Finding a Catalyst for Russian Telecoms

Includes: MBT, ORSTF, VIP
by: Emerging Money

Both of the major Russian cellular names -- VIP and MBT -- need catalysts in order to head much higher from here. When and if those catalysts emerge, these stocks could move. For Vimpelcom, the catalyst is pretty clear: canceling the Wind-Orascom (OTC:ORSTF) deal.

With Mobile Telesystems, it is more about earnings and long-awaited insight on the broadband integration with Comstar.

MBT reports on November 18. Top Russian brokerage Troika has come out with new targets on both stocks: MBT reduced to $30.30 as the competitive environment tightens. VIP cut to $14.70 if the ORSTF deal happens, but back up at $21.15 if the deal fails. Interestingly, Troika thinks either carrier could stand to outperform its Western counterparts in the long run by avoiding any kind of flat-rate data pricing plan now -- in order to avoid giving early adaptors a sense that they can just grab all the bandwidth they can -- and by pacing their infrastructure build to meet demand.

Roaming fine unlikely to hurt MBT, VIP

There is a bit of buzz out there today that Russian wireless companies might not have cut their roaming charges quite as "voluntarily" as earlier reported elsewhere. Although the Russian anti-monopoly service may characterize a 30% to 50% cut in cellular roaming fees as a fine, this may end up being contested since neither Mobile Telesystems, nor Vimpelcom, has actually been proved to be actively cooperating to fix roaming rates.

Meanwhile, VIP and MBT consider the rate cut voluntary, and that is how it is being widely reported in Russia and elsewhere. Whether the dip in revenue is imposed from above or from within corporate management in advance of punitive action, the big banks generally think it should not have a material impact on earnings -- if so, it has probably been priced into both stocks. For those who remember the infamous "Putin put," this is somewhat disturbing.

The anti-monopoly investigation into roaming fees started with an offhand remark from Putin that rates were too high. And now that the wireless giants that -- along with No. 3 player Megafon -- control 85% of the Russian market have been chastised, there are rumors of a larger agenda ahead for giving state-owned Rostel a better competitive footprint.

Disclosure: No position