema’s authorities have decided to introduce the system of compensations to members of the Board of directors in case they suffer losses, participating in court hearings, criminal investigations, etc. The amount of compensation will be 2% of the current value of the company’s assets, i.e. 639 mn USD (as of the end of 3Q2008). We remind the company’s authorities only compensated the members of the Board those losses, referring to their administrative duties. Besides, AFK Sistema pays each member of the Board 1000-4000 USD for participation in a meeting and 250 000-325 000 USD if the company has net profit.
Experts have different opinions on the compensation introduction. According to some experts, the company’s policy is directed to its authorities insuring instead of presenting the company as a European one. Other analysts say the compensation will protect top-managers from the minority shareholders’ prosecution. This measure will allow the company to take more efficient decisions, connected with risks.
According to analysts compensations are necessary if a member of the Board of directors is discharged.

Rostelecom is planning to acquire Sky Link

Rostelecom made the request to the Federal Antimonopoly Service for acquisition of Sky Link. In its turn FAS decided to increase the terms for decision making. We note, Sky Link belongs to AFK Sistema and RTDC (Russian Telecommunications Development Corporation). The operator’s subscriber base is 850 thousand users. Supposedly, the operator’s debt is over 650 mn USD. The company intended to start construction of networks of two standards as it had obtained licenses in 45 regions. Currently the operator is systemizing its business: CDMA assets will belong to CJSC Astarta, a future subsidiary of Sky Link. Such actions were demanded from the company by FAS after AFK Sistema’s authorities had applied to the Department about acquisition of 50% of the chartered capital from Jeffrey Galmond. FAS approved the asset acquisition on conditions that GSM licenses would not belong to AFK Sistema.
According to analysts, acquisition of Sky Link by Rostelecom will allow Rostelecom to expand its subscriber base. Rostelecom is mostly interested in wireless access, which will allow the operator to provide communications services in remote areas, experts say. However, analysts also mention negative aspects of the consolidation: Sky Link’s cell business will not fit in with Rostelecom’s structure since Rostelecom has no experience of interaction and work on the cell market.
The transaction will also depend on Sky Link’s value, especially because of its debt. The operator needs support of such a strong player as Rostelecom since Sky Link’s shareholders are not interested in investing additional funds in the company.

MTS reported under US GAAP for 2008

MTS reported under US GAAP for 2008. The company’s net profit for 2008 is 1.93 bn USD, 7% decrease y.o.y. In Russia ARPU of the company reduced from 11.5 USD to 9.5 USD in 4Q2008. In 4Q2008 the operator’s losses from the rouble devaluation reached 494.6 mn USD. MTS’ revenue grew by 24.2% to 10.245 bn USD. Results under OIBDA increased to 5.14 bn USD, 21.7% growth. OIBDA profitability is 50.2% (51.2% in 2007). The company’s total debt is 4.1 bn USD: 802 mn USD are nominated in roubles and the rest part is nominated in dollars and euros. The net debt increased by 2.971 bn USD, 8% growth y.o.y. The debt growth is caused by that in 4Q2008 MTS placed the rouble bonds at RUB 20 bn and obtained the credit of 300 mn euro from Gasprombank. In 2009 MTS has to pay off 1.181 bn USD.
Decline in demand for MTS’ services mostly concern corporate sector: ILD/DLD communications and roaming. Most users choose cheaper tariff plans. The company’s authorities are not planning to increase tariffs since subscribers’ incomes are reducing in crisis conditions.
MTS’ CAPEX will be 1.5 bn USD. The company is planning to invest 350 mn USD to maintain the existing networks. 450 mn USD will be invested in development of networks on EDGE and UMTS technologies. 700 mn USD will be spent on unfinished projects and payments to suppliers.
According to analysts, MTS’ statements for 2008 are moderate. Net profit decreased 6-7% since the operator’s debt is nominated in foreign currency, so the company has a loss worth 495 mn USD. Net profit decrease is also caused by drop of ARPU. The results on the company’s revenue on Russian, Ukrainian, Uzbek and Turkmen markets are assessed as positive by analysts. The operator will increase tariffs depending on the situation on the market, experts note.
By the end of 2009 MTS’ revenue will decrease, experts forecast.

Alexander Torbakhov and Boris Nemsich replaced Izosimov in Vimpelcom

Vimpelcom’s shareholders have elected two candidates for the position of director general of the company, which was previously held by Alexander Izosimov. They are the former director general of Rosgosstrakh-Life Alexander Torbakhov and ex-chairman of the Board of Telecom Austria Group (an operator of fixed-line and mobile communications) Boris Nemsich. In April 2009 Izosimov is leaving his post in Vimpelcom. Torbakhov will be in charge of the company’s finance and he will work with Vimpelcom’s corporate centre. Nemsich will be responsible for development and management of the company’s regional structures, for the networks operating, purchases and marketing. The decision to appoint two candidates for the position of the company’s head was carried unanimously by Vimpelcom’s shareholders.
Torbakhov had not worked in telecoms sector before. He held positions in Rinako Plus (an investment company), Deloit and Tush (an international auditing firm). He worked as vice president of the direction of Financial Supermarket in UralSib and in 2005 he became director of the Department ‘Life Insurance” in Rosgosstrakh. His objective in Vimpelcom is the business strengthening.
Boris Nemsich started his career in the telecoms sector in 1990 in Ascom company, where he held the position of director of the subdivision for mobile communications. In 1998 he worked as director of a Mobilkom’s subsidiary in Croatia VIPnet d.o.o. In 2002 he became head of Mobilkom in Austria and member of the Board of directors of Telecom Austria. From 2006 Nemsich was chairman of Board of Directors and director general of Telecom Austria.
The amount of the candidates’ salaries is not disclosed by Vimpelcom. Supposedly it will be 1.5 mn a year.
Over the last years Vimpelcom has achieved significant results on the telecoms market and become one of the leading participants. According to experts it is Alexander Izosimov’s achievement. Under him the company’s capitalization grew, subscriber base increased, the operator’s corporate culture was improved. Currently the company has ambitious goals and so functions of executive and general directors have been divided. This decision may lead to reforming the company’s management.
Vimpelcom’s candidates are competent specialists, analysts note. The collaboration of the financial officer and the foreign specialists of the sector will bring positive results to the company.

MTS acquired managers from Svyaznoy

Maxim Nogotkov, the owner of Svyaznoy network, made the agreement on the company’s managers’ transfer to MTS. The agreement is valid within 3 years. MTS will also obtain the retailing company’s IT-solutions and business processes. The group of Svyaznoy’s managers will be engaged in development of retailing in MTS. This business is now governed by the 100% subsidiary of MTS CJSC RTK, where ex-vice president of Svyaznoy Sergey Rumyantsev has been appointed director general.
Neither Maxim Nogotkov nor the company’s director general Denis Ludovsky are going to change their places of work. The new team of managers will be engaged in development of retailing business according to MTS’ business objectives. The list of the objectives is based upon execution of the operator’s planned sales, subscribers’ stimulating and maintaining the network effectiveness on the whole. The target is to achieve profitability on the level of international retailing networks.
In exchange for the managers Maxim Nogotkov has obtained the reward from MTS. The former Svyaznoy’s team will have to cooperate with the management of Telefon.ru, which was acquired by MTS from the Investment Group Russian Funds.
MTS’ acquisition is assessed as positive by experts. It will allow the company to save time and reduce the operator’s lag from its competitors. This transaction may demonstrate that MTS’ shareholders are not satisfied with current rates of retailing development and they force the company to take unconventional decisions. Experts agree that Svyaznoy’s highly qualified managers will consolidate MTS’ retailing assets and work out the dedicated strategy of promotion on the retailing market.
The transaction may have some implication, analysts note. It will be probably followed by further actions regarding Svyaznoy.
However, Svyaznoy’s personnel is quite strong and the sale of the part of the team will not affect the company’s efficient operating, analysts note.

MTS redeemed Dagtelecom

MTS acquired 25.01% of the chartered capital in Dagtelecom. Thus, the operator is now fully controlled by MTS. In July of 2006 MTS acquired 74.99% of Dagtelecom’s chartered capital from Glaxen Corp, registered on the British Virgin Isles, for 14.7 mn USD and entered the market of Dagestan. Currently MTS’ share in the Dagestan operator is 100%.
Glaxen Corp. realized the option put. The amount of the transaction was 41.56 mn USD. The buying price will be reduced by 12.5 mn USD as MTS provided the loan to Glaxen Corp in spring 2008. Besides, according to the results of the additional analysis and estimate of Dagtelecom’s achievements within the period of MTS and Glaxen Corp’s joint participation, MTS will only pay the seller the bonus of around 10 mn USD.
In present conditions MTS did not intende to acquire the company, but the seller decided to penalize its option. It is quite logical as the value of Dagtelecom’s holding is no more than 30 mn USD. On other hand the costs for the transaction may be considered insignificant for MTS and the operator’s consolidation will create good conditions for further investments in its development.

One share of Svyaznoy was given to Vimpelcom

One Svyaznoy’s share, which belongs to the company’s owner Maxim Nogotkov, was given to Vimpelcom. The share was given as a pledge, connected to making an exclusive marketing agreement between Vimpelcom and Svyaznoy. According to the agreement, Svyaznoy has undertaken to sell 4.8 mn contracts of Vimpelcom annually within three years. The cell operator will pay Svyaznoy 300 mn USD for the sale of its contracts.
The share, given by Maxim Nogotkov to Vimpelcom, gives a right of priority to acquisition of the retailing company by the cell operator in case of non-execution of obligations by Svyaznoy. In the frameworks of the marketing agreement Svyaznoy will obtain 100.8 mn USD annually, i.e. 21 USD for a subscriber. The reward for the sales in 2009 have been already obtained by the retailing company.
In March of 2009 MTS already stated about the agreement with the retailing company. Then the contract concerned the transfer of Svyaznoy’s managers, IT-solutions and business-processes to MTS. According to the data from the retailing company, in 2008 Svyaznoy sold 5.1 mn SIM cards of cell operators (4.5 mn SIM cards in 2007).
Experts have different opinions on the retailing company’s ability to execute its obligations. In the situation of decline in demand it would quite hard to sell such a big number of contracts. However, in crisis conditions Svyaznoy demonstrates good strategy and it probably want to become the leading retailing company of Russia after the crisis.
Vimpelcom does not intend to realize its right of priority to Svyaznoy’s acquisition. This measure demonstrates the operator’s wish to insure itself against possible non-execution of obligations by Svyaznoy. Maxim Nogotkov does not intend to sell the company as well and tries to use most effectively the current situation, working with various operators. On other hand the agreement implies Svyaznoy’s active marketing strategy, indicativing the company’s wish to develop despite crisis.

