Daily analyst comments

On March 24, Interfax cited Svyazinvest spokesman Oleg Mikhailov as saying that the MRKs would not raise their monthly subscription fees on the unlimited tariff plan. Five of the MRKs (CenterTelecom, North-Western Telecom, URSI, Sibirtelecom and Dalsvyaz) have given up the planned hikes (of 3.4% to 20%) as of April 1. Volgtelecom and Southern Telecommunications Company (YuTK) have not put this issue on agenda at all, and are not planning to do so any time soon.

The unlimited tariff plan is one of the three mandatory tariff plans applied by fixed-line phone companies. The tariff gives a subscriber the right to use fixed-line telecoms services for an unlimited time period (the tariff excludes calls to mobile phones with federal codes, calls to other cities within a specific region and inter-city and international long-distance calls). The unlimited tariff plan is popular with MRK clients. In 2006, for instance, more than half of all URSI subscribers opted in favor of this tariff plan.

We are extremely negative on the news. The problem is that the actual tariffs in a number of regions are now at a much lower level than those required by the Federal Tariffs Service (FTS). The situation is paradoxical indeed. The state, which regulates the monopoly phone operators’ activities, has set the higher tariffs than the monopolists themselves. In our view, the situation has not resulted from management activities aimed at increasing the cost of services rendered by the MRKs. Moreover, we do not rule out that the FTS may eventually lower the top tariffs on this service, depriving MRKs of the opportunity to hike their revenues by raising the cost of their services.

In this light, Dalsvyaz’s position looks rather strange. The company stated that tariff hikes on telecoms services would take another toll on Far Eastern residents, adding to the recent price spikes on staple foods. The other MRKs seem to share this position. The position is unacceptable for MRKs’ minority shareholders, given that the companies’ expenses should also grow dramatically in the face of runaway inflation, which will inevitably lead to their falling profit margins against stable revenues.

For all that, we do not plan to alter our recommendations until the release of the yearly financial statements. Our existing models are rather conservative in the short term. We hope that the social aspect in Svyazinvest companies’ activities will fade out already next summer.