Volume 6, Issue 2 January 24, 2009 Ability to raise funds brightens Svyazinvest prospects As the financial storm continues to batter the Russian economy, state-controlled telecommunications holding Svyazinvest is actively searching for ways to refinance the debt obligations of its regional telecom subsidiaries. The holding has already asked major state banks for 40 billion rubles in fresh loans and may use free cash from long-distance operator Rostelecom. The financial crisis is also likely to bring a new CEO and board of directors to the holding, but analysts believe a reshuffling of management is unlikely to have any substantial influence on Svyazinvest’s operations. In an attempt to ride out the economic crisis, Svyazinvest has unveiled a conservative financial plan for 2009. The holding’s regional subsidiaries will have to slash expenditures and postpone investments in some projects, such as the digitalization of telephone networks. The holding wants its subsidiaries to spend the funds saved from the cost-cutting measures on redeeming debts (40 billion rubles is to be redeemed in 2009), Russian media reported earlier. “The 50% cut in regional telecom operators’ capital expenditure plans for 2009 should improve their liquidity positions,” Stanislav Yudin, telecoms analyst from UBS, wrote in a recent research note. Continued on page 2

Contents DJ RusIndex Titans

$mln. Ability to raise funds brightens Equipment 2500 900 Svyazinvest prospects ...... 20 800 2000 ...... 1 700 Retail Market 600 1500 Russia’s mobile user base up ...... 21 500 400 to 187.83 million as of 1000 Internet & Cable 300 December 31 200 ...... 23 500

Market research from AC&M 100 Fixed Income Market News ...... 4 0 0 07 Jan 08 Jan 09 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 19 Jan 20 Jan ...... 27 RTSVolume MICEX Volume DJ RusIndex Titans, left Industry Politics Stock Market Roundup ...... 8 Telecom stocks vs MT RusIndex ...... 29 Mergers and Acquisitions ...... 10 Consensus Estimates ...... 33 102 Mobile Operators ...... 12 Appointments 97 ...... 35 Fixed-line Operators 92 ...... 17 Calendar ...... 37 87 Satellite operators 82 ...... 19 7-Jan 8-Jan 9-Jan 12-Jan 13-Jan 14-Jan 15-Jan 16-Jan 19-Jan 20-Jan Telecoms MT RusIndex Volume 6, Issue 2 January 24, 2009

Ability to raise funds brightens Svyazinvest prospects

At the same time, Svyazinvest is considering various ways to refinance the regional telecom operators’ debt obligations. In late December, the holding applied to four major state-controlled banks - Vnesheconombank (VEB), Sberbank, VTB, and Gazprombank - for 40 billion ruble worth of three- to five-year loans with an interest rate between 15% and 16%, the holding’s Finance Department Director Yelena Selvich said. “It’s no wonder that Svyazinvest has applied to state banks, as privately owned commercial banks will not provide loans without collateral and will not agree to the conditions put forward by Svyazinvest,” said Ivan Shuvalov, a senior telecoms The holding’s regional analyst at Alfa Bank. subsidiaries will have Svyazinvest, which was recently classified as one of the 295 “backbone” companies integral to the health of the Russian to slash expenditures and economy, is likely to receive the state support that it is postpone investments requesting, analysts believe. “Svyazinvest, a state-controlled holding, could rely on financial support from state-controlled banks, in our view. Moreover, the proportion of hard currency- denominated debt among total debt varies from 10% to 35% among regional telecom operators. This should not significantly complicate the debt repayment schedule and should not result in material forex losses,” Yudin from UBS wrote. Svyazinvest is also reportedly considering refinancing the debts of its regional units at the expense of its long-distance subsidiary Rostelecom. The total debt of Svyazinvest’s regional subsidiaries amounted to approximately 133 billion rubles as of late December, according to Credit Suisse and Finam estimates. “The chances for … use of Rostelecom’s funds are unclear at the moment, but theoretically they would help from a debt repayment perspective,” Yudin wrote. Regardless of the debt repayment issue, Svyazinvest’s regional telecom operators seem to be well positioned to weather the tough economic times, analysts said. “Regional telecom operators’ traditional fixed-line business is ruble-denominated, (most of) the debts of regional telecom operators are also ruble-denominated, and thus the continuing ruble depreciation will have no impact on the companies. Moreover, fixed-line services have become essential and if the Svyazinvest was recently crisis worsens, customers are likely to give up mobile services, classified as one not fixed-line,” said Shuvalov from Alfa Bank. of the 295 “backbone” The holding will likely rely on a new management team to guide Russian companies the company through the crisis. Svyazinvest has scheduled an extraordinary shareholder meeting for February 10 to elect a new chief executive and board of directors. The government has proposed Yevgeny Yurchenko, head of a Sberbank regional branch and a former deputy CEO of the holding, for the CEO position. Svyazinvest’s shareholders have also approved a list of candidates for a new board, which consists of nine seats. Russian multi-industry holding AFK Sistema, which holds 25% plus one share via its subsidiary Comstar UTS, nominated its candidates - Comstar UTS CEO Sergei Pridantsev and AFK Sistema’s First Vice President Vitaly Savelyev - back in November.

www.prime-tass.com 2 Volume 6, Issue 2 January 24, 2009

Ability to raise funds brightens Svyazinvest prospects

The government, which owns a 75% minus one share stake in Svyazinvest and has seven seats on the board, announced its nominees only last week. The list includes five independent nominees: Nikita Ryauzov, managing director of MDM Bank; Mikhail Butrin, managing director of VTB Bank; Ivan Rodionov, economics professor at the Higher School of Economics in Moscow; Konstantin Malofeyev, managing partner at Marshall Capital Partners; and Marlen Manasov, a member of UBS’ board of directors. The two remaining nominees are state officials: Leonid Reiman, a presidential advisor and former telecommunications minister, and Mikhail Leshchenko, an advisor to Igor Shchyogolev, the The holding will likely rely minister of communications and mass media. on a new management The move to make Svyazinvest’s board more independent to guide the company follows a government decision announced in June to replace officials on the boards of state-controlled companies with through the crisis independent directors. “We welcome the government’s decision to increase the number of independent directors on Svyazinvest’s board, which could lead to improved management efficiency at the holding,” analysts from UniCredit wrote in a recent research note. “We believe the planned changes as well as a new CEO represent signs that the government is continuing to work toward restructuring the holding.” In late December, Russia’s Ministry of Communications and Mass Media set up a working group to consider Svyazinvest’s reorganization. The working group, which will include representatives of the ministry, specialists from government financial agencies and other government bodies, and participants in the financial and telecommunications markets, will also take into account a strategy being developed by Svyazinvest to create a single operator using the assets of its subsidiaries. However, the creation of the working group and forthcoming management reshuffling are not expected to result in a quick resolution to Svyazinvest’s fate, analysts said. “The government might consider the holding’s restructuring as it has already lost the best time for Svyazinvest’s privatization. In the current Ministry set up situation, Svyazinvest’s privatization would bring in funds that a working group would be several times less than what a privatization could to consider Svyazinvest’s have drawn even a year ago,” said Anna Zaitseva, a telecoms analyst from Finam. reorganization Moreover, the possible restructuring is unlikely to be take place in 2009, some analysts believe. “A change in Svyazinvest’s CEO and board of directors could be a sign that Svyazinvest’s restructuring is underway. Merging Svyazinvest’s subsidiaries into one entity to cut capital expenditures, operational expenditures and to facilitate debt repayments, is among the potential restructuring scenarios,” Yudin from UBS wrote in a research note. However, “the government’s current focus is clearly on more important macro issues, rather than on the Svyazinvest reorganization, and it is too premature to say that the restructuring is on track for 2009,” Yudin wrote

www.prime-tass.com 3 Volume 6, Issue 2 January 24, 2009

Market research from AC&M Russia’s mobile user base up to 187.83 million as of December 31 The number of mobile subscribers in Russia, as measured by the number of valid SIM cards, rose to 187.83 million as of December 31, 2008 from 184.33 million as of November 30, 2008, Advanced Communications and Media (AC&M) said in a report Monday. Below is a subscriber base breakdown of leading mobile operators, as provided by AC&M:

