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bne:TMT technology media telecoms Follow us on twitter.com/bizneweurope June 3, 2013 www.bne.eu Contents TOP STORY 1. Belarus overtook USA as world's top SPAM source 2. File-sharing network users may face liability for unauthorized content 3. MTS suggests Skype be subject to licensing 4. Putin Urges Better Online Intellectual Property Protection 5. Record Cinema Attendance in Estonia 6. VimpelCom launches 4G LTE network in Moscow 7. ‘Russia’s Facebook’ Put on Internet Blacklist by Mistake NEWS 8. CTC Media - CFO positive comments from VTBC conference 9. MegaFon enters partnership agreement with Telefonica 10. MegaFon may consider acquisition of Scartel 11. OTH: Altimo tender offer results – BNY Mellon says it gathered 7.7% of GDRs 12. Polish telecoms company Polkomtel upgrades to LTE to reach 66% of population due to rising data demand 13. Putin Wants Better Russian Movies 14. Reston firm turns to decades-old technology to set up mobile banking in Central Asia 15. Russian Private Equity Fund may purchase 4.2% stake in Rostelecom 16. Russian deputy PM warns defense shipbuilding program may fail 17. TV services subscriptions in Romania up to 6m 18. US authorities shut down the largest-ever online moneylaundering bank 19. VimpelCom launches 4G LTE network in Moscow 20. Yandex.Money teams up with British payment integrator OTHER NEWS 21. Ukraine is ready to give control over its GTS to Russia 22. Digital River opens office in Moscow 23. IT Specialist Convicted for Siberian Closed City Security Breach 24. Key shareholders streamline ownership in Russia’s MegaFon 25. MTS - Uber-confident 26. MegaFon enters partnership agreement with Telefonica 27. New MTV Russia to start working in October 28. Production of full-length films hit record in Estonia last year 29. Rostelecom’s ex-CEO Provotorov appointed president of Tele2 Russia 30. Russia's Mikron buys 12.5% in JV with Rusnano for RUB2bn 31. Sbne 32. Sitronics IT to operate under NVision brand in Ukraine from June 1 33. The Western Paradox 34. VimpelCom: Analyst visit creates positive impression SECTOR SNAPSHOTS 35. 25% of Russian Internet users make online payments 36. Russian mobile retail report for 1Q13 - smartphone sales keep growing 37. Russia’s mobile phone sales rise 12% in January–March 38. Survey: 80% of Russians support development of e-government REGULATION, REFORMS 39. Russian minister wants to distribute all frequencies at auctions COMPANY RESULTS 40. IBS Group 4Q12 operating update: revenue misses guidance 41. IBS Group reports operating results for the quarter and full year ended March 31, 2013 42. RBC 1Q13 preliminary financials show unimpressive performance 43. Yandex - Weekly internet search share bne:TMT June 3, 2013 Page 2 Top story 1. Belarus overtook USA as world's top SPAM source bne Belarus has eclipsed the US to become the biggest single source of global spam, according to cloud-based email and web security firm AppRiver. messages per day from Belarus. After the spike happened on 13 April, AppRiver said it began recording an average of 12.3m spam messages per day - which is now climbing. Junk volumes from the landlocked former Soviet republic, which borders Poland and Russia, hit an all-time high on 13 April and have sustained this level since then. Only one in a thousand messages from Belarus is legitimate, with 99.9% of the electronic messages consisting of junk mail, said the security firm. Current volumes of junkmail from Belarus are exceeding those from the US, the historic source of most of the world's internet detritus. In January, AppRiver security researchers were seeing an average of 3.1m spam 2. File-sharing network users may face liability for unauthorized content RIA Novosti MOSCOW, May 29 (RAPSI) - Russia's Culture Ministry has proposed introducing sanctions against users of file-sharing networks for posting unauthorized content online, Kommersant daily reported Wednesday. The Ministry proposed the establishment of a state Intellectual Property register. Each entry in the register should include the owner's name and contact details, and information on the copyright item. In accordance with the bill, holders of Intellectual Property rights would be able to notify Internet Service Providers (ISP) that a file-sharing network user has infringed upon its rights, and to report the perpetrator's IP address, Kommersant wrote citing the Culture-Ministry sponsored legislation. The ISP would be required to notify the user within 24 hours of the need to remove the disputed content. If the user fails to remove the content within 24 hours, the ISP can delete or block access French told El Reg that most users would likely recognise the messages, which come from .ru domains and make no attempt at spoofing, as spam. He's currently at a loss to explain the sustained spam spike from Belarus. Belarus now accounts for 16.3% of the world's spam, compared to 15.1% from the US and 7.45% from the Ukraine, according to exclusive figures produced for The Register. China accounts for 5.78% of the world's spam-relaying. to it within the following 12 hours. In cases where an ISP fails to notify the user, or where it fails to act pending a user's inaction, it would face the same administrative liability as website owners: a 5,000 ruble ($160) fine for individuals, 50,000 rubles ($1,590) for officials or sole business proprietors, and 1m rubles ($31,870) for companies. Once certain adjustments are made, the final edition of the bill, will be considered on June 3 at a panel of the Economic Development Ministry, the Education and Science Ministry, and the bill's working group. After that, the bill will be sent to the Justice Ministry and the Government for approval, Kommersant wrote. bne:TMT June 3, 2013 Page 3 News: MTS has suggested to the regulator, RosComNadzor, and the Ministry of Communications, that Skype and other OTT-service companies (Over the Top) be subject to licensing, according to Vedomosti. VTB Capital Our View: Competition from OTT-service companies, and from Skype in particular, is becoming more and more of an issue for mobile network operators. OTT-service companies do not invest in infrastructure, but take the traffic away from operators. The impact of Skype has so far been mostly visible on long-distance calls, in our view, but the increase of speeds on mobile networks is set to be more detrimental. In other countries, OTT-service companies are not regulated and we think it is unlikely 4. Putin Urges Better Online Intellectual Property Protection “Without defending intellectual [property] rights, a great damage will be done,” the Russian president said on Friday at a meeting to discuss the development of the country’s film industry. 3. MTS suggests Skype be subject to licensing RIA Novosti Russian President Vladimir Putin said on Friday a more effective system was needed to protect intellectual property rights on the internet. 