OREANDA-NEWS. February 24, 2010. The Federal Anti-Monopoly Service (FAS) announced that it has brought a case against the Big 3 mobile operators for price violations in roaming service. According to FAS, the Big 3's roaming charges are 2-2.5 times higher than international service, and 3-6 times higher than the EU allows. The Big 3's international roaming is twice as expensive as that of its smaller competitor, Tele2. According to both Kommersant and Vedomosti, fines could amount to 1-15% of the operators' roaming revenues, reported the press-centre of OTKRITIE Financial Corporation.

View: The prospective fine of 15% of mobile revenues cited by the press would be substantial, amounting to US150m for MTS and US 120m for Vimpelcom (on our estimates), representing 3% of consolidated EBITDA and 6% of net income for MTS.  We believe, however, that it is an uphill battle for FAS, as the Big 3 will argue that the price comparisons cited by FAS are irrelevant and/or for materially different services. For example, the tariffs charged to Russian operators by foreign partners in the EU are not subject to EU regulation, and as such can be much higher than within Europe. Moreover, the Big 3 operators offer special discounts to reduce roaming charges. We expect a mild slap on the wrist, at most. 

Valuation: MTS trades on a 2010 EV/EBITDA of 4.7x, compared to Vimpelcom at 4.8x. 

Action: We remain buyers of both MTS (target price of US 85) and Vimpelcom (target price of US 32), and recommend buying into any weakness on the back of this news.