Synterra is acquiring 50% of MTT’s shares from AFK Sistema

AFK Sistema is selling 50% of MTT’s voting shares to Synterra. Sistema uses the own networks of long-distance communications, for the needs of its subsidiaries, so the sale of MTT’s shareholding is quite reasonable. 50% of MTT’s voting shares are 43.4% of the company’s chartered capital. The amount of transaction is 54 mn USD. The part of the money will be directly paid by Synterra and another part will be returned due to repaying of MTT’s debt to AFK Sistema. Synterra is acquiring the asset with debts worth over 140 mn USD.
In the end of 2007 Syntrerra had already tried to redeem 100% of MTT’s shares. In 2008 Sistema’s Board of directors approved the sale of 50% of the company. The transaction was assessed at 400 mn USD. Synterra also obtained approval of FAS for this acquisition, but it failed. In the beginning of 2009 the fund Gamma Capital, controlled by Jeffrey Galmond, declared it had left MTT’s capital. Previously the company had owned the rest 50% of MTT’s shares. Eventis Telecom and the offshore company Danmax acquired 25% of the company each. The transactions were completed before crisis. Their amount was around 40 mn USD.
We remind that over a half of MTT’s revenue is contributed by cell operators’ voice traffic transit. In 2007 the company obtained RUB 13.1 bn, providing these services. Last December the Ministry of Communications allowed operators to use their networks for intranet traffic communications.
According to experts, the transaction between Synterra and Sistema was planned long time ago. The companies had to coordinate the conditions. For AFK Sistema this asset is not so necessary in current conditions since the holding uses its own networks. And for Synterra MTT may become one of the reasons for creation a big operator of fixed-line and cellular communications. MTT is also interesting for Synterra due to its developed network of main-line channels.
Experts have different opinions on the value of 50% of MTT for lack of information about the precise amount of the company’s debt. The approximate amount of the transaction may vary from 120 mn USD to 150 mn USD. The acquisition of MTT may be considered as strategic since to company is acquired as an addition to Synterra’s major business. Perhaps, Synterra’s further actions will be targeted to creation of a big company in cooperation with Megafon.

Altimo is selling a part of shares in Turkcell

The telecoms holding Altimo, controlled by Alfa Group, sold 62.2% of Alfa Telecom Turkey Limited (ATTL) to Nadash International Holdings Inc. and Henry Services Limited (HSL). The first purchaser is affiliated with the Kazakh Visor Group and the second buyer is owned by a Russian businessman Alexander Mamut. As a result of the transaction Altimo has reduced its share in Turkcell from 13.22% to 4.99%. The amount of the transaction is around 90.2 mn USD.
The decrease of the share in Turkcell is carried out in accordance with the demand of the US Federal Court of the Southern Circuit of New York, which is considering the claim of the Norwegian telecoms holding Telenor against the Russian Vimpelcom. The claim concerns violations of the agreement between Kievstar’s shareholders – a disputable Ukrainian asset, which belongs to both companies. In mid 2007 Altimo received a number of resolutions from the court, according to which the company had to take part in a meeting of Kievstar’s shareholders and reduce its share in Kievstar’s competitors to 5%. Turkcell is one of Kievstar’s competitors, owning 55% of the Ukrainian operator Astelit.
In case the resolutions of the court were not executed, Alfa Group would have to sell 43.5% of Kievstar. The court obliged the Russian holding to transfer its shares of Kievstar to a special deposit and give the court authorities to sell the shareholding. As a result the shares were not transferred to the deposit and the court imposed a fine of 100 thousand USD daily until the resolutions were executed. The transfer of Kievstar’s shares, owned by Altimo, is complicated since this shareholding has been already arrested by the court of Ukraine under the claim of the Swiss EC Venture.
Experts point to Altmo’s strategic priority. The priority is the control over the Ukrainian cell operator Kievstar. Decreasing the share in Turkcell, Altimo tries to protect its strategic investments and the company is ready to sacrifice other, less significant assets. Currently the conflict between Telenor and Vimpelcom has not been settled yet, experts note. On other hand Altimo may sell its shares of Cukurova Telecom Holding on condition of the right of priority to buyback. In this case the holding will lose nothing and even avoid obligations to sell Kievstar’s holding.
Besides, experts point to legal differences in Russia and the USA. Decisions, taken by the US courts, may not be executed in Russia. On other hand Altimo tries to execute resolutions of foreign courts since the company run its business overseas and intend to develop it. Anyway this transaction does not mean any significant advantage in the conflict between Telenor and Vimpelcom.

Synterra is of interest to MegaFon and Comstar-UTS

The cell operator Megafon is interested in acquisition of Synterra. At the forthcoming meeting of the company’s shareholders they intend to discuss plans on development of the market of broadband access. The programme may be realized in two ways: 1) by acquisition of alternative operators of communications; 2) due to own efforts. Megafon’s authorities do not comment on the negotiations with Synterra. However, Megafon’s specialists have already started auditing the company. We note that Comstar-UTS has also showed interest to Synterra.
Megafon is the only Big3 operator, which does not possess assets of fixed-line communications. According to experts, Megafon is interested in Synterra’s acquisition since it will contribute to the increase of the operator’s competitiveness. Besides, Megafon has no debts. This will allow the company to make the acquisition with minimal costs and risks in unstable financial situation in the telecoms sector. The amount of the transaction may be around 500 mn USD, experts say.
In case Synterra is acquired by Megafon, the operator can expect for 25-27% of the market of main-line channels and the increase of subscriber base. Analysts wonder whether Promsvyaz Bank’s decision regarding the sale of the business is reasonable in crisis conditions, when assets are cheapening.

Synterra is negotiating the acquisition of Start-telecom

Promsvyazbank is negotiating the acquisition of Start-telecom. They are planning to integrate the asset in Synterra’s business. 100% of Synterra belong to Promsvyazbank. Virgin, Synterra and a holding, created on the basis of the Ukrainian Advanced Systems were among the possible purchasers. Currently Synterra’s shareholders are negotiating the acquisition.
The major part of Start-telecom’s revenue is contributed by main-line channels leasing. The revenue from this direction grew 2.4 times to RUB 1.2 bn in 2008. However, WiMAX services provision has remained strategic for the company since it is more profitable segment than channels leasing.
In 2009 Start-telecom is planning to construct WiMAX network in 10 towns of the Central Federal Region. The amount of investments and the number of towns are not disclosed in the company. The company intends to expand its business on channels leasing: in 2009 Start-telecom is planning to enter the main-line market in the Southern and Ural Federal Regions.
The transaction is quite logical for Synterra, analysts say. Acquiring Start-telecom Synterra obtains the well-developed interoperating business and a number of big clients. Besides, Start-telecom has a promising project on WiMAX development in regions. According to some experts, Start-telecom’s value is around 200 mn USD without taking the company’s debt into account. However, other experts say this amount is too optimistic and assess the company at 80-100 mn USD.

Euroset promises MTS to connect 7.2 mn subscribers

After the agreement with Svyaznoy concerning its managers’ transfer to MTS, the operator is planning to make a partnership agreement with the biggest cell retailing company Euroset. MTS negotiated with Euroset that the retailing company would sell 7.2 mn contracts of the operator for the royalty worth 172.8 mn USD. Currently the commercial conditions of the transaction have been only negotiated.
Last September, approving the transaction of the acquisition f 49.9% of Euroset by Vimpelcom from Alexander Mamut (now the entrepreneur owns 50.1%), FAS ordered the retailing company not to create discriminating conditions to other operators. Currently the share of Vimpelcom’s contracts is reaching 60% while the share of MTS’ contracts’ sale is only 20%. After the agreement with MTS the operator’s share may exceed 35%.
According to analysts, this practice has existed since 2006, but neither operators nor retailing companies try to disclose conditions of the agreements made. The situation on the cell retailing market is the following: Euroset holds 30% of the market, Svyaznoy’s share is 19%, Eldorado (including cell salons and shops) - 10%, Telefon.ru – 3.5% and the rest retailing companies – 37.5 %. Before last autumn MTS’ contracts had been sold mainly in Euroset so the transaction of the company with Vimpelcom affected the operator.

Starnet is offered for sale

An American businessman Peter Hervy has finally refused to develop housing networks in Russia. Starnet’s shareholders, including Hervy, are looking for a purchaser for their asset, subscriber base of which is around 30 000 people. Last autumn Hervy’s representatives started looking for a purchasers and they expected to obtain 900-1000 USD for a subscriber. However, they could not find a purchaser. Currently Hervy’s representatives have started negotiating again and the company’s subscriber is assessed at 250 USD. Comstar and NetByNet are among potential purchasers of Starnet.
Starnet’s minority shareholding was acquired by Peter Hervy in 2005. The businessman possesses around 40% of the company. Other Starnet’s owners are the owner of Regional Media Group Ivan Tavrin and the group of Russian and foreign investors. Fat Pipe company, registered in Cyprus and owned by Hervy, acquired 51% of the Moscow housing network Korvet-telecom. Then Hervy stated he intended to invest in the segment of broadband Internet access “millions of dollars” from the money, earned by him on IPO CTC Media. The businessman expected that in a few years the operator would become one of the leaders of the Moscow market of broadband access and pay TV. However, in 2007 Korvet-telecom was sold to the holding National Telecommunications for 30 mn USD.
According to analysts, the average price for a subscriber of broadband access is now 350-400 USD. Thus, Startnet may be sold for 10.5-12 mn USD. Peter Hervy had an option: to develop the network either from the beginning or due to acquisition of small assets. However, this business is not core for Hervy so he decided not to invest in it.