5. Record Cinema Attendance in Estonia Putin said that without effective protection, “only enthusiasts will stay [in Russia], others will leave to make movies where their rights are protected.” Estonia reached a 20 year high in cinema attendance in 2011, with 2.5 m tickets sold at an average price of 4.1 EUR, an increase of 100,000 tickets over 2011. www.filmneweurope.com 6. VimpelCom launches 4G LTE network in Moscow VimpelCom has launched the first segment of the network in the central part of the city. The operator said it expected to cover almost all districts of Moscow with LTE services by the end of 2013. Major Russian mobile operator VimpelCom has launched commercial operations of its fourth generation (4G) network based on Long Term Evolution (LTE) technology in Moscow, the company said, Prime reported. Ivan Kim called on Russian filmmakers to produce movies that promote patriotic and moral values. Russia has done a lot to help produce and promote Russian films, with financing of the domestic movie industry rising from 528.6m rubles ($16.9m) in 2000 to over 6.6bn rubles ($211m) in 2013, Putin said. Earlier on Friday, Putin vowed to continue supporting the domestic film industry, but Estonian public broadcasting ERR reported that 332 feature-length films were released in 2012, establishing another record. bne that Russia would be ahead of the curve. Another solution for operators is to distinguish the traffic, and charge more or provide lower speeds to traffic generated by Skype. This is also a direction regulators and operators in other countries are negotiating. In mid-May, VimpelCom’s Vice President Igor Parfyonov said that the company had installed 104 LTE base stations operating within the 800 MHz and 2.6 GHz frequency bands in Moscow. In 2013, VimpelCom also plans to launch commercial operations of 4G LTE networks Thirteen feature films and 33 full-length documentaries were produced in Estonia in 2012. The country had a domestic hit with the adventure comedy Mushrooming (All Film), which had nearly 74,000 admissions, putting it in fourth place. The film accounted for almost 20% of admissions for Estonian films. in six regions, including Kaliningrad, Astrakhan, and Altai regions, as well as republics of Adygeya, Ingushetia, and Kalmykia. The operator was assigned with licenses to develop 4G LTE networks within the 806.0– 813.5 and 847.0–854.5 MHz bands at a tender held in July 2012. VimpelCom also received radio frequencies in the 2.5–2.7 GHz range. Under the terms of the tenders, VimpelCom must start providing LTE services no later than July 1, 2013. bne:TMT June 3, 2013 7. ‘Russia’s Facebook’ Put on Internet Blacklist by Mistake RIA Novosti Page 4 Vkontakte, Russia’s biggest social networking site, was put on a state registry of blacklisted websites by mistake earlier today, a spokesman for Russia's telecoms watchdog Roskomnadzor said. block access to sites containing child pornography, drug-related material, extremism and details about how to commit suicide. No court order is needed to block access. “This was a mistake. Our employee put a tick in the wrong place,” said Vladimir Pikov, as reported by Digit.ru. “We will remove VKontakte from the registry and it should be accessible for everyone.” Other sites containing offensive material can be shut down by a court order. Some 40m people every day use VKontakte, often referred to as “Russia’s Facebook.” A law creating a register of blacklisted websites containing what the authorities deem “harmful content” was approved by the Russian parliament in July. Rights groups condemned the registry, which has been up and running since November, as an attempt to crack down on internet freedom. Roskomnadzor has in the past temporarily blocked access to Google and YouTube due to “technical errors.” Under the law, the authorities can News 8. CTC Media - CFO positive comments from VTBC conference VTB Capital CTC Media’s CFO, Nikolay Surikov, hosted 1-on-1 meetings at our conference for international investors in London last week. His comments underpin our fairly positive view on the Russian TV ad market fundamentals, and highlight some upside risks to our model for CTC Media. We cover the key points of his presentation below. Positive on TV ad market growth potential in 2013. Surikov reiterated his estimates that for FY13, CTC Media is likely to deliver growth in line with the market. Video International had earlier forecast Russian TV ad growth of around 10% for FY13 (while the Russian FTA ad market was up 13% YoY in 1Q13). Management’s growth guidance implies potential CTC Media revenues of RUB 27.5bn (USD 872mn), while we expect USD 877mn. Advertiser demand for TV inventory remains solid. According to Surikov, the company does not see any change in the behaviour of multinationals, which account for 75% of its TV total ad revenues. Management has not noticed any slowdown across the company’s clients, despite the macro deceleration. According to the CFO, CTC’s prime-time slots are fully contracted until the end of the year (the first time in the past four years). Focus more on domestic and humour. According to management, the Russian content market is also looking brighter: the company’s programming expense growth is to slow down over 2Q13-4Q13. Importantly, Surikov believes that the company has power when acquiring content. Management sees a shift in the Russian audience’s preference for reality and humor, while comedy and humor remain the biggest hits. There are to be new series of the highly popular The Kitchen, The Eighties and The Voronins, as well as several new projects like Molodezhka (an ice hockey-based series) by the end of the year. Foreign content currently accounts for one-third of CTC Media’s pipeline (mainly American movies for CTC and Turkish series for Domashny), but is becoming less popular. OIBDA margin to be around 32% in 2013, flat YoY; in-house to expand. Finally, management sounded fairly upbeat on its ability to sustain the 2012 margins in 2013, saying that the pipeline it has produced has already translated into a scheduled programming grid until the end 2013 (thus making the respective amortisation expenses predictable). This might create slight upside risks to our profitability forecasts: we currently expect a 1pp EBITDA margin dilution on higher costs for transmitting digitalised signals. The company is to focus on acquiring domestic content and producing more of its own in-house content, increasing it from less than 10% of overall programming spend now to 30% within 3-5 years. Given that Russian production houses enjoy profitability in the mid-teens, this could create a cushion for the medium-term margins. Anastasia Obukhova bne:TMT June 3, 2013 9. MegaFon enters partnership agreement with Telefonica VTB Capital News: MegaFon has joined Telefonica's Partners Programme, which already includes partners such as China Unicom and Telecom Italia among others. Telefonica said its partnership with MegaFon will involve joint procurement, the exchange of technological know-how and the provision of services to their respective multinational clients. The two companies' specialised subsidiaries might also work together to develop new businesses, including OTT, cloud services or M2M. Telefonica and its partners currently serve customers in 52 countries covering a population of 1.5bn people. Our View: The strategic partnership would allow MegaFon to get better equipment prices, access to know-how and better roaming rates. We note that MTS has a strategic partnership agreement with Vodafone. Ivan Kim 10. MegaFon may consider acquisition of Scartel Alfa Bank According to Vedomosti, MegaFon’s AGM on June 28 is planning to approve an MVNO agreement with Scartel worth RUB55.17bn. The two companies have a common controlling shareholder, Alisher Usmanov’s Garsdale Holding. The contract will be signed for five years with an option to extend it for an additional five years. This implies RUB5.52bn, or $175m per year, while the annual payment being speculated in the press is $150m. The agreement has to be approved by the AGM since its value exceeds 2% of MegaFon’s net assets. Page 5 11. OTH: Altimo tender offer results – BNY Mellon says it gathered 7.7% of GDRs VTB Capital News: Yesterday, Altimo announced the level of acceptances of the tender offer to Orascom Telecom Holding (OTH) minorities (USD 3.5/GDR and USD 0.7/share) at 15.9%. Although it is