Company Subscriber Subscriber base as of base as of Dec 31, mln Nov 30, mln MTS (Total) 95.657 93.912 Russia 64.628 63.273 within Moscow License Area 14.913 14.646 Ukraine (UMC) 18.115 18.103 Uzbekistan (Uzdunrobita) 5.647 5.492 Turkmenistan (Barash Communications) 0.927 0.866 Armenia (K-Telecom) 2.017 1.944 Belarus (unconsolidated) 4.323 4.233 VimpelCom (Total) 60.991 59.499 Russia 47.663 46.581 within Moscow License Area 9.627 9.383 Kazakhstan (KaR-Tel) 6.270 6.029 Ukraine (URS) 2.028 2.124 Tajikistan (Tacom) 0.625 0.587 Uzbekistan (Unitel) 3.636 3.363 Armenia (ArmenTel) 0.544 0.612 Georgia (MobiTel) 0.225 0.203 MegaFon (Total) 43.558 43.044 Russia 43.289 42.805 within Moscow License Area 6.480 6.466 Tajikistan 0.269 0.238 Tele2 10.440 10.140 Uralsvyazinform 5.660 5.611 Sibirtelecom 4.905 4.782 SMARTS Group 3.500 3.502 Nizhny Novgorod Cellular Communications (NSS) 2.550 2.530 Yekaterinburg Sotovaya Svyaz (Motiv) 1.492 1.487 New Telephone Company (NTK) 1.231 1.210

www.prime-tass.com 4 Volume 6, Issue 2 January 24, 2009

Market research from AC&M

SIM card penetration rose to 129.4% as of December 31, 2008 from 127.0% as of November 30, 2008, AC&M said. Russia’s population was slightly over 141.9 million as of November 1, 2008, according to the Federal Statistics Service (FSS). Some analysts consider the figures provided by AC&M to be inflated, as many people use several SIM cards. The statistics also count SIM cards that have not been used for up to three or six months, depending on the policy adopted by individual telecommunications operators. The number of subscribers in the Moscow License Area (MLA) rose to 31.440 million from 30.885 million and penetration increased to 185.1% from 181.8%. MTS accounted for 48.1% of the net additions in Moscow in December 2008, VimpelCom for 44.0%, Sky Link for 5.4%, and MegaFon for 2.5%.

Moscow net additions Moscow market breakdown December 2008 December 31, 2008

Sky Link Sky Link MegaFon 5.4% 1.4% 2.5% MTS MegaFon 48.1% 20.6% MTS 47.4%

VimpelCom 30.6% VimpelCom 44.0%

Subscribers in St. Petersburg increased to 10.559 million from 10.360 million and penetration was up to 166.5% from 163.4%.

St. Petersburg net additions St. Petersburg market breakdown December 2008 December 31, 2008

Fora/Tele2 Fora/Tele2 17.8% MTS 13.8% 53.1% MTS Sky Link 30.8% 2.4% Sky Link 5.0%

VimpelCom MegaFon VimpelCom 24.1% 33.4% 19.6%

www.prime-tass.com 5 Volume 6, Issue 2 January 24, 2009

Market research from AC&M

MTS’s nationwide market share was 34.4% as of December 31, VimpelCom’s - 25.4%, MegaFon’s - 23.0%, with minor operators controlling the remaining 17.2%. MTS accounted for 38.7% of net additions in Russia in December, VimpelCom for 30.9%, MegaFon for 13.8%, and minor operators for 16.6%

Russia net additions Russia market breakdown December 2008 December 31, 2008

Other 18.3% MTS Other MTS 35.8% 20.6% 31.9%

MegaFon 17.1% MegaFon VimpelCom 22.8% VimpelCom 24.7% 28.8%

Regions net additions Regions market breakdown December 2008 December 31, 2008

Other Other MTS 16.6% MTS 17.2% 34.4% MegaFon 38.7% 13.8%

MegaFon 23.0%

VimpelCom 30.9% VimpelCom 25.4%

www.prime-tass.com 6 Volume 6, Issue 2 January 24, 2009

Market research from AC&M

Ukraine’s mobile user base up to 55.793 million as of December 31

The number of mobile subscribers in Ukraine, as measured by the number of valid SIM cards, increased to 55.793 million as of December 31, 2008 from 55.326 million as of November 30, 2008, Advanced Communications and Media (AC&M) said Monday in a report. SIM card penetration rose to 120.8% from119.8%. Below is a breakdown of the subscriber bases of Ukraine’s leading mobile operators, as provided by AC&M:

Company Subscriber base as of Subscriber base as of December 31, mln November 30, mln Kyivstar 23.530 23.290 MTS 18.115 18.103 Astelit 11.230 10.980 VimpelCom 2.028 2.124 As of December 31, Kyivstar’s market share by subscribers was 42.2%, MTS’s was 32.5%, Astelit’s was 20.1%, VimpelCom’s was 3.6%, and the share of other operators was 1.6%. Astelit accounted for 44.5% net additions in December, Kyivstar accounted for 42.7%, MTS accounted for 2.2%, while other operators for 10.6%.

www.prime-tass.com 7 Volume 6, Issue 2 January 24, 2009

Industry Politics

Government considers asset swap to get 100% in Svyazinvest The Russian government, which owns 75% minus one share in telecommunications holding Svyazinvest, is considering swapping assets with telecoms operator Comstar UTS to receive its 25% plus one share in the holding, the press secretary of Russia’s Ministry of Communications and Mass Media Yelena Lashkina said, Russian business dailies reported Friday. At the beginning of 2009, Deputy Prime Minister Sergei Ivanov asked the telecoms ministry to work out ways to get back the 25% plus one share stake without paying cash for it, Lashkina said, adding that a scheme for a potential deal has not been worked out yet, Vedomosti business daily reported. The government may swap Svyazinvest’s 23% stake in Moscow telephone company MGTS, which will allow Comstar to increase its stake in MGTS to 95% of voting shares, Comstar UTS CEO Sergei Pridantsev said recently, the daily reported. The deal could also involve Comstar UTS’ U.S. $1 billion outstanding loan taken out from state- controlled bank Sberbank, media speculated earlier. Major Russian multi-industry holding AFK Sistema, the controlling shareholder of Comstar UTS, asked the government to buy out its stake in Svyazinvest for around U.S. $1.9 billion, Russian media reported late last year. Comstar UTS purchased 25% plus one share in Svyazinvest in 2006 for $1.3 billion, expecting an eventual privatization of the holding, however, telecoms minister Igor Shchyogolev recently said privatization was off the table.

Russian court to soon mull issuing arrest warrant for Chichvarkin Moscow’s Basmanny Court will consider on January 28 issuing a warrant to arrest Yevgeny Chichvarkin, the former co-owner of Russia’s biggest handset retail chain Euroset, a spokeswoman for the Moscow City Court, Anna Usachyova, said, ITAR-TASS reported Friday. Chichvarkin was previously questioned under a kidnapping and extortion investigation. Euroset’s Vice President for Security Boris Levin and Deputy Head of Security Andrei Yermilov were arrested last year and accused of kidnapping and extorting money from a Euroset expediter in 2003, who was allegedly stealing and selling the company’s cell phones. Chichvarkin left Russia in late December and is in London currently, Russian business dailies reported, citing a Chichvarkin aide. Evgeny Chichvarkin Soon after the first arrests were made, Chichvarkin and his partner Timur Artemyev sold the company to Russian businessman Alexander Mamut.

Regulator may put up mobile WiMAX frequencies for tender soon Russia’s telecoms regulator may soon put up for tender or auction frequencies in the spectrum of 2.3 gigahertz (GHz) - 2.4 GHz that are used for mobile WiMAX.

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Industry Politics

On Tuesday, Russia’s State Radio Frequency Commission decided that those frequencies must be provided to operators via a tender or an auction, Communications and Mass Media Minister Igor Shchyogolev, the commission’s chairman, told reporters. Vacant frequency ranges in this spectrum are expected to be determined by May, Sergei Sitnikov, the head of the Federal Service for Communications, IT and Mass Communication Oversight, said. In 2006, the State Radio Frequency Commission approved the 2.5 GHz - 2.7 GHz spectrum for mobile WiMAX. However, no open tenders for the frequencies have been held, business daily Vedomosti reported Tuesday. Presently, two Russian operators are testing mobile WiMAX networks - Comstar UTS and Scartel.