MTS and Comstar-UTS resumed negotiations about consolidation

The consolidation of MTS and Comstar-UTS was discussed at the meeting, where both companies’ managers and representatives of AFK Sistema, the company’s major shareholder, participated. However, the parties cannot agree on the value of Comstar-UTS: according to MTS, the value is 850 mn USD, while Comstar assesses itself at 2.2 bn USD.
The major owner of Sistema, controlling MTS and Comstar-UTS, Vladimir Yevtushenkov stated about the possible merger of the subsidiaries in September of 2008. However in a month the businessman declared the matter of the consolidation was postponed due to financial crisis.
Consolidation of MTS and Comstar may be considered as a response to Vimpelcom, which acquired an operator of fixed-line communications Golden Telecom for 4.35 bn USD in February 2008. However, recently Vimpelcom’s director general Alexander Izosimov stated the effect of this consolidation had not shown fully yet. Previously Izosimov had expected to save 437 mn USD within several years, cutting costs for network, equipment, etc. The current amount saved is not disclosed by Vimpelcom.
Analysts remind in case the transaction is made, MTS may face problems with the Antimonopoly Service since the operator holds a considerable share on the market (34.2% of cell subscribers, according to the data from AC&M Consulting) and MGTS, included in Comstar-UTS, is a monopolist in Moscow. Besides, FAS may take into account that Comstar-UTS possesses the blocking shareholding in Svyazinvest, experts note. FAS has not received any applications from MTS and Comstar-UTS yet.

The number of WiMAX subscribers doubled

In 2008 the number of WiMAX subscribers across the world increased by 120% to 3.9 mn users, sales of equipment and devices increased by 188% and 121% accordingly, according to the estimates of analysts from Infonetics Research. In 4Q2008 the market of WiMAX equipment remained the same as in 3Q2008 (around 275 mn USD). At that the share of mobile WiMAX increased to 70%.
In Russia wireline access to WiMAX networks is currently prevailing. However, constructing new networks, operators will probably focus on equipment for mobile WiMAX. On the whole when assessing the Russian market of mobile WiMAX, experts emphasize networks construction. In 2008 the most important event on this market was construction of several WiMAX networks. They are Scartel’s and Comstar-UTS’ Moscow networks, that are currently being tested. Synterra’s WiMAX mini network, developed in Aprelevka in cooperation with a local operator systems of Telecommunications, was put into commercial operation.
According to analysts, in 2009 the major problem when putting the networks into operation will be provision of the town coverage with network. According to some analysts, the problem of the networks development will concern competitiveness with networks, created on the basis of other technologies. Russian operators mostly develop 3G and WiMAX networks in big cities, where they will face strong competition with other networks of broadband access, such as ADSL, cable networks and Wi-Fi. The market of mobile WiMAX is too highly tailored.

Sitronics will provide Russia with own microchips

Sitronics is negotiating the creation of a joint venture with Rosnano. The joint venture will be supposedly engaged in production of microchips (90nm) at the Micron plant. The negotiations have just begun and the final decision has not been taken yet by the state-owned corporation. Rosnano will finance the creation of the production line and it may obtain 49% of share of the new joint venture. The negotiations concern investments worth tens millions dollars.
With investments Rosnano is planning to improve the existing line of chips production (180nm). It will take Sitronics 2-3 years to launch the project.
According to analysts, the leading world producers of microchips Intel and ADM are currently using technologies of 45-65 nm. Sitronics’ project should not be compared with modern technologies of chips production for computers. On the basis of technology of 90 nm they can make quite profitable and competitive products for mass market: SIM cards, RFID chips, used in particular in transport cards and chips for GLONASS receivers. The technology is quite urgent since such chips will be in demand for several years, for example in consumer electronics. While the plant is being modernized, the company will have to study thoroughly possible markets, other experts say. To make the project successful and large-scale, it is necessary to develop the industry of high-tech products for mass marker in Russia. Currently we have few consumers, interested in microchips. However, these chips may be of interest to foreign producers and the share of export may come to 50%.

Megafon is creating a cell discounter

Megafon has decided to start creating a model of MVNO. The company is planning to take a niche of cell discounter, still free in Moscow, and the operator is making an offer “Simply for Communications”.
The services will be provided on the basis of Megafon’s network, but the project is positioned as a separate direction: the advertisement will not contain the operator’s name. The virtual operator has obtained an own federal code (929), own billing, an office and services of subscribers’ support. The operator’s contracts can be acquired in the office or from dealers: the network of dealers will consist of no less then 2 thousand stores. Subscribers, connected to “Simply” will be only able to call and sent text messages, no additional services are implied. The prices for a call inside the network will be RUB 0.05 and RUB 2.5 for a call to numbers of other cell operators (including Megafon) and fixed-line phones. Text messages will cost RUB 0.05.
The project investments are RUB 200 mn, including the advertising campaign. Sonic Duo intends to cover the costs within a year. By 2010 Megafon intends to connect 1 mn subscribers to the new tariff plan and in the long-term outlook the operator is planning to take 5% of the Moscow market. According to the company’s expectations, ARPU of this tariff plan will be RUB 250.
Since 2005 Euroset and Narodny Mobilny Telefon have been testing their MVNOs, but such operator still does not exist in the country for lack of the corresponding legislative base. In the beginning of 2009 Minister of Communications Igor Shegolev signed the order on peculiarities of licensing the activity on mobile radio telecommunications services provision. The order includes requirements for providing cell communications services by MVNO.
According to analysts, this project resembles an ordinary tariff plan with a limited number of services and distribution, low for the Moscow region – few stores compared to other mass offers. Nevertheless, “Simply” may gain the goal set. Megafon unlike MTS with its project A-Mobile, preferred to conceal its name and not to “force” the process. Thus, the operator may sell its services to those subscribers, who do not prefer Megafon for some reasons.

Vimpelcom agree with Sberbank about two credits

Vimpelcom and Sberbank informed about opening of two non-renewable credits. The first credit (RUB 8 bn) is given at 19% interest per annum, the term of payment is December 2011. The second loan is made at 13% interest per annum till December 2012. Both credits are secured with Vimpelcom’s telecoms equipment. The company promises to spend the funds on refinancing its debt, nominated in foreign currency and on the business development.
As of the end of December 2008 Vimpelcom’s total debt was 8.7 bn USD, 76% of the debt were nominated in USD and 8% were nominated in euro. In 2009 the operator has to pay off 1.84 bn USD and in September the operator had 727 mn USD. The company also declared its plans to place three series of bonds, RUB 10 bn each, for a five-year period.
According to analysts, Vimpelcom has not manage to obtain good conditions: credits are secured, the interest rates are quite big and half of the loan is nominated in USD, though companies with the rouble revenues try to convert even their debts to roubles. Vimpelcom had already obtained credits on security – for example, in 2004, and in crisis conditions banks’ conditions are tougher. Currency for the credit is not only defined by Vimpelcom, but by the funds availability in banks and their prices.

Euroset may create a joint venture with the MDM bank

Euroset and the MDM bank have created a working group on promotion of common financial projects. So far, the negotiations are on the early stage. The companies are interested in the market of money orders across Russia and the CIS.
In the autumn Alexander Mamut told he intended to sell 25% of the company for no less than 150 mn USD to a financial retailing company, which would obtain the right to promote exclusively its services in Euroset’s shops. Then the businessman informed that Russian Standard, Home Credit and Alfa Group had shown their interest to the transaction.
The idea to use the cell salons network for financial retailing development is not new. Last June KIT Finance signed the partnership agreement with Svyaznoy on the project Svyaznoy-credit. They were planning to open offices (300) for credit cards distribution, cash credits, etc. The total investments, made by KIT Finance within 5 years, would have to be 80 mn USD. However, after KIT Finance had been acquired by RZD and ALROSA, the project was frozen.
Accordng to the number of shops Euroset’s retailing network only lags behind Post of Russia (42 thousand offices) and Sberbank (20 thousand offices). However, it will be difficult for Euroset and the MDM bank to enter the market with a new system of money orders due to strong competition, analysts say. According to their estimates, the costs on the system’s launch may be from several tens thousands to several millions dollars. Besides, amounts of orders have reduced because of crisis. In 4Q2008 the amount of orders, made by the leading systems overseas, reduced by 24% q.o.q. to 3.4 bn USD. The orders to the CIS countries (over 90% of the total amount) reduced by 25.1% to 3.1 bn USD. In 2009 the number and the amount of orders will be only reducing.

Rostelecom withdrew its application about acquisition of Sky Link from FAS.

The biggest operator of long-distance communications Rostelecom (51% belong to Svyazinvest) withdraws its application about the acquisition of 100% of the cell operator Sky Link from FAS. Svyazinvest’s new director general Yevgeni Yurchenko will not approve the transaction before the holding’s development strategy is confirmed.
We remind in mid February the operator submitted the application about the acquisition of Sky Link to FAS. Previously AFK Sistema had tried to consolidate 100% of Sky Link: last autumn FAS even approved its application about the operator’s share purchase. However, Sistema lost interest to the operator due to the conditions, laid down by FAS: within 3 years the corporation would be obliged to sell Sky Link’s GSM assets, the value of which, according to experts, is around 50 mn USD. Last autumn Sky Link divided its business, giving CDMA licenses for work in 30 region and GSM licenses for 45 regions to its separate subsidiaries.
According to analysts, Svyazinvest will probably want to maintain Rostelecom’s funds in crisis situation and even refuse the acquisition of Sky Link at all. Entering new markets (of cell communications and broadband Internet access) is positive, but the question concerns the price.