below the 26.2% acceptance threshold, Altimo still plans to buy the tendered OTH stock. Altimo is now seeking regulatory approval of the offer. Yesterday, BNY Mellon said it executed a transaction to acquire a 7.7% stake in OTH in the form of GDRs on 24 May. Our View: As we expected, Altimo would take fewer shares, subject to regulatory approval. It remains to be seen whether the Egyptian regulator will approve the tender offer. If Altimo acquires 16% stake, we think minorities and Altimo would be in the same boat, which is not a bad thing, in our view. We note that according to a recent Reuters press report, VimpelCom might consider de-listing OTH (it would require a quorum of 75% to carry out a voluntary de-listing); however, we think the latter would hurt its corporate governance perception. Altimo has recently said it has no plans to increase the tender offer price. Ivan Kim 12. Polish telecoms company Polkomtel upgrades to LTE to reach 66% of population due to rising data demand bne Project Vedomosti also speculates that MegaFon is considering purchasing Scartel from Garsdale. In 2011, previous Scartel shareholders – Leading Polish telecoms company Polkomtel says it has restarted Sergei Adoniev’s Telconet Capital and Rostechnologii – were ready its capital investment programme and intends to cover two thirds to sell 100% of the company’s shares for $1bn. of the population with LTE network and the whole population with the HSPA/HSPA+ technology. As Scartel does not disclose its financials, we find it difficult to evaluate the impact of a potential deal on MegaFon’s share The operator of Plus GSM wireless brand is upgrading its netowork price. Since both companies have the same shareholder, we do in response to the higher demand for data services. not believe the deal would be structured in a way that damages MegaFon’s value. Thus, we view the news as NEUTRAL at this Polkomtel CEO Wojciech Pytel says the company wants to offer the time. best-quality services on as big a territory as possible. The operator started upgrading its infrastructure in the autumn of last year. Elina Kulieva, Ph.D. Dmitry Doronin bne:TMT June 3, 2013 Page 6 13. Putin Wants Better Russian Movies “Right away, we wanted to take advantage of older, but extremely well-deployed technology,” said Sean Kidder, chief technology officer of GeoPay. “For us, it’s about how many customers we can reach, not whether someone who’s hip and cool may turn their nose up at the technology we’re using.” RIA Novosti GeoPay introduced mobile banking to Kyrgyzstan, in central Asia, in October. Since then, more than 40,000 people, 2,000 merchants and 80 bank branches have signed up. Russian President Vladimir Putin vowed on Friday to continue supporting the domestic film industry, but called on Russian filmmakers to produce movies that promote patriotic and moral values. “I have said many times that the state can help produce movies, but it cannot force people to go and watch them,” Putin said at a meeting on the development of the Russian movie industry. “Slots for domestic movies can be reserved [at movie theaters], but the problem is what to fill those slots with.” Putin said that the state had done a lot to help produce and promote Russian films, with financing of the domestic movie industry rising from 528.6m rubles ($16.9m) in 2000 to over 6.6bn rubles ($211m) in 2013. Read the rest of this piece http://articles.washingtonpost. com/2013-05-26/business/39544965_1_mobile-banking-platformmobile-banking-chief-technology-officer 15. Russian Private Equity Fund may purchase 4.2% stake in Rostelecom Alfa Bank The president said that Russians expect an appropriate return, and expressed the hope that filmmakers would put out more and more movies with content that meets viewers’ demands and promotes key social, cultural, patriotic and moral values. The president said that Russians are attracted to films that relay the essence of human relations and feelings, and choose between “good and bad” movies rather than Russian and foreign movies. Russian Private Equity Fund (RPEF) may purchase a 4.21% stake of Rostelecom common quasi-treasury shares belonging to Mobitel, Kommersant reports today. The price of the potential deal was not disclosed. Based on the current share price, the stake is worth RUB13.3bn. The breakeven point for Rostelecom of RUB180 per share (the minimum price at which the company will not post a loss on the sale) implies a value of the stake of RUB22.3bn. The deal could reduce Rostelecom’s debt burden from the current 1.8x net debt/EBITDA to 1.63-1.55x. Kommersant also reports that RPEF may be interested in acquiring Marshall Capital’s 10% stake in Rostelecom. All parties involved have officially declined to comment on the deal. Putin cited several movies that came out in the past few years, including Admiral, Turkish Gambit, Faust and Legend Number 17, as evidence of how Russian films can compete with foreign blockbusters. We view the news as POSITIVE for the company, as the entrance of RPEF in Rostelecom equity will strengthen the position of minority shareholders and allow the company to reduce its debt burden. However, these goals have not been attained so far, as foreign movies continue to dominate the Russian box office, while the share of Russian films in overall box-office receipts in Russia and the CIS states is only 15.5%, Putin said. 14. Reston firm turns to decadesold technology to set up mobile banking in Central Asia On a separate note, several media sources have reported that VTB may soon initiate the appointment of a former CEO of Rostelecom, Alexander Provotorov, as CEO of Tele2 Russia. This confirms that an alliance between Rostelecom and Tele2 Russia via a merger or a JV is likely in the medium term. Elina Kulieva, Ph.D. Dmitry Doronin The Washington Post Not all new ideas for technology have to be, well, new. As the start-ups around it tinkered with the cutting edge, a Reston company called GeoPay stuck by decades-old technology — the same used in messaging systems that led to the earliest cellphones — to create a mobile-banking platform. The start-up, founded in 2011, provides cellphone-based banking services for people who might not otherwise have accounts at financial institutions. The simpler the interface, the more people the system could reach in the developing world, GeoPay said. 16. Russian deputy PM warns defense shipbuilding program may fail bne Russian Deputy Prime Minister Dmitry Rogozin has warned that bne:TMT June 3, 2013 the state program on shipbuilding and ship overhauling may fail, RIA Novosti reported Friday. “We are going to invest large amounts and have already invested a lot in shipbuilding; I see no feedback so far. Moreover, there is the real threat that our plans linked to the fulfillment of the state armament program in the field of shipbuilding and ship repairing will go bust,” Rogozin said at a meeting with directors of shipbuilding companies. He said that the problem may be tackled through a direct dialogue between the government, state-owned United Shipbuilding Corporation, and private companies. Disputes between the Defense Ministry and defense industrial manufacturers over the price of their products nearly resulted in a failure to fulfill the 2011 state armament order. Rogozin also urged shipbuilders to start shifting from simple sales deals to using advanced technologies and attracting investment. 