Communications services revenue in Ukraine up 13.2% in 2008 Revenue from communications services in Ukraine rose 13.2% on the year to 45.765 billion hryvnas in 2008, Ukraine’s State Statistics Committee said in a report obtained by Prime-Tass Friday. Of that figure, revenue from communications services to residential customers rose 13.5% to 18.429 billion hryvnas, the committee said. In particular, revenue from mobile services grew 17.3% on the year to 29.314 billion hryvnas, revenue from long-distance calls was 6.6% lower at 5.489 billion hryvnas, revenue from local calls fell 1.2% to 3.69 billion hryvnas in cities and revenue from local calls in rural areas fell 0.9% to 259.286 million hryvnas. Revenue from Internet access services jumped 50.5% to 2.07 billion hryvnas, and revenue from cable TV services rose 35.2% to 1.002 billion hryvnas. Revenue from postal services climbed 7% to 2.104 billion hryvnas. (7.7 hryvnas – U.S. $1)

Ukrainian regulator to tender WiMAX frequencies soon Ukraine’s National Commission for Communications Regulation (NKRS) is expected to hold four tenders for WiMAX frequencies in the 5-gigahertz (GHz) spectrum in late February, Ukraine’s Economic News daily reported Wednesday. Of the total, three tenders will be held for nationwide WiMAX licenses, while the fourth tender will be for the Zaporizhzhya Region. Ukraine’s largest mobile operator in terms of customers, Kyivstar, as well as two little-known companies, have filed applications for nationwide licenses, commission member Vladimir Oliynyk said, Economic News reported. The starting price for a nationwide license is expected to be set at 1.088 million hryvnas, the daily reported. (7.7 hryvnas – U.S. $1)

www.prime-tass.com 9 Volume 6, Issue 2 January 24, 2009

Mergers and Acquisitions

Source says MegaFon’s board to mull buying retailers soon The board of directors of Russia’s third largest cellular operator MegaFon will meet on January 29 to consider acquiring major mobile phone retail chains Tsifrograd and Telephone.ru, a unnamed manager of a MegaFon shareholder said, Vedomosti business daily reported Friday. The board will consider purchasing 49% in Tsifrograd for approximately U.S. $10 million, two sources close to the negotiations told the daily. However, the manager said that purchasing Tsifrograd wasn’t MegaFon’s priority. MegaFon might acquire minor retailers or buy a stake in Russia’s biggest cell phone retailer Euroset, the manager told the daily. The co-owner of Tsifrograd, Dmitry Ivanter, confirmed MegaFon’s interest in buying the retail chain but declined to provide further details, the daily reported. The sources didn’t provide any details of a possible deal between MegaFon and Telephone.ru. MegaFon’s main rivals MTS and VimpelCom have already entered the retail segment. VimpelCom has purchased 49.9% in Euroset for $226 million, while MTS has concluded a 3-year franchising agreement with Betalink. In mid-November, MTS was also cleared to acquire 100% in Telephone.ru.

Comstar UTS completes consolidation of 100% in Comstar Direct Russian wireline operator Comstar UTS has completed the consolidation of 100% in Comstar Direct, a broadband provider in Moscow, Comstar UTS said in statement released Tuesday. All corporate procedures related to Comstar Direct integration are to be completed in March, while the legal merger of the two companies is set to be implemented as soon as “the capital markets and broader economic environment have stabilized,” Comstar UTS said. Comstar Direct was previously 52%-owned owned by Comstar UTS and 48%-owned by Comstar UTS’ affiliate Sistema Mass Media. In order to divide the assets, Comstar Direct spun off part of its business for Sistema Mass Media, while Comstar UTS took full control over Comstar Direct afterwards. Comstar Direct, known by the Stream brand, is the biggest broadband operator in Moscow and Comstar UTS is a leading alternative fixed-line operator in Russia.

Comstar UTS merges Tyumen-based units Tyumenneftegassvyaz, RTC Russian telecommunications company Comstar UTS has completed the merger of its Tyumen-based subsidiary Tyumenneftegassvyaz into alternative fixed-line operator Regional Technical Center (RTC), Comstar UTS said in a statement Wednesday.

www.prime-tass.com 10 Volume 6, Issue 2 January 24, 2009

Mergers and Acquisitions

Comstar UTS acquired RTC and Tyumenneftegassvyaz in 2007 and 2005, respectively. RTC provides a wide range of telecommunications services and had approximately 55,000 subscribers for telephony and broadband services as of December 1, 2008.

Sources say Danish businessman Galmond sold 50% in MTT Gamma Capital, controlled by Danish businessman Jeffrey Galmond, has sold its 50% stake in Russian long-distance operator MTT to telecoms holding Eventis Telecom and offshore company Danmax, several sources close to the issue said, Vedomosti business daily reported Thursday. Eventis Telecom and Danmax acquired 25% stakes in MTT for approximately U.S. $40 million each, the daily reported, citing one of the sources. Galmond and Eventis Telecom’s press secretary Mariya Safronova confirmed that Eventis Telecom purchased 25% in MTT but did not provide any other details. Representatives of Danmax were unavailable for comment, the daily reported. Initially, Galmond and Russian conglomerate AFK Sistema, which owns the remaining 50% in MTT, discussed buying out the other’s stake in MTT but failed to reach an agreement. In 2007, Russian telecoms group Synterra offered to buy 100% in MTT. Synterra received regulatory approval for the deal in September 2008. However, the deal was not completed due to the financial crisis, the daily reported. Currently, Synterra is considering dropping the purchase of MTT, Aleksei Ananyev, a member of Synterra’s board of directors, told the daily.

Sources say Renova eyes selling 51% stake in Akado Russian conglomerate Renova is seeking to sell its 51% stake in telecommunications group Akado, three unnamed executives of broadband operators said, RBC Daily reported Thursday. Renova has already offered the stake to Russian pay TV and broadband group National Telecommunications (NTK), telecommunications company Comstar UTS, and several major banks, including state-controlled VTB, the sources told the daily. Renova estimated Akado at between U.S. $200 million and $300 million, excluding debt, the sources told the RBC Daily. An analyst surveyed by the daily estimated Akado at around $175 million, excluding the debt. The company’s debt currently amounts to approximately $450 million, the daily reported, citing a source. Akado is a major broadband and cable TV provider in Moscow. Renova owns 51% in Akado, while Akado’s Chairman Yury Pripachkin owns the remaining 49%

www.prime-tass.com 11 Volume 6, Issue 2 January 24, 2009

Mobile Operators

MTS subscriber base up to 91.33 million users as of December 31 The consolidated subscriber base of Russia’s largest cellular operator MTS rose 1.8% in December to 91.33 million users as of December 31, 2008, the company said in a statement Monday. Below is MTS’s subscriber base by country, as provided by the operator:

Country Subscriber base Subscriber base as of December as of November 31, 2008, mln 30, 2008, mln Russia (Total) 64.63 63.27 Moscow and the Moscow Region 14.91 14.65 St. Petersburg and the Leningrad Region 3.25 3.15 other regions 46.46 45.48 Ukraine 18.12 18.10 Uzbekistan 5.65 5.49 Turkmenistan 0.93 0.87 Armenia 2.02 1.94 The subscriber base of MTS Belarus, in which MTS holds 49%, rose to 4.32 million from 4.23 million, MTS said. MTS is the biggest cellular operator in Russia and the Commonwealth of Independent States (CIS) by customers.

MTS starts testing 3G network in four cities in Krasnodar Region Russia’s largest cellular operator MTS has started testing a third generation (3G) network based on UMTS technology in four cities of the Krasnodar Region, the company said Thursday. Specifically, MTS has started testing 3G networks in the cities of Krasnodar, Novorossiysk, Gelendzhik, and Anapa. MTS starting rolling out 3G networks in Russia in May 2008. The operator planned to invest up to 38 billion rubles by 2011 in 3G development. MTS is the largest mobile carrier in Russian and the Commonwealth of Independent States (CIS) in terms of customers.

MTS takes out 300 million euro loan from Gazprombank Russia’s largest mobile operator MTS has taken out a 300 million euro 30-month loan from Gazprombank, MTS said Tuesday. MTS plans to use the funds mainly to finance its current operations and capital expenditures.

www.prime-tass.com 12 Volume 5, Issue 37 January 24, 2009

Mobile Operators

MTS, the biggest cell operator by customers in Russia and the Commonwealth of Independent States (CIS), placed three 10 billion ruble bond issues last year and announced plans to offer bonds worth 30 billion rubles in 2009. MTS said it is seeking to create a balanced multicurrency debt burden. Gazprombank is the banking arm of Russia’s natural gas monopoly Gazprom. (32.9085 rubles – U.S. $1)

MTS, VimpelCom increase TV advertising Russia’s major cellular operators MTS and VimpelCom have increased their TV advertising in January, representatives of the companies said , Kommersant business daily reported Monday. VimpelCom’s move followed the launch of a new tariff plan called Apple Fresh, the company’s spokeswoman Yekaterina Osadchaya told the daily. The advertising volume for Apple Fresh will be down 30% compared to a previously promoted tariff plan, she added. MTS opted to boost its advertising amid the ongoing financial crisis in order to make the most out of a volatile market. “For us, the crisis means new opportunities,” the operator’s spokeswoman Irina Osadchaya was quoted as saying.