3. Tension Lines

MTS terminated franchising agreement with Betalink

MTS is rejecting services of the cell retailing company Betalink. The partnership between the two companies was provided by the franchising agreement, made around a year ago. In current unstable situation, connected to the world crisis, Betalink has become almost a bankrupt, closing most of its salons and not paying its debts. And MTS on the contrary has acquired the retailing company Telefon.ru and thus, provided itself with the acceptable level of its contracts’ sales. Besides, MTS brought the claim against Betalink for the refusal to return loans, given by the operator for the company’s development. The amount of the debt is around RUB 840 mn.
According to MTS, the agreement with Betalink as well as spending additional funds on the agreement is unprofitable for the operator in current conditions. The legal questions of the agreement termination will be settled in the nearest future, representatives of MTS say. The retailing company has not commented on the situation yet. The franchising agreement between the companies was made when Betalink’s network contained 650 salons of communications and the company’s market share was around 5%. According to the agreement, Betalink had to transfer its salons under MTS brand and refuse to sell other operators’ contracts. In return MTS paid a monthly royalty and gave a credit worth RUB 840 mn for the retailing network development. This amount was claimed to the Moscow Arbitration Court. Probably, the parties did not manage to agree or Betalink was not able to return the money.
Betalink could be saved if it was acquired by a potential investor. The offer about the company’s acquisition had been made by Euroset, but the transaction was not made.
According to experts, it is difficult to assess chances of the companies for win in court. The reason is that the most important information on the franchising agreement is commercial classified information. On other hand Betalink’s financial situation is extremely difficult and the company’s authorities will be hardly able to continue running business.
Experts note dramatic revival of transactions on mergers and absorptions. Betalink will be probably added to the list of companies, acquired for consolidation or involvement in existing telecoms holdings. Due to the court hearings the retailing company’s value may be cut. The company will hardly become bankrupt.

Altimo and Telenor: solving the problem at the level of the Norwegian government

Norwegian Minister for Commerce and Industry Sylvia Brustad and Russian Vice Prime Minister Viktor Zubkov discussed the problem of Vimpelcom’s claim of 1.73 bn USD, answered by the Omsk Court, against the Norwegian holding Telenor. We note the Norwegian government acts as the major shareholder of Telenor. In October 2008 Sylvia Brustad and Viktor Zubkov considered this problem in the context of the conflict between Altimo and Telenor in Russia.
We remind, primarily the claim was sent to Altimo, managing telecoms assets of Alfa Group, and the Norwegian holding Telenor, which are Vimpelcom’s shareholders. Farimex company accused Altimo and Telenor that they had prevented Farimex from entering the Ukrainian market within a year and thus caused financial losses to the company. Telenor spoke against the acquisition of the Ukrainian Radio Systems by Vimpelcom. According to 8th Arbitration court of Appeal, Telenor was guilty in the conflict and it answered the claims. The Norwegian holding will contest the court’s decision. Telenor’s authorities in the person of the company’s president Kjell Morten Johnsen suspect Altimo and Farimex of the collusion since Altimo had brought the similar claim against Telenor in Geneva. According to the member of the Norwegian Ministry for Commerce and Industry Krisitan Grontes Halvorsen, Telenor has to have chances to protect its interest on the legal basis. Supposedly the problems around Altimo and Telenor’s conflict will be considered in Oslo at the meeting of the intergovernmental Commission in May 2009. Representatives of Russia state it is a conflict between two companies and the governments should not interfere. Besides, we remind in 1995 the law on protection of capital investments was made between Russia and Norway and according to it Telenor is able to recover the loss in case the national court does not give the company such a chance.
Besides, head of Telenor Russia Kjell Morten Johnsen offers Altimo to exchange assets: Telenor obtains 43.5% of Kievstar, owned by Altimo, and returns Altimo 4.9% of Vimpelcom’s shares and pays for a part of Kievstar’s shares with money. Vimpelcom’s shareholding costs 260 mn USD and the shareholding of Kievstar is 4.7-5.2 bn USD. Altimo’s asset in Kievstar is around 2-2.3 bn USD. In case Vimpelcom’s shares are sold to Altimo by Telenor, the Norwegian holding’s authorities would like to return the asset without permission of the Russian government. Foreign investment companies, controlled by the foreign government, need the government’s permission to increase their share in the company, if it is over 25%. The legislation does not imply any exceptions.
According to analysts, due to the government the Norwegian company may expect that the decision of the Omsk court will be contested. Besides, neither the companies nor representatives of the government bodies will benefit if the situation becomes more complex since this may make Russian companies unattractive for foreign investors.
The government’ interference in the corporate conflict will not change the Russian court’s decision and the RF Higher Arbitration Court will be only able to terminate this protracted conflict, some analysts say. According to others, the decision of the Omsk Court is rather disputable. In particular, at the meeting of Vimpelcom’s Board of directors they discussed the question on the acquisition of the Ukrainian Radio Systems. The decision was not made because of two directors who had voted against acquisition of the operator. Nevertheless finally Vimpelcom acquired the Ukrainian Radio Systems. It was estimated that Telenor’s representatives had voted against the acquisition and the court declared their actions as illegal. Altimo’s loss was considered by the court, referring to the law “On Joint Ventures”, according to which the claim is to be imposed from the natural person instead of the legal entity.

CNES miscalculated the loss, caused to Vimpelcom by Telenor

At the request of the Khanti-Mansiisk Court the Center of Independent Expertise of Property (CNES) was assessing the loss under Vimpelcom’s claim against Telenor, which, according to the accuser, had prevented the operator from entering the Ukrainian market. Telenor appealed to 8th Arbitration Court of Omsk. The Court reduced the fine to1.73 bn USD. According to Vedomosti, there is a mistake: analysts took the losses of the URS for profit.
We note the amount of the fine consisted of the statements, which could increase Vimpelcom’s shares price, if the operator had started working on the Ukrainian market on November 4th 2004. Besides, the amount of the loss is summed up from the potential users’ incomes. The lost profit was calculated in the following way: net profit per subscriber was divided by the number of lost users. Then experts from CNES divided Vimpelcom’s and URS’ net profit by the number of their subscribers. As a result the amounts were approximately equal: 23 bn USD and 22 bn USD accordingly. However, analysts from CNES did not take into account that then the Ukrainian operator had been an unprofitable company. Besides, they did not take into account that ARPU of operators in Russia is different from ARPU of cell companies in Ukraine.
According to experts, the methods of the loss calculating are doubtful. However, Telenor will not study the calculations of CNES in details since the company does not agree with the court’s decision, analysts add.

Betalink asks to be declared bankrupt

The cell retailing company Betalink applied to the Arbitration court of Moscow to be declared bankrupt. Betalink is the first company in this field, submitting such an application. The company’s total debt is 160 mn USD. Besides, MTS, recently terminating the franchising agreement with Betalink, demands around 23.5 mn USD from the company in legal form. The agreement was made in October 2008. According to the agreement, Betalink was obliged to transfer all its salons under MTS brand and it refused to sell other operators’ contracts. MTS had to pay a monthly royalty to Betalink and give the company the credit worth RUB 840.7 mn for the network development. In February 2009 MTS terminated the agreement and brought the claim to the court. The application of bankruptcy was registered in the Arbitration Court of Moscow on March 6th of 2009.
Currently most of Betalink’s salons are closed.
Another cell retailing company Dixis has similar problems. Recently the company has been the 4th leading retailing company on the market. In November 2008 Dixis was acquired by Alfa Bank. Afterwards they created a new legal entity, where they planned to transfer the whole business of the retailing company. However, the company’s management was not able to solve its financial problems with its creditors and as of the beginning of 2009 only 20 of Dixis’ salons worked.
Experts agree Betalink has serious financial problems. The company was developing due to loans. Due to decline in purchasing capacity, more expensive equipment and the rouble devaluation Betalink has no way out now. As a result the company applied to be declared bankrupt. To save the business Betalink could be acquire by one of cell operators. However, lack of such transactions demonstrates the company’s weak position on the market.
Besides, the situation with Betalink is quite obscure. Firstly, the company has not published its statements and it is difficult to assess the company’s real debt. Secondly, besides the procedure of bankruptcy there are a lot of other options to solve such problems. Anyway Betalink applied to the Arbitration Court to avoid quite big payments of credits.

Byelorussia threatens to include MTS in the list of monopolists

The Ministry for Economics of Byelorussia sent a letter to MTS’ subsidiary (controls 52% of the Byelorussian market, according to the company), demanding to reduce tariffs, which had been increased by 18% since the beginning of the year, and threatened the company to include it in the list of monopolists.
In the beginning of February cell operators MTS, Wellcom and Belcell stated about the increase of tariffs due to the national currency devaluation by 20%, According to the National Bank of Byelorussia, since January 24th of 2009 the value of the Byelorussian rouble decreased by 28.86% to 2835 roubles for a USD.
Byelorussia is not the key market for MTS: in 3Q2008 the operator’s subscriber base was 4.16 mn of active SIM cards, i.e. almost 15 times as less than the operator’s subscriber base in Russia and 4.5 times as less than in Ukraine. Nevertheless, according to MTS, the company takes 52% of the local cell market. The company does not disclose its revenue in Byelorussia, as it only owns 49% in the local operator, the rest part is state-owned. We remind the RF Minister of Communications Igor Shegolev declared that the regulator in cooperation with FST and FAS would take measures in case of the collusion between operators of communications regarding the increase of prices.
According to experts, FAS may interfere in price policy of Russian operators. Even if the company is not declared monopolist, FAS can do this after the company increases tariffs, impacting competition. In case the operator is declared monopolist it is to submit its tariffs to FAS’ approval.
According to analysts, operators will hardly avoid the increase of prices in the CIS since the have big currency debts. They will probably increase prices for several tariff plans and leave cheap tariffs plans with a small number of functions for low-income groups.