17. TV services subscriptions in Romania up to 6m bne The number of subscribers to television retransmission services increased to over 6m in Romania last year, according to the country’s communications authority ANCOM, Romania-Insider. com reports. There were increases across the different reception type sectors; cable, IP, satellite, taking the overall penetration rate to over 85 percent of households in Romania. There was a 5% overall rise in subscribers in 2012, but the biggest percentage increase was recorded among IP television service subscriptions, up 34%, albeit to a low overall number, some 37,000. Subscriptions to cable TV services were up 6.4% to 3.8m, while the number of subscribers to satellite TV increased by 2.3% to reach 2.19m. The number of cable subscriptions in digital format increased by 40% to 1.24m subscribers. Meanwhile, out of the total 6m retransmission service subscriptions, 3.4m are to services in digital format, a 13.4% increase on the previous year. 18. US authorities shut down the largest-ever online moneylaundering bank Page 7 number of persons and the closing down of Liberty Reserve, an online pseudo-bank that allegedly laundered $6bn in money that the U.S. authorities believe was the result of drug dealing and child pornography. Bharara and other federal official said Liberty Reserve was believed to be the largest online money-laundering case in history. Liberty Reserve was a Costa Rican corporation, and was registered by a man who is commonly known as Arthur Budovsky, Ukraine Business Online reports. However, in local newspaper reports Costa Rican prosecutor José Pablo González said that Budovsky, a Costa Rican citizen of Ukrainian origin, has been under investigation since 2011 for money laundering using Liberty Reserve, a company he created in Costa Rica. “Local investigations began after a request from a prosecutor’s office in New York,” Tico Times reporter L. Arias wrote. “On Friday, San José prosecutors conducted raids in Budovsky’s house and offices in Escazá, Santa Ana, southwest of San José, and in the province of Heredia, north of the capital. Budovsky’s businesses in Costa Rica apparently were financed by using money from child pornography websites and drug trafficking.” [A television report from Costa Rica may be reached at: https://www.youtube.com/watch?v=UH1ryOM-iyk In the indictment filed by the U.S. attorney, the leader of the alleged money laundering operation was indicted under the name Arthur Budovsky with an indication that he at some times used what is believed to be his Ukrainian birth name, Arthur Belanchuk and also a third name Eric Paltz. The kingpin is the only obvious Ukrainian connection to the case but one other person, identified in press reports as “Russian” was named Maxim Chukharev. There is no further information regarding Belanchuk and any current connections he might have in Ukraine. 19. VimpelCom launches 4G LTE network in Moscow bne Major Russian mobile operator VimpelCom has launched commercial operations of its fourth generation (4G) network based on Long Term Evolution (LTE) technology in Moscow, the company said, Prime reported. VimpelCom has launched the first segment of the network in the central part of the city. The operator said it expected to cover almost all districts of Moscow with LTE services by the end of 2013. In mid-May, VimpelCom’s Vice President Igor Parfyonov said that the company had installed 104 LTE base stations operating within the 800 MHz and 2.6 GHz frequency bands in Moscow. bne In 2013, VimpelCom also plans to launch commercial operations of 4G LTE networks in six regions, including Kaliningrad, Astrakhan, and Altai regions, as well as republics of Adygeya, Ingushetia, and Kalmykia. At a press conference on Tuesday, Preet Bharara, the U.S. attorney in Manhattan announced the apprehension of a large The operator was assigned with licenses to develop 4G LTE networks within the 806.0–813.5 and 847.0–854.5 MHz bands bne:TMT June 3, 2013 at a tender held in July 2012. VimpelCom also received radio frequencies in the 2.5–2.7 GHz range. Under the terms of the tenders, VimpelCom must start providing LTE services no later than July 1, 2013. 20. Yandex.Money teams up with British payment integrator Page 8 can use Skrill to connect themselves to any payment system without adapting their websites to each system. Skrill hasn't had a partner in Russia until recently, Yandex.Money says: the British company cooperated only with international systems (Visa, MasterCard) and with European companies in certain countries, including Giropay and ELV in Germany, iDeal in the Netherlands, and mBank in Poland. Yandex.Money expects to engage through Skrill the shops that plan to make a monthly turnover of up to USD 10,000 in Russia. "They are small-size shops. If at least 2,000 shops from Skrill's base uniting 140,000 companies start accepting payments in rubles, the turnover of cross-border purchases will increase to $20m," says Asya Melkumova, a representative of Yandex.Money. bne Yandex.Money and the British payment integrator Skrill, the largest one in Europe uniting 140,000 Internet shops, made a cooperation agreement. It will enable Yandex.Money users to pay for purchases in foreign shops which don't accept cards of Russian banks, Kommersant reported. Among Skrill's partners are eBay, Skype, Thomas Cook, etc. They The partners will receive 5% from each payment, but they don't disclose how the fee will be split between them. If the turnover is expected to be up to $20m, revenue for six months may be $1m. "They are likely to go halves," says Victor Dostov, Chairman of the Management Board of the Electronic Money Association. "However, one should remember that Yandex.Money will pay the difference of exchange as it will accept rubles and pay in foreign currency." Other news 21. Ukraine is ready to give control over its GTS to Russia bne Kyiv could give Russia control over Ukraine’s gas transport system in exchange of lower gas prices, Kommersant-Ukraine reported citing its sources in Ukraine’s Ministry of Energy. According to the sources, the matter was discussed during the meeting between Russian President Vladimir Putin and Ukrainian President Viktor Yanukovych in Sochi on Sunday, May 26. Russia earlier proposed to set a consortium under Gazprom’s lead to manage Ukraine’s gas transport system. According to Kommersant-Ukraine, during Sunday talks two sides agreed that Russian monopoly would get control only over magistral pipelines. The network that distributes gas from stations to consumers is said to go under control of VETEK Group owned by Sergei Kucherenko. Russia, Ukraine, and EU have been discussing the long-needed modernization of Ukraine’s gas transport system for years. Gazprom repeatedly said it’s ready to participate in modernization. Ukraine refused to pass the control to Russian monopoly as pipeline system brings huge amount of money in country’s budget. However, Kyiv now admitted that it couldn’t afford managing the GTS on its own. Earlier in March, Viktor Yanukovych said that if Gazprom wanted to control country’s pipeline network it must guarantee certain amount of gas transit in Europe. In April, Russian ambassador in Ukraine Mikhail Zurabov said that Russia could guarantee to transit 60 bcm of gas a year through Ukraine’s territory if Kyiv creates two-side consortium for managing GTS, thus excluding EU from the discussion. 