VimpelCom subsidiary awaiting frequencies to launch mobile TV Russia’s Dominanta, a subsidiary of mobile operator VimpelCom, is waiting for frequency spectrum allocation to launch mobile TV in the DVB-H standard, ComNews agency reported Monday. “We are completely ready to provide the service,” Dominanta’s CEO Andrei Chernikov said, adding that the company was expecting the Ministry of Communications and Mass Media to make a decision soon concerning the allocation of frequencies, ComNews reported. A spokeswoman for the ministry, Yelena Lashkina, said that the allocation of frequencies was temporarily frozen and that “the upcoming session of the State Radio Frequency Commission will clear up the matter,” ComNews reported. Dominanta’s network covers all of Moscow and is being tested in the city’s subway system, Chernikov said, ComNews reported. VimpelCom controls 75% of Dominanta.

VimpelCom launches 3G mobile operations in Sverdlovsk Region Russia’s second biggest cellular operator VimpelCom has launched commercial operations of third generation (3G) mobile services in the Sverdlovsk Region, the operator’s press office said in a statement Wednesday. Currently, the 3G network covers the regional capital of Yekaterinburg with over 100 base stations and the city of Nizhny Tagil with over 20 base stations, VimpelCom said.

www.prime-tass.com 13 Volume 6, Issue 2 January 24, 2009

Mobile Operators

The equipment for the regional 3G network was provided by Ericsson. VimpelCom, which received its 3G license in 2007, has already rolled out 3G networks in several dozen Russian cities.

VimpelCom to provide services for Economic Development Ministry Russia’s second biggest cellular operator VimpelCom has signed a contract to provide corporate mobile services to the Economic Development Ministry, the company said in a statement Wednesday. The operator signed a 2-year contract worth 10.153 million rubles with the ministry following a tender, the company said. VimpelCom is a major telecommunications operator providing a wide range of services, including mobile and fixed-line services. (33.4154 rubles – U.S. $1)

Cell companies finish testing 3G compatibility in Moscow metro Russia’s major cellular operators – MTS, VimpelCom, and MegaFon – have completed testing the compatibility of third generation (3G) networks in the Moscow metro, Kommersant business daily reported Friday. The tests have shown that the launch of 3G networks in the Moscow metro is possible, despite restrictions on the number of base stations, a source from one of the cell companies told the daily without elaborating. MTS will launch its 3G network in the Moscow metro by the end of the year, said Dmitry Gayev, CEO of the Moscow metro. Only MTS has concluded an agreement to provide 3G service in the metro so far, he told the daily. MTS, VimpelCom, and MegaFon obtained licenses to set up 3G networks almost two years ago. However, the launch of 3G networks in Moscow has been delayed as the operators failed to reach an agreement with the military, which currently uses the necessary frequencies.

Source says major Russian cell companies apply to sponsor Olympics Russia’s major mobile carriers MTS, VimpelCom, and MegaFon have applied for sponsorship contracts worth between U.S. $100 million and $150 million for the 2014 Winter Olympics in Sochi, a source close the Olympic organizing committee said, Kommersant business daily reported Wednesday. The list of applicants also includes Russia’s incumbent long-distance operator Rostelecom and its subsidiary telecoms operator RTComm.RU, wireline operator Comstar UTS, and wireline operator Southern Telecom (UTK), the source told the daily. MTS, VimpelCom, Rostelecom, and Comstar UTS confirmed their interest in sponsoring the Olympics, while MegaFon declined to comment on the issue, the daily reported. The ongoing economic crisis might force investors to scrap plans for Olympic sponsorships, some analysts believe. At best, a sponsorship might bring a company some popularity, which is irrelevant given current economic conditions, an analyst surveyed by the daily was quoted as saying.

www.prime-tass.com 14 Volume 6, Issue 2 January 24, 2009

Mobile Operators

Mobile data traffic in Russia soars to 1,636 terabytes in 2008 Mobile data traffic in Russian CDMA2000 and UMTS networks grew to 1,636 terabytes in 2008 from 475 terabytes in 2007, ComNews Research said in a report obtained by Prime-Tass Thursday. Presently, such networks have been launched by cellular operator Sky Link (CDMA2000 technology) and Russia’s three major mobile carriers MTS, VimpelCom, and MegaFon (UMTS technology). Below is a breakdown of mobile broadband data transfer traffic, based on the data provided by ComNews Research, in terabytes:

January-March April-June July-September October-December 2007 63 85 120 207 2008 284 303 401 648 The rise in mobile broadband traffic was attributed to the launch of UMTS networks across Russia in late 2007 and in 2008, analysts from ComNews Research said in the report.

Analysts see cell companies’ revenues falling in 2009 Dollar-denominated revenues of Russia’s major cellular operators MTS, VimpelCom, and MegaFon are expected to fall between 5% and 12% in 2009, analysts from research company Nomura said, RBC Daily reported Monday. It will be the first time in 10 years that Russian cellular operators post decrease in revenue. Specifically, MTS’s revenue is expected to decline 11% in 2009 to U.S. 7.09 billion, VimpelCom’s revenue is expected to fall 12.1% to $6.55 billion, and MegaFon’s revenue is expected to drop 5.7% to $6.8 billion, the daily reported. The cell operators’ likely decrease in revenue is attributed to the depreciation of the ruble, the growth of prices for equipment, and a decrease in Russians’ purchasing power, the daily reported, citing the research company. The mobile carriers’ revenues are expected to increase between 4% and 10% annually in 2010-2017, as compared with revenue growth of over 50% annually in previous years, analysts at Nomura said, the daily reported.

MTS expands CDMA network in Ukraine to over 100 cities Ukrainian Mobile Communications, a 100% subsidiary of Russian cell phone operator MTS, expanded its CDMA wireless broadband network to over 100 Ukrainian cities in 2008, the company said in a statement Monday. The company launched the service in 99 cities in 2008 and plans to add 40 cities soon. UMC launched the CDMA network, which allows for receiving data at up to 3.1 megabits per second, in October 2007.

www.prime-tass.com 15 Volume 6, Issue 2 January 24, 2009

Mobile Operators

MTS plans to launch 3G network in Armenia Russia’s largest mobile operator MTS plans to launch a third generation (3G) network in Armenia, Chinese telecommunications equipment maker Huawei, which will supply equipment for the project, said in a statement obtained by Prime-Tass Monday. The commercial launch of the 3G network is scheduled for sometime in March-May, Huawei said.

Report: Ukrtelecom’s mobile user base up 30% in December The subscriber base of national wireline incumbent Ukrtelecom’s subsidiary Utel, which provides third generation (3G) mobile services, rose 30% on the month to 163,000 users as of December 31, according to an iKS-Consulting report obtained by Prime- Tass Wednesday. The total number of mobile subscribers in Ukraine rose 0.85% on the month to 55.90 million users as of December 31, and SIM card penetration rose by 1.06 percentage points to 121.09%, iKS-Consulting reported. Ukrtelecom launched third generation (3G) mobile services in late 2007

www.prime-tass.com 16 Volume 6, Issue 2 January 24, 2009

Fixed-line Operators

Comstar UTS launches zonal network in St Petersburg Russian wireline operator Comstar UTS has launched commercial operations of its zonal fixed-line network in the city of St. Petersburg, the company said in a statement Thursday. Investments in the project amounted to approximately U.S. $7 million in 2008. The launch of the zonal network will allow Comstar UTS to offer a full range of fixed- line services in Russia’s second largest city without having to use the networks of other operators, the company’s Vice President for Regional Development Viktor Koresh was quoted as saying. Comstar UTS provides a wide range of services and is the biggest broadband operator in Moscow.

North-West Telecom fully repays 50 million euro syndicated loan Russian wireline operator North-West Telecom has fully repaid a 50 million euro syndicated loan that was taken out in December 2005, the company’s press office said Wednesday. The operator paid the final, 5.574 million euro tranche this month. The interest rate of the loan was set at 2% over Euribor 3M. The leading organizers of the loan were Citibank, ING Bank (Eurasia), U.K.-based Moscow Narodny Bank (MNB), and France’s Banque Societe Generale Vostok (BSGV). North-West Telecom became the first company of Russian telecommunications holding Svyazinvest to take out a syndicated loan on international capital markets. The operator also took out a U.S. $100 million 5-year syndicated loan in 2007 and $150 million 3-year syndicated loan in 2008. North-West Telecom is the dominant wireline operator in the Northwest Federal District. Svyazinvest owns 39.5% of the company’s shares, or a 50.8% voting stake.