Igor Shegolev criticized the situation around satellite resource

The extraordinary meeting, presided by Minister of Communications Igor Shegolev, was held at the Ministry of Communications. The meeting was devoted to the failure on the satellite Express AM-1, happened on March 2nd. Minister criticized the situation and demanded to take measures to avoid loss of signal for TV broadcasting in future. At that Minister demanded to toughen conditions of competitions for new satellites development to make a producer responsible. Representatives of Rossvyaz, Roscosmos, State Enterprise Space Communications (GPKS), OJSC Information Satellite Systems named after Reshetnev, RTRS, Rostelecom and Svyazinvest participated in the meeting.
We remind on March 2nd at 1.26 pm Express AM-1 lost its bearing that led to disconnection of channels-transmitters. The situation was remedied. Minister confirmed the scheme of interaction, according to which once in six month all participants of the process would exercise to prevent and react to such situations in future. Naum Marder was charged of the process coordination.
The situation with the Russian satellite group, which is under the authority of GPKS, is dramatic. Most of Express A and Express AM satellites are in emergency condition. Due to this in 2009 GPKS may hold the competition for creation at least 6 space machines. This approach will allow to meet needs of Russia’s state and private users in modern and quality satellites (including those for Russian TV and radio broadcasting).

Problems with Internet in schools

Russian educational institutions, connected to the Internet, have reduced considerably the Internet traffic consumption. In January 2009 the traffic was 22433Gb (35454 Gb over the same period of 2008). This is mentioned in the report on monitoring, carried out in the frameworks of the activity “Provision of traffic for schools, connected to the Internet in 2006-2007”.
According to the report, as of February 18th of 2008 22.8 thousand of 52 thousand of the connected schools were financed by regional authorities and 27.4 thousand were still sponsored from the federal budget. The Tula and Voronezh regions were called the most undeveloped.
At that over last year the average amount of consumed Internet traffic varied from 3Gb for one school (the Jewish Autonomous Region) to 1 Gb (the Stavropol region).
On the whole the use of Internet by schools is extremely uneven. For example, in Chechen Republic the monthly school traffic has grown from 154 to 256 Mb. The Nenetski Autonomous region, Marii El, Chuvashiya, the Moscow and Volgograd regions, the Krasnodar region are being developed positively in this direction. The situation in the Volga region, Ural and Central Federal Regions is stable.
Nevertheless, there are regions with problems.Tthe worst region is the Far East, where the Internet traffic reduced more than 10 times. Schoolchildren from the Tyva Republic are now consuming the traffic 6 times as less. The Internet traffic consumption has almost halved in schools of Dagestan, Kalmykiya, Northern Osetiya.
The problem concerns transfer of the progamme under regional budgets. Regional authorities are not interested in the project. Currently their objective is to save money due to anything. Sometimes schools’ directors are even ordered to reduce the Internet use and many Internet-classes are closed. The situation will not improve until they decide why and who this project is interesting for.

4. Business and Authorities

The Ministry of Communications initiated introduction of fee for militaries for radio frequencies use

The Ministry of Communications has worked out amendments to the law “On Communications”, concerning introduction of fee for the use of frequencies, including by force structures. This was stated by Minister of Communications Igor Shegolev at the session of the Federation Council, held on February 20th. The amendments have already been received in State Duma. The fee for the frequencies use will be defined by the RF government depending on factors of the frequency range use. All money obtained will come to the federal budget.
In case the amendments are approved, the fee for frequencies will be divided in two parts. The new bill implies “the fee for the use of radio frequency range” and “ the fee for provision of the appropriate use of frequencies or radio frequency channels, radio electronic means and high-frequency devices’. According to the Ministry of Communications, the fee will not exceed the current one and it will be divided in two parts. The new bill will oblige force departments and the Ministry of Defense to pay the fee in case the frequency is used for civil purposes. Currently 5% of the frequency range is only in civil use, the rest frequencies are controlled by the RF Ministry of Defense.
According to the amendments made, the fee for provision of the appropriate use of radio frequencies, radio frequency channels and the corresponding equipment will be received by the Radio Frequency Service. Work of the Service will be on contract basis. Thus, the Radio Frequency Service will somehow become a monopolist on the market of frequency users servicing. Tariffs will be controlled by the government.
Previously the Ministry of Communications in the person of Deputy Minister of Communications Naum Marder had had the opposite view that frequencies for militaries had to be free of charge. According to the Deputy Minister, in case of the fee introduction the Ministry of Defense will ask for money from the federal budget and then return them to the budget again.
According to experts, the fee for frequency range use will not solve the problem. It is necessary to take a number of considered and successive measures to solve effectively the one of the most urgent problems. The problem is that no one from the Ministry of Defense can answer how effectively frequencies are used and to what degree telecoms companies could expand without threat to the country’s national security.

40% of  Rostelecom’s shares were received by Gasprombank, VTB and Sberbank under repo agreements

Shares of Rostelecom were obtained by three state-owned banks. 40% of the shares were given to Gasprombank, VTB and Sberbank in the frameworks of the repo agreements of the investment bank KIT Finance. Supposedly, Vneshekonombank will redeem the shares from the bank.
KIT Finance was consolidating Rostelecom’s shareholding within three years, buying the shares on exchange. The bank also provided the share price of RUB 220 per an ordinary share to support credit capacity of Rostelecom. Last autumn KIT Finance was close to bankruptcy and it was acquired by the consortium, consisting of RZD and ALROSA. Besides, the bank obtained the credit worth RUB 42 bn from Gasprombank.
As a result of non-execution of obligations under repo agreements, Gasprombank obtained 20% of Rostelecom’s shares. VTB obtained 5% and the rest shareholding was given to Sberbank. Vneshekonombank has already asked Ernst&Yung to assess Rostelecom’s shares. The decision on Rostelecom’s shareholding consolidation will be made by the government in the nearest future.
Rostelecom is the biggest operator of long-distance communications across Russia. The company was founded in 1993 under the order of Gosimushestvo. OJSC Rostelecom contains 20 enterprises, providing ILD and DLD communications services. According to the results of 1Q2008 the company’s revenue was RUB 30.6 bn, net profit was RUB 5 bn. the operator’s control shareholding belongs to Svyazinvest, the rest shares circulate on Russian exchanges and NYSE. (16.03.2009)
According to experts, the transfer of Rostelecom’s shares from KIT Finance to the three state-owned is technical and it is the result of non-execution of obligations by KIT Finance. The nominal shareholder has changed and currently the banks would not like to acquire Rostelecom’s shares because they are overpriced. The further consolidation of Rostelecom by the state is possible, experts note. They also assess positively the idea of the shareholding’s consolidation in Vneshekonombank.
On the whole the current events may be considered as signed of the further Svyazinvest’s privatization, experts reckon. They agree the government may be the only candidate for the privatization since within crisis it can invest money in long-term projects due to its accumulated funds. Svyazinvest may become another state-owned corporation.

Ernst & Young is assessing Svyazinvest’s assets

The audit firm Ernst&Young made agreement with the state-owned holding Svyazinvest, concerning assessment of Svyazinvest’s assets. The holding initiated the transaction in the frameworks of the possible redemption of 25% +1 share, owned by Comstar-UTS. The auditor has already started to assess. After the assessment, the government will obtain the ground to make other transactions, for example redemption of 40% of Rostelecom, which are now divided between VTB, Gasprombank and Sberbank.
Previously this shareholding of Rostelecom was controlled by KIT Finance. As a result of non-execution of obligations under repo transactions the shareholding was given to the three banks.
Svyazinvest’ assets’ assessment was initiated on a commission of Vice Prime Minister Sergey Ivanov, who ordered the Ministry of Communications to work out options of a non-monetary transaction to return the blocking shareholding of Svyazinvest to the government. 25%+1 share of Svyazinvest were sold to Mustcom consortium for 1.875 bn USD in 1997. George Soros and Vladimir Potanin were acting as participants of the consortium via the affiliated structures. Later in 2004 George Soros sold his share in Svyazinvest to Leonard Blavatnik’s Access Industries for 625 mn USD. In 2006 this shareholding was acquired by Comstar-UTS, controlled by AFK Sistema, for 1.314 bn USD.
Since Vladimir Yevtushenkov had not been able to realize fully his plans regarding Svyazinvest he requested the RF government to redeem the blocking shareholding from him. The profile ministries and departments do not mind the transaction, though the federal budget lacks funds for such a purchase, according to them. Currently the conditions of the acquisition of Svyazinvest’s blocking shareholding are obscure. According to one of the variants, Svyazinvest’s shares will be returned to the government in exchange for forgiveness of the credit, given to Comstar by Sberbank (around RUB 26 bn). Besides, Comstar would like to obtain 26% of MGTS’ ordinary shares and 51% of ordinary shares of Central Telegraph. Comstar-UTS has already tried to acquire the shares of MGTS and Central Telegraph, but the parties did not agree on price.
Moreover, the government was not interested in selling these companies’ shares.
Assessment of Svyazinvest’s assets by the government is a positive step, experts say. The parties are probably interested in the problem settling. The government will be able to get a possibility to reorganize Svyazinvest and AFK Sistema will be able to get rid of unprofitable debts and acquire several necessary assets. The parties only need fair and understandable figures to work with. The government will be probably able to return the blocking shareholding without taking funds from the federal budget.
The value of Svyazinvest’s shareholding, owned by Comstar-UTS, exceeds the values of assets the operator wants to obtain. Thus, referring to the assessment of Ernst&Young, Sistema will try to reduce its subsidiaries’ debts. According to analysts, Svyazinvest’s reorganization will depend on a new team of managers and we should expect new appointments.