22. Digital River opens office in Moscow bne Digital River announced it has recently opened a new office in Moscow, Business Wire reported. The new Russian office adds to Digital River's already extensive global presence, including 31 offices across North and South America, Asia and Western Europe. Digital River has been helping Russian developers sell and distribute software on a global basis since 1998. "Our move into Russia is a reflection of our ongoing commitment to this high growth e-commerce market," said John Strosahl, executive vice president at Digital River. "Managing e-commerce operations in Russia requires a deep understanding of local buying behavior, fulfillment requirements and legal regulations. Our on-the-ground presence serves as the entrée we needed to more effectively open this notable sales region to multi-national companies that otherwise would find operating an e-business in Russia to be cost-prohibitive and risky from a legal compliance perspective." bne:TMT June 3, 2013 Page 9 23. IT Specialist Convicted for Siberian 25. MTS - Uber-confident Closed City Security Breach VTB Capital RIA Novosti The court of Seversk, a closed satellite city of Tomsk, Siberia, on Tuesday found a local IT specialist guilty of copying databases of the city’s residents, the court said in a statement. The man, employed at the city’s municipal company overseeing utility payments and offering payment services, made copies of the company’s databases, including payers’ personal data and other sensitive information. “Acting on motives of hooliganism, he copied files containing personal data of Seversk residents to his laptop. The man also copied a database containing information on utlity payments and other insider information and subsequently deleted it from the company’s server,” the court’s statement reads. The judge found the man guilty of illegal access to computer information protected by the law, as well as copying and deleting it through his official position. The man pleaded guilty to all charges. He was sentenced to eighteen months custodial restraint. Custodial restraint is a form of punishment introduced in Russia in December 2009. As part of the punishment, a convict faces various restrictions, such as a ban on leaving home at certain hours, on visiting specific places, on leaving their city, on attending mass events, and on moving to a new residence without the permission of a supervisory body. 24. Key shareholders streamline ownership in Russia’s MegaFon bne The key shareholders of major Russian mobile operator MegaFon - companies owned by tycoon Alisher Usmanov and SwedishFinnish telecommunications group TeliaSonera - have closed a deal to streamline their ownership in the operator, MegaFon said Wednesday, Prime reported. Under an agreement reached in April 2012, Usmanov's Telecominvest Holdings Ltd bought 9.300m shares, or 1.5% of MegaFon's charter capital, from TeliaSonera's subsidiary Kontakt-S. Another subsidiary of TeliaSonera, Sonera Holding, bought the same amount of shares from Telecominvest. After the deal, Kontakt-S and Telecominvest are no longer shareholders of MegaFon. Usmanov's AF Telecom Holding holds a 50.0% plus 100 shares in MegaFon, and TeliaSonera owns a 25.17% stake. MTS hosted a management meeting today with CEO Andrey Dubovskov and CFO Alexey Kornya. The team came across as rather upbeat on the competitive and regulatory environment. Capex remains fairly high, but FCF generation ability is great, in our view. We forecast a 9% FCF yield for 2013. With the MSCI 1040 rebalancing headwind behind, we reiterate our Buy recommendation on the stock. MTS local stock, which trades at a 17% discount to ADRs, is our top pick in the Russian universe. Data pricing. MTS has lagged behind in data, and wanted to get its fair share. Having said that, MTS does not want to trigger any aggressive competitive response, so has not introduced aggressive data pricing. MTS does not provide unlimited tariffs, but offers bundles instead, in order to get optimal network utilisation. Voice is getting more and more commoditised, with many subscribers having a zero rate on on-net (50-60% of total base). MTR would be an issue over time, as it would put pressure on the gross margin, and therefore MTS would like to see MTRs go down in the long run. Competition. Market participants understand the advantages of market stability, according to management. Therefore, MTS does not expect the Big Three players to rock the boat. Still, the emergence of regional players (including Rostelecom) is a downside risk. Management thinks that the combination of the need for network investment by regional rivals, an unlikely unfavourable change in the regulatory environment and execution risks would keep the competitive environment stable. Regulation. Management identified unexpected regulatory actions as one of the most important downside risks. Having said that, the company does not expect any drastic pure telecom measures, or broader actions either (e.g. increased taxation). MNP is unlikely to be introduced before mid-2014, and management does not expect significant market share redistribution in Moscow (possibly higher effect in other regions where network utilisation varies). Capex. MTS has a strong 3G network; however, investment over the next several years is not set to go down significantly. MTS misjudged the speed of LTE network development and these investments had to be brought forward, especially as MegaFon and Yota were quick. Moreover, the significant GPON project in Moscow, which serves as a tool to defend revenues, is still ongoing. Capex is set to remain fairly elevated over 2013-15F. Cost side. Management is optimising retail network costs as well as network-related costs, following the rapid network roll-out. Besides, the gross margin could be improved further on higher on-net, while there is more room to address commercial and administrative costs. Still, significant profitability gains are unlikely in the short term, in our view. Risks. The key downside risks are higher competition, possible regulatory pressure, rouble weakening, M&A and corporate governance. Ivan Kim bne:TMT June 3, 2013 26. MegaFon enters partnership agreement with Telefonica VTB Capital News: MegaFon has joined Telefonica's Partners Programme, which already includes partners such as China Unicom and Telecom Italia among others. Telefonica said its partnership with MegaFon will involve joint procurement, the exchange of technological know-how and the provision of services to their respective multinational clients. The two companies' specialised subsidiaries might also work together to develop new businesses, including OTT, cloud services or M2M. Telefonica and its partners currently serve customers in 52 countries covering a population of 1.5bn people. Our View: The strategic partnership would allow MegaFon to get better equipment prices, access to know-how and better roaming rates. We note that MTS has a strategic partnership agreement with Vodafone. Page 10 in 2012 when Estonian film celebrated its 100th birthday. 13 of these were full-length feature films and 33 were full-length documentaries. In 2012, in total there were 241 films released, of which 195 were short films. Nevertheless, the total number of released films was smaller than in record year 2003, when there were released 261 films, among these 240 short films. There were 332 films in total shown in Estonian cinemas in 2012 which is the highest number of Estonian re-independence years. There were 28 Estonian, 134 European, 154 USA’s and 16 other countries’ films. The share of the European and other countries has increased and the share of the USA’s films has decreased during last years. The number of Estonian films was the highest in 2011 when there were 40 Estonian films running in Estonian cinemas. There were near 2.5 million cinema visits in 2012, which is the highest level of the last 20 years. Compared to 2011, there were over 100,000 cinema visits more. Ivan Kim 27. New MTV Russia to start working in October bne Viacom International Media Networks will launch a new MTV Russia channel on cable television in October which will be more aligned to its global brand, according to a statement issued by the company, The Moscow Times reported. Now the company is holding talks with cable, satellite and mobile operators to include MTV in its basic package. As of June 1, MTV Russia will be fully owned and operated by Viacom for the first time in its 15-year history. Previously, the channel was operated jointly with ProfMedia. Last September, the company decided to replace the channel with a new youth, information and entertainment-based channel called Pyatnitsa, or Friday. The new MTV Russia will air shows such as "Pimp My Ride" and "Punk'd," the newspaper reported. "The promotion of the channel will begin in the summer, including its new website. In September, a full-scale advertising campaign will begin," said Elena Balmont, chief executive of Viacom in Russia. 