North-West Telecom to cut investments in 2009 to 5 billion rubles Russian wireline operator North-West Telecom plans to cut its investments in 2009 to 5 billion rubles from about 13.5 billion rubles in 2008, the company’s CEO Vladimir Akulich told reporters Friday. The investment program was cut due to the ongoing economic crisis, Akulich said, adding that the company doesn’t plan to cut staff. North-West Telecom also decided to postpone completion of its network digitalization until 2012 due to the crisis, Akulich said. Initially, the operator planned to fully digitalize the network in 2011. Currently, the company’s network digitalization is between 60% and 70% depending on the region, Akulich said. North-West Telecom is the dominant wireline operator in the Northwest Federal District. (32.7991 rubles – U.S. $1)

www.prime-tass.com 17 Volume 6, Issue 2 January 24, 2009

Fixed-line Operators

Globus Telecom to provide services for communications regulator Russian fixed-line operator Globus Telecom has signed a contract with the Federal Service for Communications, IT and Mass Communication Oversight to provide local and intrazonal fixed-line services in 2009, the company’s press office said Thursday. Under the 2 million ruble contract won at a tender, Globus Telecom is to connect 150 phone numbers. Globus Telecom is controlled by Russian long-distance operator Rostelecom. (32.6430 rubles – U.S. $1)

www.prime-tass.com 18 Volume 6, Issue 2 January 24, 2009

Satellite operators

Source: Court orders Rostelecom’s satellite unit to pay $8.5 million debt Russia’s Supreme Arbitration Court has ordered Globaltel, the satellite subsidiary of Russia’s national long-distance operator Rostelecom, to repay a debt of approximately U.S. $8.5 million to U.S. company Loral Space & Communications (LSC), a source close to the issue told Prime-Tass Wednesday. LSC initially won a court ruling in London, but several Russian courts earlier refused to recognize that ruling. LSC provided Globaltel with two loans in 2000 that were to be redeemed in January 2003, the Kommersant daily reported. However, Globaltel didn’t repay the loans. At the same time, LSC is also claiming rights to a 49% stake in Globaltel that belonged to another American company, Globalstar, which was declared bankrupt in 2004. Globaltel considers itself to be the legal successor to Globalstar, Kommersant reported without naming the current owner of the stake. Rostelecom, which is controlled by Russia’s national telecom holding Svyazinvest, is the country’s largest long-distance provider in terms of subscribers. Globaltel provides services in Russia and in the Commonwealth of Independent States (CIS) to over 40,000 customers

www.prime-tass.com 19 Volume 6, Issue 2 January 24, 2009

Equipment

Nokia Siemens Networks to supply equipment to Uzbekistan’s Coscom Nokia Siemens Networks plans to supply a mediation platform to Uzbek cell phone operator Coscom to enable the operator to collect and process data for accurate billing, Nokia Siemens Networks said in a statement Tuesday. Financial details as well as a timeline for delivery were not disclosed. Coscom, a subsidiary of Nordic telecoms holding TeliaSonera, operates under the UCell brand. The operator provides services to over 2.8 million users and has recently launched a third generation (3G) mobile network based on Nokia Siemens Networks equipment.

Uralsvyazinform signs text-to-landline service contract Russian wireline operator Uralsvyazinform has signed an agreement with TeleMessage, a subsidiary of messaging services provider Messaging International Plc, to launch text-to-landline services in Russia, TeleMessage said in a statement Wednesday. Financial details of the agreement were not disclosed. The text-to-landline software enables Uralsvyazinform wireless customers to create and send a text message to any landline phone in Russia, and converts it to a voice message for the recipient. The recipient can then respond by voice to the wireless customer, who will receive the reply message in the form of a text. The wireless customer will also receive a status text message confirming if the message was delivered directly to a person or to a voicemail system. Uralsvyazinform is the dominant fixed-line operator in the Urals Federal District

www.prime-tass.com 20 Volume 6, Issue 2 January 24, 2009

Retail Market

Report: Smartphone sales in Russia up 31% in 2008 Sales of smartphones in Russia rose 31% on the year to U.S. $1.4 billion in 2008, MForum Analytics said Monday in a report. In terms of units, sales rose 28% to 3.43 million gadgets, the report said. The average price rose 2% on the year to $410 in 2008. Devices over $400 made up 50% of sales, those in the $300-$400 slot took 29% and devices under $300 accounted for the rest. Nokia remained the market leader with around a 55% market share, the report said.

Euroset may charge cell companies more for processing payments Russia’s major handset retail chain Euroset may raise the fee that it charges cellular operators for processing payments of their mobile users, Kommersant business daily reported Thursday. Euroset plans to introduce a 3% payment fee equal for all cellular operators, the daily reported citing guidelines worked out by the retailer. The guidelines are intended to fulfill the Federal Antimonopoly Service’s ruling that the retailer provide equal terms to all mobile carriers and cell phone manufacturers for three years, the daily reported. Mobile operators presently pay on average a 2% payment processing fee to Euroset, a source with one of the mobile operators said. Raising the fee to 3% is major cell operator VimpelCom’s scheme to indirectly finance Euroset, which is quite reasonable, an analyst surveyed by the daily said. VimpelCom acquired 49% of Euroset in October. Euroset operates a network of 5,100 outlets in Russia and the Commonwealth of Independent States (CIS), the daily reported.

Euroset to close main store in center of Moscow Russia’s biggest handset retail chain Euroset plans to close its main Moscow outlet, located on Tverskaya Street in the city center, company spokeswoman Natalya Aristova told Prime-Tass Thursday. The outlet was opened in 2004 and has had good financial results but the rent has been raised several times, which inevitably affected the performance of the store, Aristova said citing the company’s Vice President for Development Artyom Perevozchikov. In December, Euroset closed 70 outlets out of an expected 100, and it planned to close 150 more stores in January, but 45 property managers have already agreed to lower rents by 50%-60%, Perevozchikov said. If the company closes 10% of its outlets, sales will fall by 5%, while EBITDA (earnings before interest, taxes, depreciation, and amortization) will considerably improve, Perevozchikov said without specifying figures.

www.prime-tass.com 21 Volume 6, Issue 2 January 24, 2009

Retail Market

Source say Dixis fails to prolong deals with suppliers Russian mobile and digital device retailer Dixis, whose founders have recently established a new legal entity in an effort to protect the company’s business from creditors during possible bankruptcy proceedings, has failed to prolong agreements with suppliers, sources close to the issue said, RBC Daily reported Monday. Dixis failed to prolong the deals after the chain’s new co-owner Alfa Bank decided not to pay debts for previous supplies, the sources said, the daily reported. In November 2008, Alfa Bank received a stake in Dixis after the retailer failed to repay around U.S. $30 million to the bank, media reported earlier. Newly established OOO Dixis Distribution proposed paying 50% of Dixis’s debts to suppliers immediately, while the remaining 50% would be paid at a later date. However, the plan was not carried out, a source told the daily without elaborating. The retailer’s debt amounted to $245 million as of November, the daily reported

www.prime-tass.com 22 Volume 6, Issue 2 January 24, 2009

Internet & Cable

Domain names in .Ru zone up 64% on year in 2008 The number of registered names of Web sites in the domain zone .ru rose 64% on the year to 1.8 million in 2008, the press office of the Russian Regional Network Information Center (RU-CENTER) said Monday. The number of owners of domain names rose 50% on the year to 643,448 as of November 1, 2008. Foreign owners accounted for only 3% of the total, RU-CENTER said. Moscow remained the leader with 37.8% of domain names in the .ru zone, while the Moscow Region and St. Petersburg accounted for 7.1% and 6.6%, respectively. The number of Web site registrations in the domain zone .su, which was initially created for the former Soviet Union, rose to over 80,000 names from around 10,170 as of November 1, 2007, RU-CENTER said.

Poll shows 16% of Russians use Internet daily A recent poll indicates that 16% of the country’s adult population, or 17.7 million people above the age of 18, use the Internet on a daily basis, Russia’s Public Opinion Foundation (POF) said in a report obtained by Prime-Tass Monday. In 2003, daily Internet users accounted for 3% of the population, POF reported. Around 27.1 million people above the age of 18, or 24% of the adult population, use the Internet at least once a week and 34.4 million people older than 18, or 30% of that age group, have used the Internet at least once over the past six months, POF reported. Russia’s population amounted to 141.9 million people as of November 1, 2008.