The Ministry of Economic Development consented to digitalization

The Ministry of Economic Development approved the concept of the Federal special-purpose programme on transfer to digital broadcasting, offered by the Ministry of Communications, without making any changes. The document, in which digitalization of broadcasting in Russia is assessed at RUB 127 bn, has been sent to the Ministry of Finance.
The Ministry of Communications finished the work on the federal special-purpose programme last December and submitted it to the Government Commission on TV and Radio Broadcasting, presided by Sergey Sobyanin. Authors of the federal special-purpose programme assessed the process of digitalization at RUB 127 bn, RUB 80 mn of which they expect to obtain from the federal budget. Due to the budget money 8 obligatory channels will be only transmitted and the rest channels broadcasting will have to be financed by private investors. RUB 47 bn, which are planned to be obtained from private investors, are planned to be spent by the authors on different components of the programme: construction of satellites, ground infrastructure or end equipment (set-up boxes will not be distributed at the expense of government, according to the Ministry of Communications).
According to analysts, there are no problems of coordination with the Ministry of Communications. the programme budget, offered by Minister of Communications Igor Shegolev, is considerably less then the amount, offered by the former Minister Leonid Reiman (RUB 358 bn) and the former head of RTRS Gennady Sklyar (RUB 157 bn). On other hand this variant implies political risks for the Ministry of Communications as TV-audience may reduce.

The Ministry of Communications promises to support operators, deterring the increase of tariffs

The Ministry of Communications intends to support operators, undertaking to deter the increase of tariffs and enhance quality of communications, according to the Minister of Communications Igor Shagolev. They are going to work out mechanisms of the government support of all operators that take such social responsibility. The social responsibility implies not only the decrease of tariffs but also the enhancement of communications quality and operative reaction to the population’s needs.
The Ministry of Communication will also cooperate with FAS and the Federal Service on Tariffs in the sphere of control of tariffs on the market of cell communications and connection to the Internet. In case the collusion is detected, which drives the total growth of tariffs for mobile communications and broadband access, they will take appropriate measures.
According to analysts, the government support of operators may be provided in the form of some benefits when participating in competitions for licenses and universal services of communications in different regions. However, to influence the situation the government will have to declare Big3 operators monopolists. According to experts, the government’s attention to this situation is caused by the inflation growth and unstable financial situation. Currently the government is concerned with the population’s reaction to the operators’ actions and take measures to reassure subscribers.

The programme on technoparks creation in Russia will be maintained at the same level

The state programme on technoparks creation for 2006-2010 will be maintained at the level of RUB 3 bn, taking into account correction of the federal budget, Minister of communications Igor Shegolev informs. According to Minister, foreign partners are still interested in investing (in technoparks) and the transfer of their technologies. The programme has already demonstrated its effectiveness, Minister notes.
The programme implies construction of 10 technoparks on the territory of 9 regions of the country. The total amount of the programme financing from the federal budget is RUB 10.4 bn.
According to analysts, the programme on technoparks creation in Russia is priority since it is included in the list of innovative projects. So, the decision to maintain its financing at the same level is quite logical. So far, realization of the programme is on the early stage and it is difficult to forecast its outlooks. Positive results of the programme may be spoken about after export of Russian software achieves the level of countries with the developed innovative component, for example, India or Norway. It is also necessary to take into account that in Russia the main objective of technoparks is to create conditions for the fastest delivery of innovative products, produced by small enterprises, to the market. Products, produced in technoparks, must be commercialized in the nearest future. Each technopark has to have a strong partner with the scientific and engineering bases and good specialists.

State-owned companies are offered to buy Russian software

The Ministry of Communications sent the Ministry of Economic Development the offers on making changes to the law “On placement of orders for products delivery, execution of works, provision of services for state and municipal needs”. In particular, the offered changes imply adding the list of criteria for assessment of applications for participation in open competition with the item “Russian origin of the product”. Thus, the Ministry of Communications wants to support Russian producers of software within crisis.
According to the forecast of IDC, the Russian market of software, which demonstrated 62% growth in 2007 and 24% growth in 2008 (to RUB 3.3 bn) is dropping in 2009.
According to analysts, the Ministry’s offer is quite rational. It is necessary to pay more attention to Russian solutions, including the solutions on the basis of free software systems. Many organizations have quite simple requirements to software – the employee works with one or several tables or data bases. So, why does the government have to give money to American or European companies? The approach will be certainly rational. We cannot prohibit use of foreign software as some solutions can be only provided by IBM, Oracle, etc. Another problem concerns transparency of competitions. Use of Russian software is a positive initiative, experts say. Russian free software is a competitive product.

The Ministry of Communications stakes on free software

The Ministry of Communications has prepared the draft order “On confirming the plan of transfer of state power bodies and government-financed institutions to free software use”. According to the Ministry’s plan, by 2015 the share of free software, including components of information systems of state-power bodies, will be no less than 90%.
The draft order does not concern federal state-owned enterprises and companies with state capital. The project is intended for public discussion and its goals and objectives can be corrected during discussion and coordination.
According to analysts, if the draft order is accepted, Microsoft will suffer most of all. It will affect the company since the state along with corporate sector is the biggest purchaser of the legal software. The corporation’s sales in Russia may reduce by 5-10%. Some experts are skeptic about the Ministry’s initiative, referring to failed projects in other European cities. On other hand, the government has to make efforts for free software creation by Russian developers. If to calculate payments to Microsoft for each computer, set in Russia’s schools, the amount is quite big. And if free software is used, this money can be saved and spent on other sectors development, including further development of free software.

Directors general of Svyazinvest’s subsidiaries will not be members of their boards of directors

Rostelecom’s Board of directors (51% of the operator belong to Svyazinvest) has confirmed the list of candidates to the company’s Board of directors. The list includes representatives of Svyazinvest and the Ministry of Communications and several independent directors. Rostelecom’s director general Konstantin Solodukhin was not included in the list. The list of members of the Board of directors was confirmed by another Svyazinvest’s subsidiary North-Western Telecom. The list includes representatives of Svyazinvest and one representative from the Ministry of Communications. The operator’s director general Vladimir Akulich was not included in the list either as well as director general of Volgatelecom, Sergey Omelchenko, who was not nominated to the Board of directors of his company.
Currently the list of candidates to boards of directors have been published by 6 of 7 MRKs and the biggest operator of long-distance communications Rostelecom. Two companies Centertelecom and Uralsvayzinform have only nominated their directors general. At that they were nominated by minority shareholders. According to Svyazinvest’s authorities, director general does not have to be a member of the board of directors since director general is an executive body and the board of directors is a legislative body. If director general is a member of the board of directors, he/she reports to himself/herself.
According to analysts, withdrawal of directors general from Svyazinvest’s subsidiaries’ boards of directors means that MRKs become less independent. Influence of directors general is reduced. It corresponds with Svyazinvest’s general strategy on the corporate management enhancement. The strategy also concerns involvement of the biggest number of independent directors (the new Board includes 5 independent directors, two representatives of AFK Sistema, Advisor to Minister of Communications Mikhail Leschenko and Advisor to the RF President Leonid Reiman). Usually quitting the board director general loses his influence. But it depends on the company’s charter. Each company defines authorities of director general and the board of directors in different ways. For example, in accordance with Rostelecom’s charter, the board’s authorities include appointment of director general, approval of big transactions, making decisions on retirement of bonds, placement of securities.

Russia may redeem additional issue of Sistema Shyam Teleservices

The RF government may become a shareholder of the Indian cell operator Sistema Shyam TeleServices, 74% of which belong to AFK Sistema. The government is considering the possibility to assign RUB 23.7 bn for the acquisition of shares of the joint venture Shyam Telelink (Sistema Shyam TeleServices Ltd. since January).
The transaction may be realized in the frameworks of restructuring the India’s external debt to Russia, which was assessed at 1 bn USD in 2006. Then the parties agreed that this debt might be converted to joint investment projects in India. Russia was paid around 700 mn USD in rupees, which could be only spent in India. In September 2007 AFK Sistema acquired 10% of Shyam Telelink and then brought the shareholding up to 74%, paying over 45 mn USD. The payment for the licenses for the universal communications service provision in 22 circuits of India cost the company 630 mn USD more. Last year the president of the corporation Leonid Melamed told that in 2008 the investments in Shaym Telelink had been around 1 bn USD, taking into account the licenses acquisitions, and in 2009 they wold probably invest “thousands millions dollars more”. However, currently it is difficult for Sistema to invest independently since as of the end of 3Q2008 its debt was over 9 bn USD.
According to analysts, in case additional issue takes place, AFK Sistema will try to keep the control shareholding. However, if the government invests 680 mn USD in Sistema Shyam TeleServices, this will hardly improves dramatically the operator’s situation since before crisis AFK had been planning to invest around 5 bn USD by 2012.

5. Economics of Innovations

Development of the national operation system (OS) – the pros and cons

Members of the working group, representing ICT-sector, are going to write a letter to the RF President Dmitry Medvedev, offering to create the national operation system. They offer the government to assign funds from the budget for the domestic product development. According to the group’s representatives, the national OS will contribute to the Russian IT market development. The letter was initiated by the member of the State Duma Committee on Information Policy, IT and Communications Ilya Ponomarev. However, not all representatives of the group agreed to sign this document. The letter was signed by director general of Digital Zone Kirill Gotovtsev, director general of Infa-resurs Nikolai Garbuz. The offer was also supported by the National Association of Innovations and IT Development. The Association of Enterprises of Computer and Information Technologies spoke against such a project since it is impossible to work up a scheme of distribution of funds, assigned from the budget that could be clear to entrepreneurs. One of the Association’s arguments was that the offer had been worked out without participation of representatives of IT business. The Ministry of Communications spoke against the offer as well. According to the sector’s representatives, such approach will contribute to the Russian IT market isolation from the rest world.
According to experts, the peculiarity of the Russian IT Market is that it was developing without the government support. And creation of the national OS is only possible with the support of foreign developers, since Russian developers will not be able to cope with such a large-scale objective. Besides, in crisis conditions, investing in ineffective projects is not reasonable. In particular, the purpose of the project is not quite clear. If the programme developers want to be independent of foreign producers, they will be hardly able to realize the project. According to some analysts, the national OS development is only urgent for the military sector.
Thus, development of the national OS may lead to additional difficulties as for users as for developers. Besides, the initiative of the project introduction comes from the officials and not from the market participants, who see no need in the special OS development.

