- The signing of anti-terror law can decrease shares of Russian telecoms.
- Estimated required investment exceeds $ 40 billion.
- The main beneficiaries of the law will be suppliers of telecommunication equipment from Asia and USA.
July 7, President Vladimir Putin signed an anti-terrorism and anti-corruption law, initiated by the head of security committee of the State Duma Irirna Yarovaya. The new law obliges telecoms operators and Internet companies to store text messages, user's talks, images, sounds, video and other communications during six month. Mobile messengers - Telegram, WhatsApp, and Viber - will have to quite the market, because of their algorithm of end-to-end-encryption becomes outlaw.
The impact of new legislation on business will be devastating. Due to the reduction of cash flow shareholders will have to forget about dividends despite the increase of revenue be 200-300%. This will pressure the share price, because, until recently, telecom operators were positioned among investors as a dividend 'cash cows'. Shares of telecoms fell slightly after the President sign, but then quickly recovered.
Total amount of required investments can reach $ 45 billion. It is more than twice exceeds revenue of major players: revenue of Mobile TeleSystems (NYSE:MBT) - $ 6.1 billion, Megafon - $ 4.8 billion, VimelCom (VIP) - $ 4.3 billion. Local private companies would not be able to keep the law and likely will be acquired.
Large state-owned logistic operator - Russian Post office - assumed that capital expenditures of x-rays, metal detectors, gas detectors and other devices more than $ 7.8 billion. Such transnational delivering services as TNT and DHL will have to invest too. E-commerce expects to reduce at 30% turnover. Alibaba (BABA) and eBay (EBAY) will experience this more dramatically. Mail Group (social network Vkontakte) and Yandex (YNDX) evaluate the costs of law of $1.2-2 billion per each company.
According with anti-terror law telecoms should decide next technical tasks: data collection, identification, and storage and provision information for Federal Security Service. To solve these technical problems will require significant purchases of foreign equipment.
An equipment to collect data could be provided by IXIA (XXIA), Gigamon (GIMO), NetScout Systems Inc. (NTCT). Technical facilities for identification can be delivered by Procera Networks (PKT), Sandvine Corp. (OTCPK:SNVNF), and Allot Communications Ltd. (ALLT).
Data storage requires an overwhelming part of $ 40 billion investments to improve infrastructure of data centers. According to preliminary estimates a volume of centers will grow by 35%. Regime of secrecy claims operators to build their own data centers, resulting in purchase of a large number of server hardware. The list of potential suppliers is very wide: Intel (INTC), Cisco (CSCO), Hewlett Packard (HPE), and Huawei, ZTE (OTCPK:ZTCOF), EMC Corporation (EMC).
The final version of the law will be adopted in October 2016. Until that time investors have the opportunity to play on expectations of growth in equipment suppliers and play short with Russian telecoms. After that we will see the final volume of investment program. Law comes into force at 07.01.2018 - by that time the bulk of capital expenditures have to be pay.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.