Synterra launches backbone network from Voronezh to Rostov-on-Don Russian telecommunications company Synterra has launched commercial operations of a stretch of its backbone network linking the cities of Voronezh and Rostov-on-Don, the company said in a statement Monday. The 700-kilometer network’s throughput capacity is 30 gigabits per second, the company said. The total length of Synterra’s backbone network in Russia is over 68,000 kilometers. Synterra provides a wide array of telecommunication services.

Synterra launches mobile WiMAX network in Moscow Region Russian telecommunications group Synterra has launched a mobile WiMAX network in the Moscow Region into commercial operations, the company’s press office said Wednesday. The network was launched in the town of Aprelevka in cooperation with Sistemy Elektrosvyazi under Synterra’s program to develop regional WiMAX mini- networks, Synterra said.

www.prime-tass.com 23 Volume 6, Issue 2 January 24, 2009

Internet & Cable

Sistemy Elektrosvyazi is expected to operate the network under its own brand in the 2.5-gigahertz (GHz)-2.7 GHz spectrum and provide broadband services via WiMAX to corporate and residential subscribers, Synterra said. Presently, two other Russian operators - Comstar UTS and Scartel - are testing mobile WiMAX networks. Sistemy Elektrosvyazi provides broadband and telephony services in the Moscow Region.

Far East Telecom launches fiber optic line in Sakhalin Region Russian wireline operator Far East Telecom has launched a fiber optic line in the Sakhalin Region, the company said in a statement Thursday. The investments in the project were not disclosed. The construction of the 700-kilometer fiber optic line was completed in late December. The fiber optic line’s capacity is 2.4 gigabytes per second, the company said. Far East Telecom, known in Russia as Dalsvyaz, is the dominant fixed-line operator in the Far East Federal District.

Comstar UTS obtains licenses for cable TV in St Petersburg Russian wireline operator Comstar UTS has obtained licenses to broadcast cable TV in St. Petersburg and the Leningrad Region, the company said in a statement Tuesday. The two licenses, issued by the Federal Service for Communications, IT and Mass Communication Oversight, are valid through December 26, 2013. Comstar UTS has not determined when it will launch services in St. Petersburg and the Leningrad Region, a spokesperson for the company told Prime-Tass. Currently the operator’s branch in St. Petersburg provides fixed-line telephony and broadband services, mostly to corporate clients.

North-West Telecom sees broadband user base up to 1 million by 2012 Russian wireline operator North-West Telecom plans to increase its broadband Internet subscriber base to 1 million users by the end of 2011, the company’s CEO Vladimir Akulich told reporters Friday. The company’s broadband subscriber base amounts to 640,000 users as of now, Akulich said. North-West Telecom is the dominant wireline operator in the Northwest Federal District.

Rambler Media preliminary revenue up 60% on year in 2008 Russian Internet company Rambler Media said Friday that its preliminary revenue rose 60% on the year to around U.S. $110 million in 2008, as calculated under International Financial Reporting Standards (IFRS). Revenue from context and display advertising each accounted for 44% of the total revenue, Rambler Media said without providing comparisons.

www.prime-tass.com 24 Volume 6, Issue 2 January 24, 2009

Internet & Cable

The company expects revenue from advertising to remain flat on the year in 2009 due to falling spending on advertising services in all segments of the Russian economy. Rambler Media also said that its sales fell 5% on the year in October-December with negative EBITDA, which stands for earnings before interest, taxes, depreciation and amortization. EBITDA margin is expected between 10% and 15% in 2008. Rambler Media operates several Web sites, including Rambler.ru, one of the major Russian Internet portals and search engines.

Obit starts building WiMAX network in Almaty St. Petersburg-based telecommunications operator Obit has started building a fixed- line WiMAX network in Kazakhstan’s commercial capital of Almaty, the company said in a statement Thursday. The company has already invested over 2 million rubles in the project. The network is expected to be completed sometime in April-June and cover almost the entire city, Obit said, adding that it would focus on corporate clients. Obit operates in Kazakhstan via its local subsidiary Obit Telecommunications, which obtained a license to operate in the 3.5- gigahertz (GHz) spectrum and bought equipment for the network from Canada’s Airspan. Obit provides a wide range of telecommunication services to residential and corporate clients in St. Petersburg and the Leningrad Region since 2002. (32.6430 rubles – U.S. $1)

Vkontakte to launch contextual ad system Russian social networking Web site Vkontakte plans to launch a contextual advertising system sometime in January-June, the company’s CEO Lev Leviyev said, Kommersant business daily reported Friday. “We are developing the system on our own and will launch it by June. The only thing I can say is that the new system will make use of all the advertising opportunities of social networks,” Leviyev was quoted as saying. The project’s annual profit could bring Vkontakte between U.S. $5 million and $7 million, an analyst surveyed by the paper estimated. Vkontakte is one of the most popular Web sites on the Russian-language Internet.

Mail.ru invests $5 million in movie production Russian major Web portal Mail.ru has invested U.S. $5 million in the production of a film, the company’s Vice President for Marketing and PR Anna Artamonova said, Kommersant business daily reported Monday. Mail.ru will receive a portion of the film’s box office profits, Artamonova said without elaborating, the daily reported.

www.prime-tass.com 25 Volume 6, Issue 2 January 24, 2009

Internet & Cable

The movie’s box office profits are expected to amount to around 650 million rubles, or approximately $20 million, while the budget of the film is between $13 million and $14 million, the daily reported. The movie, a screen adaptation of a story written by famous Russia writer Gogol, will be released sometime in 2009. Mail.ru is one of Russia’s major Internet portals. The company‘s revenue amounted to $55.8 million in 2007, the daily reported. (32.5747 rubles – U.S. $1)

www.prime-tass.com 26 Volume 6, Issue 2 January 24, 2009

Fixed Income Market News

Standard & Poor’s downgrades VimpelCom outlook to negative Standard & Poor’s Rating Service has downgraded its outlook for major Russian cellular operator VimpelCom to negative from stable, the rating agency said Monday. The agency has also affirmed its BB+ long-term credit and bond ratings on VimpelCom. The downgrade of the outlook was attributed to fears of further ruble depreciation, which is risky for the company’s cash flow and liquidity, said Standard and Poor’s credit analyst Alexander Gryaznov. VimpelCom’s debt amounted to over U.S. $8 billion as of January 1 and half of the debt obligations mature in 2009 and 2010. Standard & Poor’s might downgrade its ratings on VimpelCom if the mobile carrier fails to manage its liquidity and/or take adequate measures for credit defense. (32.5747 rubles – U.S. $1)

Dixis defaults on coupon payment of 113.418 million rubles Dixis Trading, a subsidiary of Russian mobile and digital device retailer Dixis, has defaulted on the fifth coupon payment worth 113.418 million rubles for its first bond issue, the company said in a statement Tuesday. The default was attributed to a lack of funds. Dixis Trading placed its first bond issue worth 1.8 billion rubles in September 2006 and has paid four coupons. The sixth coupon payment of 111.582 million rubles is scheduled on July 20, when the bond issue is to be bought back. Dixis’ total debt amounted to U.S. $245 million as of November 2008, RBC Daily reported earlier. (32.9085 rubles – U.S. $1)

Ukrtelecom seen offering bonds worth 500 million hryvnas Ukraine’s national wireline incumbent Ukrtelecom is expected to offer two bond issues worth a total of 500 million hryvnas, the Credit Rating agency said in a statement obtained by Prime-Tass Wednesday. Ukrtelecom plans to place 5-year and 18-month bond issues, each worth 250 million hryvnas. The agency has assigned a long-term credit rating uaA with a negative outlook to both issues. The rating means that the company has high solvency, while the negative outlook indicates that the rating may be lowered within a year, the agency said. Ukrtelecom is Ukraine’s major fixed-line operator and one of the country’s major broadband providers. The government owns a 92.79% stake in the company. (7.7 hryvnas – U.S. $1)

www.prime-tass.com 27 Volume 6, Issue 2 January 24, 2009

Fixed Income Market

Telecom Eurobonds yields YTM

M

AFK Sistema 11 Eurobond yield MTS Eurobonds yields YTM YTM

37 30

MTS 10

31 24

25 18

19 12

13 6

0 M 7 M 22-Jan 22-Feb 22-Mar 22-Apr 22-May 22-Jun 22-Jul 22-Aug 22-Sep 22-Oct 22-Nov 22-Dec 22-Jan 22-Jan 22-Feb 22-Mar 22-Apr 22-May 22-Jun 22-Jul 22-Aug 22-Sep 22-Oct 22-Nov 22-Dec 22-Jan