FAS is working out rules of non-discriminated access for Post of Russia

FAS has started working out the rules of non-discriminated access to the infrastructure of the federal state-owned enterprise Post of Russia, which is currently a monopolist on the market of mail service in the RF. The new rules, developed by FAS, will include conditions of access for independent mail operators to the enterprise’s infrastructure at any stage. The Ministry of Communications speaks against such initiative as well as against such actions regarding telecommunications networks.
The initiative of FAS is to make it possible for independent companies to use the infrastructure of Post of Russia and due to this to receive additional resource of development. The work on the project and its endorsement will be finished in 3-4Q2009.
According to the officials, the innovations are unreasonable. The infrastructure of Post of Russia is outdated and 60% of post offices are located in rural areas, where the situation is even worse. At that prices for services, provided by Post of Russia, are regulated by the government and for the most part they are below cost. The losses are compensated by no one. There is a situation of cross subsidizing that is characteristic for natural monopolies, formed in the time of the USSR. So, according to the Ministry of Communications and Rossvyaz the innovation is untimely and first of all they offer to discuss the situation, taking into account the level of development of alternative operators and their ability to provide the whole range of post services, including social ones.
Independent participants of the market of post services have different view. According to them, the access to the monopoly’s infrastructure will contribute to development of the market of post services. Currently some independent companies have already set lower prices than those of Post of Russia. We note that Post of Russia increases prices from time to time, and the quality of its services remains the same.
On the whole experts assess positively the initiative of FAS on creation of equal access for independent companies to services of natural monopolies. But each case has its own peculiarities, linked to Russia’s historical development. You cannot build another similar power system or the railway, connecting Vladivostok and Moscow. Post of Russia has social responsibilities as well, which will not be taken by anyone else.
The market of post services may only be organized in big cities of the country, experts say. Remote areas are not interesting for independent companies since they will not be able to gain money there. However, Post of Russia may have its own plans on the company’s development, which do not exclude the initiative of FAS, experts note.

The Ministry of Communications worked out the concept of “electronic government” forming

The Ministry of Communications worked out the Concept of Russia’s electronic government forming, which has to come in force by 2010. The plans on the programme realization were prepared by the Ministry of Culture, the Ministry of Communications, the Federal Service of Protection of Russia. The project was signed by head of the apparat of the Government of Russia Sergey Sobyanin, who is chairman of the Commission on the administrative reform carrying out. The government portal will contain information about state and municipal services.
By March 2009 the Ministry of Communications and the Ministry of Economic Development will introduce al the necessary regulations in the existing acts about use of ICT and electronic signature. Later the bodies will have to report to the Government Commission on the administrative reform carrying out.
According to the Ministry’s plans, by the end of 2009 the portal of state and municipal services will interact with 10 regional portals and by 2010 this number will grow to 40.
However, the concept effectiveness is complicated due to lack of the law on electronic circulation of documents. Thus, it will be impossible to transfer documents within the portal, create archives and keep record of them.
Experts have different opinions on the concept effectiveness. According to some of them, the programme has chance to be realized since it is supervised by high-ranking officials. However, due to financial crisis and lack of laws on electronic circulation of documents, the project on electronic government forming will not be realized on time and will not be effective, other experts say.

SMARTS is going to construct 4G networks

SMARTS is planning to create 4th operator of long-distance communications, consolidating regional companies for construction of the network, which will work in LTE standard in 900 and 1800 MHz band. The GSM operator applied to GKRC and Roskomnadzor to obtain licenses for provision of 3G and 4G services to subscribers and a license for the use of frequencies in 900 and 1800 MHz band. The departments have not received any applications yet.
According to SMARTS’ authorities, regional operators will construct networks on their areas and then a unified operator of communications will be created. Thus, the operators will have to follow the scheme of MVNO, providing services to subscribers on their areas. However, SMARTS has not made any contracts with regional operators so far.
There are no free frequencies in the 900 and 1800 MHz band, the Ministry of Communications informs. Besides, realization of communications in 900 and 1800 MHz band is only possible if GSM standard is ousted. We note LTE networks has not existed in the world so far, so there is no equipment for this technology. In particular, introduction of LTE networks will face such problems as frequencies determination, distribution and working out the common standards, production of equipment and various network solutions. (12/03/2009).
SMARTS’ idea will not be poplar among regional operators, analysts agree. The project realization may be only possible after crisis. Currently regional operators are more focused on maintaining their positions and development of their already existing networks. The programme needs considerable investments and the project will be only repaid long time after. According to experts, for the most part the project is targeted to maintenance of the operator’s image and its competitive advantage among federal operators of communications. However, other federal participants possess bigger capacities in economic component as well as in technological one.

 The Ministry of Communications stakes on Russian producers

The Ministry of Communications is sure that Russian producers of telecommunications equipment may compete with foreign companies. This was stated by Minister of Communications Igor Shegolev at the meeting with head of the RF government Vladimir Putin.
According to Igor Shegolev, the Ministry of Communications is working out the corresponding programme on replacement of import of telecommunications equipment. Equipment, produced by Russian companies, will be able to compete with foreign equipment in price and quality. The Ministry is working out the complex of measures to support Russian producers.
The regulator’s support will concern companies, which have already established their reputation on the telecoms market of Russia and other countries. For example, construction of the plant for production of equipment for digital television is being finished in the Kaliningrad region. Set-up boxes, produced on this plant, will allow to receive a signal directly from Russian satellites. The products of the plant are high-quality.
Currently the amendments have been made to the programme on the transfer to digital TV. In accordance with the amendments, the federal state-owned unitary enterprise Russian TV and Radio Broadcasting Network (RTRS) will prefer telecoms equipment, produced in Russia. Under price-quality ratio the new Russian equipment will have some advantages over foreign equipment.
Experts assess positively the idea of support of Russian producers of telecoms equipment. On other hand it is impossible to replace all import, they say. the time for innovation breakthrough is lost and Russia is running after the developed countries. However, with the support of this sector by the government social problems may be solved due to creation of additional working places as well as technological problems, providing the sector with necessary equipment for its further development.
Realization of the ideas, stated by Igor Shegolv, is impossible without changes in the existing system of duties for import of telecommunications equipment from other countries, experts note. Russian producers may benefit from high currency rates of USD and euro. To stake on Russian producers may be important and right strategically in current conditions.

MGTS launched IPTV

MGTS, included in the group of companies Comstar-UTS, started providing subscribers with access to IPTV services. MGTS provides IPTV services as an agent of Comstar-UTS: all TV channels and services, sold under Comstar-Direct – Stream, are now available to MGTS subscribers.
CJSC Comstar-Direct, a subsidiary of Comstar-UTS, launched digital TV under Stream brand in 2005. Last autumn Comstar-UTS stated about introduction of the two-segment model of sales on the Moscow market of broadband access: MGTS has to focus on mass segment and Stream has to provide premium-class services.
The launch of digital TV in MGTS network is explained by Comstar by the necessity to meet the demand for the popular IPTV service. Currently the service of digital interactive television becomes more and more popular and wide-spread in Moscow, so Comstar has decided to provide this service to MGTS subscribers.
According to analysts, promotion of Comstar-Direct’s digital TV service by MGTS is quite logical, if taking into account that networks of the two companies are connected. Provision of the digital TV service by MGTS may be considered as additional driver for the growth of Comstar’s share on the Moscow market of IPTV. However, experts note to provide this service MGTS has to increase its network throughput. If the speed remains the same (1-2 Mb/sec), subscriber will lack the speed for work when turning on TV and a computer simultaneously.

NAIRIT and ARIP will develop the youth innovative business

The National Association of Innovations and Development of IT (NAIRIT) and the Agency for Development of Innovative Entrepreneurship (ARIP) are preparing a number of initiatives on the youth innovative business development. They include tax and administrative stimulation of institutions, which create conditions for talented youth development, development of the national youth idea and forming the demand for innovative products in Russia. In the nearest future this offers will be submitted to Prime Minister Vladimir Putin.
The country lacks new methods of personnel training for innovative activity, the centralized information system to obtain information and share experience in the field of innovative entrepreneurship. Besides, a lot of organizations provide unqualified consulting services in the sphere of innovations.
NAIRIT offers to provide support of innovative forms of students’ training to involve them in innovative activity, to create a unified social network to unite representatives of the innovative community and to improve exchange of information between them. It is also necessary to create a list of negligent organizations, which are engaged in support of innovations. . According to analysts, the leading state-owned venture funds and state-owned corporations are not interested in the search of projects and investing in them, since they obtain good profit due to placing their money in banks. This practice has to be prohibited by the legislation. On other hand, to realize the policy of innovative development it is necessary to make the job of an innovations developer as prestigious as a job of a banker or a businessman. Young people don’t consider innovations as an interesting project and they fund their own companies reluctantly.

