OREANDA-NEWS. August 03, 2010. The Russian Ministry of Economic Development has proposed that mobile phone users should be able to choose the intermediary operator for long distance calls, reported the press-centre of OTKRITIE Financial Corporation.

View: We see this initiative as an attempt to improve the position of Rostelecom, which dominates the long-distance market over fixed lines. From our standpoint, the real benefit to Rostelcom would be negligible, as mobile long-distance prices are on average 11% below fixed-line long distance prices. The damage to mobile operators' business would be twofold. First, additional pricing pressure would lower revenue in the mobile long distance market, which is estimated at USD3.2bn, or about 8% of MTS and VIP revenue. Second, investment would be needed to physically allow such a service, while the benefit of this is that implementation would not start earlier than 2012.

Valuation: MTS trades at 2010 EV/EBITDA of 5.0x, compared with Vimpelcom, which trades at 4.0x.

Action: We take the news negatively for MTS and Vimpelcom; however, due to our upsides of 80% for MTS and 100% for Vimpelcom, we would not change our BUY ratings even if the initiative is approved.