28. Production of full-length films hit record in Estonia last year Statistics Estonia According to Statistics Estonia, 46 full-length films were released The most popular films were “Ice Age 4” (171,000 visits), “Skyfall” (95,000 visits) and “Madagascar 3” (88,000 visits). The most popular Estonian film placed on the fourth position and it was “Seenelkäik“ (“Mushrooming“) of Toomas Hussar (73,700 visits). “Eestlanna Pariisis“ ("Une Estonienne à Paris") of Ilmar Raag was on the 15th position (36,600 visits) and “Vasaku jala reede“ (“Bad Hair Friday“) of Andres Kõpper and Arun Tamm was on the 21st position (33,000 visits). Estonian films gathered nearly 250,000 visits or 10% of the total number of cinema visits. The average cinema ticket price was 4.1 euros and it stayed on the same level compared to the previous year. Full-length film — a film of duration of at least 60 minutes (52 minutes in case of TV formats). 29. Rostelecom’s ex-CEO Provotorov appointed president of Tele2 Russia bne Telecommunications giant Rostelecom's former CEO Alexander Provotorov has been appointed president of mobile operator Tele2 Russia, state-run VTB Bank, the owner of the operator, said, Prime reported. Provotorov replaced Jere Calmes, who was appointed president of Tele2 Russia in February following Dmitry Strashnov's resignation on December 31, 2012. Both Provotorov and Calmes, who is now first vice president of Tele2 Russia, will become members of the operator's board of directors. Provotorov was dismissed from the position of Rostelecom's CEO in late March, after his investment strategy repeatedly received criticism from the Communications and Mass Media Ministry for being inefficient. bne:TMT June 3, 2013 30. Russia's Mikron buys 12.5% in JV with Rusnano for RUB2bn bne Russian microchip maker Mikron has acquired 12.5% of the shares in a joint venture with state-run nanotechnology company Rusnano for RUB2bn and increased its stake to 62.25%, the company said, Prime reported. Rusnano holds 37.25% in the JV called Sitronics - Nano, and the remaining 0.5% share belongs to little-known firm Amex. The deal was held within Mikron's production assets consolidation program. 32. Sitronics IT to operate under NVision brand in Ukraine from June 1 bne Sitronics Information Technologies Ukraine from June 1 will start operating under the NVision brand, according to a report by NVision Group. "In September 2012, Sitronics Information Technologies, including the division in Ukraine, entered the united company NVision Group. As part of NVision, the Ukrainian team has already implemented a number of large projects," reads the report seen by Interfax-Ukraine. NVision Group develops information and communications technology (ICT) solutions and services. In September 2012, following a merger with the ICT assets of JSFC Sistema, the united company NVision Group included Sitronics Information Technologies and CJSC Sitronics Telecommunications Solutions. The subsidiary of Sistema, OAO RTI, holds a 50% plus half a share stake in NVision Group. OJSC Sitronics in Ukraine and some other countries operated under the brand Kvazar-Micro prior to 2009. The company's activities include management consulting, the implementation of enterprise control systems, system integration, software development, and providing services and training. 33. The Western Paradox Page 11 TeliaSonera and Ericsson The Swedish telecoms company TeliaSonera has played a pivotal role in expanding the regime’s internal surveillance within the country. Through it’s 38 per cent share of Turkish operator Turkcell, which in turn has an 80 per cent share of Life (Belarusian Telecom), the Belarusian regime has been able to phone tap, track and trace the calls of anti-regime activists. A particular example pertains to the presidential election protests in December 2010 where the Life network supplied black box surveillance equipment to the country’s security services. This equipment enabled the regime to monitor phone calls between the activists, intercept text messages and locate which activists attended the protests on Independence Square. As a consequence, activists were tracked down, arrested and prosecuted. Iryna Khalip, a notable journalist and critic of the Lukashenka regime, represents one of those activists who was detained by the authorities and later handed a two-year suspended prison sentence. Similarly, Ericsson, the Finnish telecoms company has also helped the regime to increasingly spy on opposition activists. The independent Belarusian new agency BelaPAN reported that the company sold communications equipment to the regime vis-à-vis the run up to and during the 2010 presidential elections. Andrei Sannikov, a 2010 presidential candidate, disclosed that his phone was tapped during the entirety of the presidential election campaign that year. During his trial, the Belarusian authorities reviewed text messages and phone conversations from Sannikov’s mobile phone, which subsequently led to a five-year prison sentence. Western governments Alongside the secret role of Western telecom companies in Belarus, Western governments themselves are hindering their own efforts to promote democracy and human rights in the country. Notably, the training of the Belarusian police force by their German counterparts in ICT software products is at the centre of this development. IBM manufactured software Analyst’s Notebook, used by European police forces to process terrorist information, analyse complex data sets and recognise criminal patterns, represents one of these products which has been used by the Belarusian regime. The Belarusian police force has confirmed that training in Analyst’s Notebook software is used in day-to-day operations against opposition activists within the social networking environment. It is therefore important to distinguish between the words and actions of Western actors. What has become clear, however, is that there is a gulf between the two. If Western governments continue to denounce the actions of the Lukashenka regime, their actions must follow in the same direction. Furthermore, the European Commission must stand up to Western corporations such as Ericsson and TeliaSonera by restricting the sale of surveillance technology which continues to endanger the freedom of speech of individuals within Belarusian society. New Eastern Europe While Western governments continue to criticise the lack of democracy and scope of human rights violations in Belarus, it seems the governments themselves, alongside Western technology companies are aiding its development. The telecoms sector and online environment represent two key areas in which Western hands are continuing to allow President Alyaksandr Lukashenka to enforce authoritarian rule and breach human rights. 