6. Personnel Changes

OJSC MTS has appointed Konstantin Markov for the position of director of the macroregion MTS Moscow. Previously Konstantin Markov was heading the macroregion MTS Center. Sergey Beshev, ex-director of MTS Moscow, quitted the company.
Svyazinvest has declared the appointment of Alexander Provotorov for the position of 1st deputy director general of the company. In the frameworks of the new position he will supervise matters of Svyazinvest’s strategic development and reforming, corporate development, mergers and absorptions and external communications.
In 2001-2003 Provotorov was working as head of the Legal Department of OJSC Gasprom-Media and he was a member of the Board. In 2003-2005 he was holding the position of vice president of the Investment Department of Group Sputnik. In 2005-2009 he was working as senior manager of directors of Marshal Capital funds and director general of Marshal Capital.
The Board of directors of Svyazinvest has confirmed the agenda of the annual meeting of the company’s shareholders and the list of candidates to the Board of directors. The list of candidates includes all members of the current Board of directors, who were elected at the extraordinary meeting of shareholders on February 10th. They are Advisor to the RF President Leonid Reiman, Advisor to Minister of Communications Mikhail Leschenko, two representatives of AFK Sistema, which owns the blocking shareholding of Svyazinvest, - 1st vice president of the company Vitaly Savelyev and president of OJSC Comstar-UTS Sergey Pridantsev. The list also includes 5 independent directors: managing partner of the fund of direct investments Marshal Capital Partners Konstantin Malofeev, professor of the Higher School of Economics” Ivan Rodionov, managing director of CJSC VTB-Invest Mikhail Butrin and managing director of MDM-Bank Nikita Ryauzov.
Svyazinvest has declared appointment of Igor Pshenichnikov for the position of director of the Department for External Communications. From 1983 to 1998 he was working sequentially in the information agency TASS (ITAR-TASS) as a correspondent of TASS in Cuba, as head of the TASS office in Nicaragua, as a correspondent of ITAR-TASS in Norway and he was holding various position in the central office of ITAR-TASS in Moscow.
From 1998 till 2009 Pshenichnikov was working in Interfax and RIA Novosti, he was engaged in producing one of the author’s programmes on the “Russia” channel. He also worked in the field of PR in some organizations and mass media.
The Big3 operator Vimpelcom has declared Alexander Izosimov’s resignation from the position of the company’s director general. He was holding this position for 5 years. Vimpelcom’s Board of director also asked Alexander Izosimov to remain in the company and hold “the position without executive powers in the frameworks of current personnel changes realization”.
Izosimov will be replaced by Alexander Torbakhov, who was previously working in the biggest insurance company in Russia “SK-Rosgosstrah – Life” as director general.
Another position will appear in Vimpelcom: Boris Nemsich has been elected for the position of CEO of Vimpelcom. Currently Boris Nemsich is acting as director general of the Telecom Austria group, the leader of the Austrian market of mobile and fixed-line communications, which operates in 8 countries of the world.
OJSC MTS made the agreement with Maxim Nogotkov, the majority shareholder of the Group of companies Svaznoy, about the transfer of the group of Svyaznoy’s top-managers to MTS as a managing group of the network of MTS communications salons.
The agreement does not imply the control of MTS over Svyaznoy’s network of communication salons.
The managing team will be in charge of development of the whole MTS’ network, including communications salons of the recently acquired group of companies Telefon.ru.
The agreement, made for the 3 year period, also implies the transfer of managerial technologies and Svyaznoy’s expertise in the field of mobile retailing, including business processes, IT-solutions and other know-how of the company, to MTS.
Mikhail Kritsky has been appointed deputy director general of OJSC Svyazinvest,. He will supervise questions of the company’s regional development. Mikhail Kritsky is 6th top-manager, coming to the company after Yevgenu Yurchenko was appointed director general of Svyazinvest on February 10th. Previously the positions of deputies director general were taken by Aleksey Lokotkov, Viktor Savchenko, Elena Umnova, Nadezhda Filippova and Alexander Provorotov. All of them, except Provorotov, had been working in Svyazinvest before.
Stanislav Panchenko is the only member of the previous team of Svyazinvest’s deputies director general. He came to the company in 1990s and currently he is supervising question of security.
Sergey Kuznetsov has been elected chairman of the new Board of directors of Rostelecom. He is holding the similar position in Volgatelecom and CJSC Baltavtopoisk. Besides, Kuznetsov is a member of the boards of directors of the telecoms holding Telecominvest (owns 31.3% of Megafon), and some regional companies of Svyazinvest: Centertelecom, Sibirtelecom, etc. Previously, Rostelecom’s Board was headed by ex-director general of Svyazinvest Alexander Kisilev, who is currently working as director general of Post of Russia.
The Board of directors of Rostelecom has confirmed the list of 13 candidates, nominated to the new Board of directors of the company. The list includes the single representative of KIT Finance IB (owns 34.55% of the operator’s voting shares) – the company’s director general Maxim Tsiganov. The present Rostelecom’s Board of directors includes 3 representatives of the KIT Finance. The list of candidates also includes director general of Svyazinvest Yevgeny Yurchenko, Advisor to Minister of Communications Mikhail Leschenko, deputies director general of Svyazinvest Aleksey Lokotkov and Elena Naumova, advisor to director general of CJSC MC NTT (a 100% subsidiary of Rostelecom) Anton Hozyainov, 1st deputy director general of Svyazinvest Alexander Provorotov, deputy director general of Svyazinvest Viktor Savchenko, member of the National Register of Independent Directors at the Russian Union of Industrialists and Entrepreneurs Sergey Kuznetsov and Advisor to Minister of Communications Vladimir Bondarik. Besides, the new Board of directors of Rostelecom may also include managing partner of the representative office of MarCap Advisors Limited Konstantin Malofeev, Marlen Manasov and professor of the Higher School of Economics Ivan Rodionov, who are members of Svyazinvest;s Board of directors. According to Rostelecom’s charter the Board of director consists of 11 people.
The Norwegian holding Telenor, owning 29.9% of Vimpelcom’s voting shares, is replacing the head of the representative office in Russia: Kjell Morten Johnsen is replaced by Ole Bjorn Sjulstad. Kjell Morten Johnsen, holding this position from the beginning of the conflict between Telenor and another Vimpelcom’s shareholder Alfa-group, has been appointed director general of Telenor’s Serbian subsidiary.
Ole Bjorn Sjulstad came to Telenor in 2000 for the position of vice president of the company’s Asian head-office in Singapore. From 2002 till 2004 he was working as a manager of Telenor Asia. Since 2007 Sjulstad has been supervising Telenor’s investments in Russia and in particular, he is a member of Vimpelcom’s Board of directors.
The Board of directors of Centertelecom has appointed Sergey Kuznetsov chairman of the Board. Previously this position was held by ex-president of Svyazinvest Alexander Kisilev, who is currently working as director general of Post of Russia.
Being independent director Kuznetsov is also a member of the boards of directors of other Svyazinvest’s subsidiaries: Rostelecom, Volgatelecom and Sibirtelecom and CJSC Baltavtopoisk.
In 2004-2006 he was holding the position of 1st deputy director general of Svyazinvest. In 2001-2003 he was working as director general of Rostelecom. Previously he was working in Delta Telecom, OJSC Telecominvest and CJSC PeterStar.
Comstar-UTS declared that the Board of directors of Stream-TV had approved Dmitry Bagdasaryan’s appointment for the position of deputy director general – commercial director of Stream-TV and Anatoly Krainev’s appointment for the position of deputy director general – director on managing the macroregion Center. They were appointed for these positions by the order of director general of Stream-TV and started working from March 11th .
Both positions have been introduced in Stream-TV recently in accordance with the company’s new personnel arrangements. Previously Bagdasaryan had held the position of director of the Marketing Department in Stream-TV. Before the transfer to Stream-TV Krainev had been working as director of the Department for Management and Development of Business Subsidiaries of Comstar-UTS.
Rostelecom’s Board of director has terminated the powers of the member of the company’s Board Igor Nikodimov and appointed Stanislav Miron a member of the Board. Since June 2008 Stanislav Miron has been holding the position of deputy director general on network development.
Igor Nikodimov quitted the company. He had been transferred to Rostelecom last April. Previously he had been working as deputy director general of Megafon on foreign relations and administration.

 7. Figures and facts

Euroset's current debt is 426 mn USD. Changing the owners, Euroset has halved its debt. According to the company’s authorities, they managed to do this due to proper reforming the business.
In 2008 the incomes of producers of mobile communications across the world came to 700 bn USD. The growth was mostly driven by cell communications development in developing countries.
In January 2009 penetration of cell communications in Russia reached 134%. The total monthly growth was 2.4 mn subscribers (+1.3%), 131% growth y.o.y (+10.1 mn).
In 2009 the amount of the government contract, made with Synterra, on providing communications services in the frameworks of the unified information and telecommunications infrastructure of the state system of production, registering and control of passports and visas of new generation was RUB 564 mn.

3 900 000 people were subscribers of networks of wired and mobile WiMAX in the world in 2008. At the same time in 4Q2008 the volume of the delivery of equipment for networks of wire and mobile WiMAX did not change, compared to 3Q2008 and remained at the level of 275 mn USD. According to analysts’ forecasts in 2009 the world market of the equipment for WiMAX networks will not grow on the whole, though there may be some growth in the segment of the equipment for mobile WiMAX.
On the Earth 60% of people use a mobile phone. Over the last 6 years cell communications has become the most preferable technology for communications; it is used three times as much than wired lines.
The world sales of mobile phones will decrease 4% this year, according to the forecast of analysts from the research company Gartner Inc. In December 2008 experts expected 1% decline.
50th of 154 places was taken by Russia on development of infocommunications sector. According to experts from the International Telecommunications Union, this level was assessed as high. However, the growth rates are weak: over 5 years the country has only managed to overcome two lines in the rating.
In 2008 the turnover of Russia’s electronic trade was RUB 128 310 000 000, 34.6% growth y.o.y.
Sibirtelecom’s subscriber base has reached 5 mn people. Over the previous year the company’s cell subscriber base has increased by 600 thousand subscribers.
In 2009 MTS are planning CAPEX worth 1.5 bn USD. The final amount will depend on many factors, including consumption of communications services, availability of credits, conditions of cooperation with suppliers of equipment.
As of the end of December of 2008 MTS’ subscriber base came to 93 000 000 subscribers. Thus, MTS is in the top ten of the biggest cell companies of the world, taking the 8th place. The predictable leader of this rating is Chine Mobile (364.5 mn subscribers). The top five includes Vodafone (265.2 mn), America Movil (179.8 mn), China Unicom (177.5 mn) and Telefonica SA (168.8 mn subscribers).

The number of Mobile Internet users has exceeded 31 mn people in Russia, 82% growth y.o.y.


Sources: Vedomosti, Prime-TASS, RBK Daily, Comnews, Cnews, Interfax, Kommersant.


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