VimpelCom Eurobonds yields MegaFon 09 Eurobond yield YTM YTM 32 20 Vimpelcom 09 Vimpelcom 1 1 28 Vimpelcom 16

24 16

20

16

12 12

8 Contributed by

8 M 4 M 10-Dec 10-Jan 22-Jan 22-Feb 22-Mar 22-Apr 22-May 22-Jun 22-Jul 22-Aug 22-Sep 22-Oct 22-Nov 22-Dec 22-Jan

YTM - Yield to maturity; M - Maturity

www.prime-tass.com 28 Volume 6, Issue 2 January 24, 2009

Stock Market Roundup

Last week the Russian stock market hit its lowest level since November 2003 amid further ruble depreciation and falling oil prices. However, mobile operators MTS and VimpelCom managed to outperform the market considerably, while most other telecom stocks closed lower last week. The market’s RTS benchmark index fell below the Mobile carriers manage psychologically important 500 level last week. The RTS index to stay afloat as market lost 12.1% in the week to Friday, while the MICEX index fell 9.0%. The Renaissance Capital telecom index fell 0.36% in sinks the week to Thursday, and the MICEX telecom index, which does not include foreign names, declined 11.4% in the week to Friday. MTS’s American Depositary Receipts (ADRs) lost only 0.2% to U.S. $22.8 in the week to Thursday. MTS’s domestically traded shares fell 12.9% to 106.01 rubles. MTS’s stock was supported by news that the company had received a 300 million euro 30-month loan from Russia’s Gazprombank to finance its current operations and capital expenditures, analysts said. The Russian Federal Financial Markets Service also registered MTS’s fourth and fifth bond issues. The fourth, 15 billion ruble bond issue will mature in five years and the fifth, 15 billion ruble bond issue will mature in seven years. “The issuance of the proposed bonds would give MTS the flexibility to refinance U.S. $987 million of debt falling due in 2009, in addition to the 300 million euro credit facility agreement with Gazprombank announced on January 19. The company previously applied to VEB to refinance a $670 million syndicated loan due in April-June, and given that no decision has been taken yet on this, the possibility of raising money via ruble bond placement reduces uncertainty about debt refinancing in 2009,” analyst Alexander Kazbegi of Renaissance Capital wrote in a recent research note. Some analysts believe that the cellular company may be looking at potential acquisitions. “MTS has no need to attract additional funds to refinance its debt obligations as they are manageable for the company,” Ilya Fedotov, a telecoms analyst at Veles Capital, said. “MTS might be considering some acquisitions, however, it is unlikely to buy a cell phone retailer as MTS has already concluded (a 3-year franchising) agreement with Betalink.” MTS might acquire Comstar UTS, Fedotov said, adding that Comstar UTS was now valued attractively for an acquisition. Meanwhile, concerns over VimpelCom’s debt obligations prompted Standard & Poor’s to downgrade its ratings outlook on the company to negative from stable due to fears of further ruble depreciation, which is risky for the company’s cash flow and liquidity. Despite the downgrade, VimpelCom’s ADRs gained 0.6% to $6.29. “VimpelCom and MTS shares fell so sharply last year that currently any negative news flow is neutral for the cell operators,” said Fedotov. Analysts from Metropol have downgraded their target prices for MTS and VimpelCom to $77.6 and $14.9, respectively. The downgrade was attributed to continuing ruble depreciation.

www.prime-tass.com 29 Volume 6, Issue 2 January 24, 2009

Stock Market Roundup

Regional telecom stocks were down across the board last week. Sibirtelecom dropped 21.9% to 0.25 rubles in the week to Friday, Uralsvyazinform tumbled 19.3% to 0.234 rubles, Far East Telecom fell 6.7% to 16.52 rubles, VolgaTelecom lost 13.4% to 14.37 rubles, North-West Telecom decreased 12.7% to 5.5 rubles, CenterTelecom was down 11.4% to 3.101 rubles, and UTK declined 1.6% to 0.6 rubles. Reports that the government was looking to take full control over Svyazinvest, the regional telecom operators’ parent company, didn’t help the stocks. Analysts said full government control over Svyazinvest would be negative for both the holding and its subsidiaries. “Being 100% owned by the government, Svyazinvest won’t be able to operate efficiently; (the news) surely sent the regional telecom operators’ stocks down,” said Fedotov. Fixed-line and broadband provider Comstar UTS, which trades in London, closed flat at $2.59 on news that the company had an offer to buy out a 51% stake telecommunications group Akado. National long-distance provider Rostelecom lost 10.4% to 276.5 rubles in the week to Friday

www.prime-tass.com 30 Volume 6, Issue 2 January 24, 2009

Stock Market

RTS

Weekly Volume, Number Monthly Annual Stock name Price change mln of trades change change

RTS, USD MOEL CenterTelecom -14.89% 0.1000 0.02 2 -17.70% -88.10% ELSV Dalsvyaz -9.38% 0.5075 - 0 -15.49% -90.39% MGTS Moscow City Telephone -2.47% 7.9000 0.01 1 -34.71% -77.17% SPTL North-West Telecom -14.29% 0.1800 0.01 1 -20.00% -88.00% RTKM Rostelecom -6.33% 8.5000 - 0 -11.60% -25.11% NELE Sibirtelecom -21.74% 0.0090 0.01 1 -26.83% -91.18% UINF Uralsvyazinform -17.10% 0.0080 1.06 13 -28.89% -84.62% KUES UTK -23.40% 0.0180 0.02 3 -48.57% -90.00% VIPM VimpelCom 0.00% 50.0000 - 0 -9.09% -92.86% NZSI VolgaTelecom -8.26% 0.5000 0.03 1 -15.97% -89.90%

MICEX, RUR ELSV Dalsvyaz -5.34% 16.6500 3.49 356 -1.30% -87.12% MTSS Mobile TeleSystems -10.35% 110.0500 522.34 15957 -6.67% -65.37% MGTS Moscow City Telephone -3.20% 193.6000 0.25 16 -0.71% -76.95% RTKM Rostelecom -2.09% 288.7500 220.49 9094 4.76% 5.12% NELE Sibirtelecom -19.42% 0.2780 32.00 3535 -14.98% -88.97% UINF Uralsvyazinform -15.69% 0.2580 112.28 9275 -18.35% -79.98%

As of closing Friday, January 23, 2009

ADRs Weekly Price per ADR price ADR Volume, Stock Exchange change, % ADR per share premium $mln CMST COMSTAR-UTS LSE -15.0% 2.5500 2.5500 -77% - GLDN Golden Telecom NASDAQ #ДЕЛ/0! 0.0000 - n.a. 49.8 KUE UTK FSE -6.2% 0.9258 0.0185 -14% 81.8 MBT Mobile TeleSystems NYSE -16.3% 23.4400 4.6880 33% 0.2 MKY Mobile TeleSystems FSE -20.2% 24.2679 4.8536 17% 0.0 NZH VolgaTelecom FSE -18.7% 0.8596 0.4298 -21% 12.6 RKMD Rostelecom LSE -3.2% 54.8000 9.1333 -3% 4.3 ROS Rostelecom NYSE 1.4% 57.1000 9.5167 1% 0.3 RTL Rostelecom FSE -9.4% 56.2063 9.3677 -6% 0.0 URL Uralsvyazinform FSE -22.4% 1.5870 0.0079 -19% - UVYZY Uralsvyazinform USOTC 0.0% 2.0000 0.0100 18% 0.0 VIP VimpelCom NYSE -13.9% 6.6900 133.8000 n.a. - VLGAY VolgaTelecom USOTC -20.0% 1.0000 0.5000 -13% 9.3

As of closing Friday, January 23, 2009

www.prime-tass.com 31 Volume 6, Issue 2 January 24, 2009

Stock Market

VimpelCom MTS Price, $ Volume, $mln Price, $ Volume, $mln

45 12.1769 80.01 26.3555 40 11.1769 70.01 35 10.1769 60.01 21.3555 30 9.1769 50.01 8.1769 25

16.3555 40.01 7.1769 20 30.01 6.1769 15

11.3555 20.01 5.1769 10

10.01 4.1769 5

6.3555 0.01 3.1769 0 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan

Rostelecom Uralsvyazinform Price, $ Volume, $mln Price, $ Volume, $mln 25 400 0.05245 12.1414 350 0.04745 20 11.1414 300 0.04245

