Small portion of analisys

Yesterday MTS announced financial results. Consolidated net income down 6.8% due to non-cash FOREX loss through US GAAP translation of US dollar-denominated debt. This caused significant fall of its shares on NYSE (more than Vimpelcom). MTS was first of MNOs who published 2008 financial results. This loss is highly dependant from debt value which is more than Megafon debt but much smaller than Vimpelcom one. It is simply to predict that Vimpelcom results will be much worse and this will cause significant drop in its shares. At this point I advice to buy MTS shares after Vimpelcom financial results announced (it will cause chain effect and fall of MTS shares) but in 6 month perspective it is clear that MTS should be a leader in financial results. MTS has strong and aggresive market strategy - they are trying to attract new subscribers from different networks (its churn rate rose but I believe Vimpelcom churn should be higher) and develop poor market segment, but not so good as Megafon. MTS's spendings on advertising on the same level of quality from subscriber point of view. MTS started playing with tariffs and GPRS-internet traffic counting policies (increased since March 26th counting edge from 5kb to 100kb).

Vimpelcom due to Golden Telecom managers invasion to all relevant position is in very bad situation (frankly speaking, 2 debts from SberBank and icreased tariffs influence too) - bad corporate climate, big debt will cause much higher non-cash FOREX loss, new top managers will spend time on restructurization on Golden Telecom managers moving to relevant positions. At the moment I see that almost all strategy development of Vimpelcom is stopped - they are trying to survive in recession (as example MTS is cutting budget, looking for cost-savings and Vimpelcom is trying to find where it is possible to spend money from previous plans). Bad financial results and internal problems will have synergetic effect in shares drop. I believe it is good time to sell Vimpelcom shares. Their shares will be interesting in 6-9 months. It will be the time for effective actions of new management (maybe in worst case even some kind of nationalization), new experienced manager will have to decide strategy and find a way for business development. TV shows famous russian show man Fomenko with advertising of new lottery. Very interesting way of loosing subscribers - let's take last money from them - not far from stealing.

In same time Megafon is silently aquires new subscribers becuase of country wide feeling like Megafon is the cheapest MNO (recently it launched low income subscribers targeted MVNO called "Prosto" in russian sounds like "Simple"). I think its results will be good enough (don't forget that their debt is much smaller and they don't spend a lot of money on buying retailers businesses - I believe they are waiting for cheaper prices and hence for much more effective purchases).

I think Tele2 should be mentioned too. They began as discounter and unfortunatelly weren't allowed to be in Moscow but in other areas they are well presented. It is like magic time for them. Low income segment is incredibly fast growing (amount of subscribers in this segment). In case Tele2 is able to provide similiar range of essential services they will win from this crisis. It could be well seen from corporate segment - this segment replies first on hard time.

Thanks,

Denis.