34. VimpelCom: Analyst visit creates positive impression UralSib Focus on data and operating efficiency. Yesterday, VimpelCom bne:TMT June 3, 2013 (VIP US – Buy) held an analyst meeting with the management of its Russian business unit, which left us with a generally positive impression. VimpelCom Russia confirmed its focus on improving operating and capex efficiency, as well as developing the data business. Data network quality prioritized. With data becoming the major revenue driver, management is committed to improving the data network quality to compensate for the previous underinvestment in the 3G network. It expects to close the gap in the quality of the 3G network to its competitors in Moscow by the end of this year and for most of the country in 2013-14, having set the goal of achieving the best customer experience for high ARPU subscribers in 2013-14 and for high- and medium-value subscribers in 2015-16. VimpelCom’s retail strategy is based on developing a mono-brand network which should reach parity in terms of area with MegaFon and MTS by the end of 2014. The excellence program to improve operations, which was launched in 2011, has resulted in opex savings exceeding the initial target of $150 mln by about 100% and management believes there are Page 12 opportunities for further improvements in dealer commissions, retail and headcount. Infrastructure sharing, which is helping optimize capex, has become common: 95% of the transportation networks and 30% of base station towers are co-invested. For the LTE networks, infrastructure sharing will be even more intensive. VimpelCom remains our preferred choice in the sector. The meeting generally underpinned our positive view on VimpelCom, which offers reasonable growth and secure cash flows. VimpelCom remains our top-pick in the Russian telecom sector, with the other two members of the Big-three, MTS (MBT US – Hold) and MegaFon (MFON LI – Hold), being more expensive and Rostelecom looking cheap but risky, given the change in management, lack of clarity on strategy and focus on reorganization. Vimpel- Com is traded at a discount of 17% to MTS and a discount of 26% to MegaFon on 2013E EV/EBITDA and offers 36% upside to our 12-month target price of $14/ADR. We therefore reiterate our Buy recommendation on the stock. Konstantin Chernyshev Sector snapshots 35. 25% of Russian Internet users make 36. Russian mobile retail report for 1Q13 online payments - smartphone sales keep growing bne VTB Capital A quarter of Internet users in Russia pay for services online, and 30% of them are from the Moscow region, according to an e-commerce market research sponsored by PayU Group, The Moscow Times reported. News: MTS has issued its regular report on mobile retail in Russia for 1Q13. According to the company, the handset market (in units) contracted 8% YoY and was down 26% QoQ due to the adverse effect of seasonality. In value, the handset market increased 12% YoY. The smartphone market (in units) was up 36%. The average smartphone price went up 5% YoY and was flat QoQ. The share of smartphone sales in the total value of the market increased 16pp YoY to 78% (40% in units). MTS’s retail network was roughly stable QoQ at 4,400 stores, of which 2,900 are owned. A study, conducted in collaboration with Data Insight agency, showed that to date in 2013, 50% of online payments were done with a credit card, with an average amount of RUB2,800 ($89). 58% of such payments came from cities with over 300 thousand residents. The research showed that people under 35 were responsible for 61% of transactions, 56% men and 44% women. "Every year, the number of Russians preferring online non-cash payments is growing with a faster rate," Pyotr Kozyakov, a sales director from PayU said. "With the introduction of high-speed [Internet] and quality [Internet] links in the regions, one can expect another boom in online payments," he added. Every month, seven million Internet users in Russia made an average of 3.8 payments, research showed. Nearly half paid with a credit card (44%), while the rest used electronic money (19%), online banking (19%), mobile phone payments (8%), credit cards attached to virtual wallets (7%) and SMS (3%). Our View: We think the ongoing increase of smartphone sales as a percentage of the total handset market is helping data growth. MTS said that switching from a feature phone to a smartphone led to a RUB 70-100 ARPU increase, which is a healthy 20-30% ARPU expansion. We note that MTS pushed lower value smartphones in 1Q13, in order to increase penetration. As a result, smartphones that cost RUB 1,500-5,000 (USD 50-150) contributed 37% of total smartphone sales in 1Q13, up from 21% in 1Q12. The turnover of financial services in MTS’s retail network tripled YoY in 1Q13 (including the issuance of MTS Dengi cards). The expansion of financial services will, in our view, help the top line and customer loyalty. Ivan Kim bne:TMT June 3, 2013 Page 13 37. Russia’s mobile phone sales rise 38. Survey: 80% of Russians support 12% in January–March development of e-government bne bne Russia's mobile phone sales increased 12.4% on the year to RUB49.1bn in January-March, major mobile operator MTS, which operates its own monobrand retail chain, said in a report seen by Prime. About 80% of the Russian population supports the development of e-government, a system aimed at making government services available via the Internet, RIA Novosti's hi-tech and telecommunications division Digit.ru reported late on Tuesday, citing Russian Public Opinion Research Center's General Director Valery Fyodorov. Smartphone sales stood at RUB38.3bn, or 78% of the total sum, up 42.5% from the same period a year earlier, MTS also said. In terms of units, 8.7m mobile phones were sold in Russia in January-March, which is 8.4% below the figures registered during the same period of 2012, MTS said. Of the total amount, smartphone sales grew 36.2% on the year to 3.5m units in January-March. The average market price of mobile phones rose by 22.7% on the year to 5,687 rubles in January-March, according to MTS. According to the survey conducted by the public opinion research center, 71% of citizens think that the e-government services are necessary for paying for and solving issues with public utilities, 58% believe them to be necessary in the healthcare, 50% believe them to be necessary in social support, 46% believe them to be necessary for communicating with the police, 45% believe them to be necessary for solving transport problems, 42% would like to use them to seek jobs, and 42% would like to use them for education services. However, the quality of services has decreased, according to the head of the e-government expert board Pavel Khilov. Half of Russia's regions stopped providing e-government services after receiving information that telecommunications operator Rostelecom would share the authorities in the project with several contractors, he said. Regulation, reforms 39. Russian minister wants to distribute all frequencies at auctions If the full range is recognized as a limited resource, the management of the frequencies will improve, and the decisionmaking process will be more transparent, the ministry said in the statement. bne Russia' Communications and Mass Media Minister Nikolai Nikiforov has suggested that all radio frequencies should be recognized as limited resources and distributed at auctions, the ministry said in a statement seen by Prime. Under the current rules, separate bands could be recognized as limited resources and put up for an auction. Other frequency bands are mainly distributed through tenders. The radio frequency commission has instructed a working panel to prepare draft proposals on the matter to be submitted at the next meeting. Deputy communications