0.03745 10.1414 250 15 0.03245 200 9.1414 0.02745 10 150 8.1414 0.02245 100 0.01745 5 7.1414 50 0.01245

6.1414 0 0.00745 0 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan

Sibirtelecom MGTS

Price, $ Volume, $mln Price, $ Volume, $mln

0.08803 3.5 0.5 0.07803 3 30.44

0.06803 0.4 2.5 25.44 0.05803 2 0.3 0.04803 20.44 1.5 0.03803 0.2 15.44 1 0.02803 10.44 0.1 0.01803 0.5

0.00803 0 5.44 0 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan 28-Jul 21-Aug 16-Sep 10-Oct 5-Nov 1-Dec 25-Dec 20-Jan Contributed by

www.prime-tass.com 32 Volume 6, Issue 2 January 24, 2009

Consensus Estimates

North-West Telecom Contributed by RUSTOCKS.com Common Share

Target price, U.S. $ Recommendations Number of Recommendations High 2.52 Buy 5 Low 0.2 Hold 0 Consensus 1.36 Sell 1

Indicator 2008 2009 P/E Ratio High 24.9 2.14 Low 0.72 neg Consensus 2.22 2.09 Net Sales, USD mn High 1,065.38 1,046.54 Low 947.07 876 Consensus 1,015.03 945.3 EBITDA, USD mn High 728.38 387.85 Low 325 273 Consensus 364.32 353.44 Net Profit, USD mn High 395.35 135.63 Low 9 neg Consensus 99.93 58.52

Recommendations Institution Reviewed Recommendation Target Price, U.S. $ UniCredit Aton 1/13/2009 SELL 0.2000 Brunswick UBS 1/11/2009 BUY 1.6200 URALSIB 12/8/2008 BUY 2.3000 Renaissance Capital 1/19/2009 BUY 1.1000 Troika Dialog 1/13/2009 BUY 0.3722 Deutsche UFG 11/27/2008 BUY 2.5200

P/E Ratio Institution Reviewed 2008 2009 Alfa Capital 11/20/2008 2.5 2.1 UniCredit Aton 1/13/2009 24.9 neg Brunswick UBS 1/11/2009 2.1 1.89 URALSIB 12/8/2008 0.72 2.09 Renaissance Capital 1/19/2009 2.22 2.14 www.prime-tass.com 33 Volume 6, Issue 2 January 24, 2009

Consensus Estimates

Net Sales, U.S. $ mln Institution Reviewed 2008 2009 Alfa Capital 11/20/2008 1,028.00 UniCredit Aton 1/13/2009 1,021.00 876 Brunswick UBS 1/11/2009 990.98 1,046.54 URALSIB 12/8/2008 947.07 1,007.62 Renaissance Capital 1/19/2009 1,009.07 Troika Dialog 1/13/2009 1,065.38 882.98

EBITDA, U.S. $ mln Institution Reviewed 2008 2009 Alfa Capital 11/20/2008 368 UniCredit Aton 1/13/2009 325 273 Brunswick UBS 1/11/2009 360.65 387.85 URALSIB 12/8/2008 728.38 384.01 Renaissance Capital 1/19/2009 353.71 Troika Dialog 1/13/2009 408.72 322.87

Net Profit, U.S. $ mln Institution Reviewed 2008 2009 Alfa Capital 11/20/2008 105 UniCredit Aton 1/13/2009 9 -9 Brunswick UBS 1/11/2009 113.39 126.04 URALSIB 12/8/2008 395.35 135.63 Renaissance Capital 1/19/2009 94.86 Troika Dialog 1/13/2009 79.71 -15.01

The information is a part of CapitalLogica Consensus Estimates’ online analytical tool at RUSTOCKS.com (http://www.rustocks.com/index.phtml/cEstimates/). The tool provides detailed estimates and consensus estimates by major brokers on the key indicators of Russian Companies’ activities and stock performance. Currently, CapitalLogica Consensus Estimates covers over 150 Russian companies. The product is updated as soon as a broker revises his recommendation or forecast. CapitalLogica Consensus Estimates is available for subscription at RUSTOCKS. com. For subscription information please contact Michael Pastukhov at [email protected]. The product is developed and maintained by leading Russian financial information and consulting boutique CapitalLogica, a Prime-Tass affiliate. For more information on this product please contact Dmitry Smirnov at [email protected].

www.prime-tass.com 34 Volume 6, Issue 2 January 24, 2009

Appointments

VimpelCom’s Kazakh subsidiary names Yakovleva sales director Kazakh mobile operator KaR-Tel, a subsidiary of Russia’s VimpelCom, said Wednesday it had appointed Yelena Yakovleva sales director. Yakovleva replaced Svetlana Vyushina, who left the company after her contract expired. Yakovleva has been working for VimpelCom for over eight years. She occupied top positions at the company’s units in the Russian city of Tver and in Tajikistan.

VimpelCom names Yagupov sales director in southern region Russia’s second biggest cellular operator VimpelCom has appointed Ivan Yagupov sales director of the company’s business in the south of Russia, the press office of VimpelCom’s branch in Rostov-on-Don said Thursday. He replaced Alexander Kirsanov, who was appointed to head the branch in Rostov-on- Don in November. Before joining VimpelCom, Yagupov headed the commercial department at the Volgograd unit of MSS-Povolzhie, a subsidiary of Russian mobile operator MegaFon. Yagupov was born in 1973 and graduated from Volgograd State University majoring in mathematics.

Euroset names Kananykhin head of CIS business Russia’s biggest handset retail chain Euroset said Tuesday it had appointed Roman Kananykhin head of its business in the Commonwealth of Independent States (CIS). Kananykhin worked at top managing positions at several Euroset branches from 2004 to 2007. Before the appointment he was sales director at a tourism agency. Kananykhin graduated from Yaroslavl State University majoring in global economics. Euroset operates a network of around 5,000 outlets in Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, and Ukraine.

Sky Link Deputy CEO Gennady Golant leaves company Russian CDMA operator Sky Link’s deputy CEO and chief technical officer Gennady Golant is leaving the company, ComNews agency reported Wednesday. “I plan to take a new job in February, it will also deal with telecommunications,” Golant said, ComNews reported. Golant had occupied the position of deputy CEO and chief technical officer at Sky Link since February. From 1995 until 2008 he worked for Sky Link’s subsidiary Delta Telecom, where he occupied the positions of manager, development director, technical director, and general director. Golant was born in 1953 and graduated from a St. Petersburg electrotechnical institute majoring in radiotechnics.

www.prime-tass.com 35 Volume 6, Issue 2 January 24, 2009

Appointments

Tele2 Russia appoints Olga Osina as Chief Financial Officer The Russian subsidiary of Swedish cell operator Tele2 announced Thursday that Olga Osina has been appointed as the company’s Chief Financial Officer (CFO). Osina will replace Kai-Uwe Mehlhorn, who is leaving the company. Osina received a doctoral degree in economics from Moscow State University 1991. In 1994-1996, Osina worked as chief accountant at Coca-Cola (Belarus) before joining British American Tobacco (BAT) in 1997. She held several positions at BAT before stepping down as the company’s corporate finance manager in 2008. Tele2 is Russia’s fourth largest cellular operator. It currently operates in 17 out of 83 Russian regions

www.prime-tass.com 36 Volume 6, Issue 2 January 24, 2009

Calendar

January 26 January 27 January 27 Uralsvyazinform to hold auction to Russian court to consider back tax Kyivstar to hold EGM, to consider pick organizer for 10 bond issues case vs former Svyaznoi unit dividends for 2006-2007 in 2009-2010

January 27-29 January 28 January 29 IT and Communications 2009 Court to consider issuing arrest MegaFon’s board of directors to exhibition in Tyumen warrant for former Euroset consider acquiring mobile phone co-owner Yevgeny Chichvarkin retail chains

January 29 February 3 February 10 Moscow Arbitration Court to hear VolgaTelecom to hold auction to Russia’s Svyazinvest to hold bankruptcy case against ZAO take out 2 revolving credit lines EGM to elect new CEO, board of Svyaznoi worth 800 million rubles directors

February 13 February 19 February 24-27 Central Telegraph to hold EGM, to Russian court to reconsider Telecoms World Russia&CIS re-elect board of directors Farimex Products lawsuit against 2009 international conference in Telenor Moscow

Published by PRIME-TASS

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