Research Notes

• Uralsvyazinform (RTS: URSI) is the largest regional telecom operator (RTO) in terms of sales and EBITDA and is the largest telecommunications company in the Urals region which is marked by high disposable income and less substantial social stratification of population compared to other Russian regions.

• Uralsvyazinform remains one of the smallest RTOs in terms of wireline subscribers. This, in our opinion, implies upside for a further increase in total number of lines in service, with considerable funds invested by the company itself in this area of business.

• Also noteworthy are the operator’s strong positions in the mobile sector. Alongside this, we expect that in the long term wireless operations will cease to be a cash generator, as the fierce competitive struggle for subscribers among Big-3 mobiles will put a major squeeze on Uralsvyazinform’s market share. However, the company’s essentially monopoly position in the fixed-line segment will not suffer considerably, becoming a driver for sales growth.

• Introduction of new interconnect rules early in the year will exert a positive impact on Uralsvyazinform’s business efficiency, with a spike in EBIT margin, EBITDA and net profit. Alongside this, the operator’s sales will grow at a slower pace and stabilize in the short-term outlook.

• High network digitalization rates will enable Uralsvyazinform to be more successful in vying with fixed-line alternative operators in the VAS segment.

• The company’s leverage is heavy, but its high-yield cellular business allows Uralsvyazinform to service debts with little effort.

• We do not expect to see the privatization of Svyazinvest until late 2007 or early 2008, and view the odds of privatization as less than 50%. In our estimates and forecasts we completely ruled out the participation of a non-state owner.

We assign a Buy recommendation to Uralsvyazinform’s commons and prefs with the fair prices of $0.048 and at $0.034, respectively.

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