minister Denis Sverdlov said earlier that the distribution of all the radio frequencies at auctions will be stipulated under the communications law, which is currently being prepared. Under the proposed law, the operators will also be able to sell the frequencies they have or exchange the bands. bne:TMT June 3, 2013 Page 14 Company results 40. IBS Group 4Q12 operating update: revenue misses guidance UralSib Sales up 8% YoY to $198 mln. Yesterday IBS Group (IBSG – Buy) published an operating update for 4Q12 (the quarter ended on 31 March 2013) which confirmed the trend of strong revenue growth in the software development segment and limited growth in the IT services segment. Consolidated revenues increased 8% YoY to $198 mln. Total revenues for 2012 rose 6.6% YoY to $870 mln, which was somewhat weaker than the guidance of 9-13%. No data on profitability was disclosed. Software development segment sales increase 18% YoY. Luxoft, IBS Group’s software development unit posted 18% YoY revenue growth to $86 mln (implying 19% growth in constant currency terms) or 43% of total sales. Revenue in the IT Services segment rose by just 1.1% YoY to $93 mln, which corresponded to 4% YoY growth in constant currency terms. Of the total 2012 revenues, 67% were generated in Russia and the CIS, 17% in Europe and 16% in North America. The headcount increased 4.5% YoY to 8,597, including 5,846 employees in the Software development segment. Net debt rose 73% YoY to $41.4 mln due to the increase in working capital in both of the segments the company operates in. Terms of separate listing for Luxoft is key for minorities. IBS Group’s 4Q12 trading update mostly confirms our positive outlook for growth in the software business. That said, plans to IPO Luxoft may represent a risk for current minorities in IBS, and this would decrease exposure to the most rapidly growing part of the company’s business and increase exposure to the more sluggish part of the company’s business that is more vulnerable to a slowdown in Russia’s economy. That said, fundamentally, IBS shares are undervalued, traded at a 2013E EV/EBITDA of 4.6, offering 22% upside to our target price of $29/GDR. We reiterate our Buy recommendation for the stock. 41. IBS Group reports operating results for the quarter and full year ended March 31, 2013 IBS Ramsey, the Isle of Man, 30 May 2013 — IBS Group Holding Limited (IBSG:GR; IBSGq.DE), a leading software developer and IT services provider in Central and Eastern Europe, today announced its preliminary unaudited operating results for the fourth quarter of the financial year ending March 31, 2013 as well as full year ending March 31, 2012 (4Q and FYE March 31, 2013). FYE March 31, 2013 hhighlights · Consolidated revenues amounted to US$870.5 mn, a 6.6% increase y-o-y, with growth in comparable revenues* of 10.9% y-o-y. · Revenues in the IT Services segment came to US$483.8 mn, up 1.5% y-o-y. The segment’s comparable revenues* growth amounted to 8.6% in US$ terms and 11.1% in Russian Ruble terms. · Revenues in the Software Development segment amounted to US$314.6, up 16.0% in US$ terms and 18.9% in constant currency terms. · Revenues generated in Europe and North America amounted to US$291.2 mn, and now account for 33.5% of consolidated Group revenues against 31.4% a year ago. · Our headcount reached 8,597, due to an increase of personnel in the Software Development segment. · Total debt amounted to US$56.5 mn, an increase of US$14.0 mn y-o-y. The net debt position came to US$41.4 mn, up US$17.4 mn y-o-y. * Comparable revenues defined as revenues that exclude results of OOO Borlas Group for the FYE March 31, 2012. 42. RBC 1Q13 preliminary financials show unimpressive performance UralSib EBITDA loss in 1Q13. Yesterday, RBC (RBCM RX – Hold) released 1Q13 preliminary financial and operating results, which confirmed our cautious view on the company. Revenues rose 21% YoY to RUB1.2 bln ($39 mln) mainly driven by the consolidation of RUCenter. The company remained loss making on the EBITDA level with a RUB72 mln ($2.3 mln) loss, roughly the same as last year. All media segments post YoY revenue decline. RBC posted a decline in media revenues across all major segments driven by weak demand for advertising targeted at the business audience. Internet revenues dropped 8% YoY to RUB489 mln ($16 mln), including a 9% drop in advertising revenues (to RUB395 mln or $13 mln) and a 4% YoY drop in services to RUB94 mln ($3 mln). TV segment revenue dropped 2% YoY to RUB150 mln ($5 mln) and print media revenues dropped 5% YoY to RUB179 mln ($6 mln). Hosting revenues surged 222% YoY to RUB383 mln ($12 mln) boosted by the consolidation of RU-Center. Weak operating performance combined with high debt undermines investment case. Despite decent revenue growth, the 1Q13 results are weak considering the company posted a decline in media revenues, which underperformed the general advertising market, bne:TMT June 3, 2013 including the important Internet market. The company’s high debt load continues to remain a major concern, as servicing it will divert cash flows from capex and the development of new projects. We thus reiterate our Hold recommendation for the stock despite it being traded at relatively low levels (just 3% above its 52 week low). 43. Yandex - Weekly internet search share Renaissance Capital - Weekly share of Russia internet search data released. Today (27 May), LiveInternet released its Russian internet search engine market share statistics for 20-26 May 2013. During the week under review, the respective search shares of Yandex, Google (not covered) and Mail.ru (BUY, TP $39.1, current price $29.1) were 61.9%, 25.9% and 8.6%. - Yandex’s overall share of search solid. Yandex’s was ahead of its four-week average of 61.5% and its three-month average of 61.8%. Google’s share for the week was below its four-week and three-month averages of 26.3% and 26.0%, respectively. Mail.ru’s share was just below its four-week and three-month averages, both 8.7%. - Yandex share on Chrome strengthens. Yandex’s share on Chrome-based browsers rose to 53.4% for the period under Page 15 review, ahead of its three-month average of 52.7%. At the same time, Google’s share slipped to 33.1% share – below its threemonth average of 33.8%. On Google’s Chrome browser, Yandex’s share stood at 47.8% – ahead of its three-month average of 47.4%; while Google’s share of search on its own browser reached 40.3%, remaining just below its three-month average of 40.8%. On mobile, Yandex’s share of search on the Android platform stood at 35.9% – ahead of its three-month average of 35.3%; while Google’s share, at 61.9%, remained below its three-month average of 62.4%. - Stock trading close to fair value. Having recently tested new 52-week highs, reaching $29.26/share last Monday (20 May), the stock has sold off 9% over the week. However, even after this profit taking, the stock remains up 35% over the past month on the back of strong 1Q13 financials and continued solid operating results and now implies only 2% upside potential based on our TP of $27.6. With Yandex trading at 14.2x and 12.5x 2013E and 2014E EV/EBITDA, the stock is currently trading at 39% and 42% premiums to Mail (10.2x and 8.8x on the same metrics),on our estimates. Given that the operational outlook for both stocks looks equally positive on a 6-12 month view, on a relative value basis, our preference remains with Mail. Furthermore, with the current lockup on Baring Vostok’s remaining 10% stake in Yandex set to expire on 11 June following the placement in March at $22.75/share, we see some further placement risk which may place a limit on nearterm gains. David Ferguson Nick Robinson