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Public Joint Stock Company Long-Distance and International Telecommunications Rostelecom Message Board

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    • TheStreet.Com, an online financial advisory
      service with 50,000 subscribers, now has a market cap of
      $1.4 billion, sone four or five times that of TNT, one
      of the world's largest oil companies in terms of
      reserves (6 billion barrels) and almost double that of
      ROS, with 85-90% of Russia's long distance and
      international phone market, a total population of 150 million.
      Maybe it would be more profitable for ROS to get out of
      the telephone business and TNT to get out of the oil
      business and start talking about other companies on the

    • Apparently, the oil and gas reserves in that area
      of the world
      are valued up to $4 trillion, and
      that's why NATO is
      venturing so far off its North
      Atlantic base to form
      partnerships with those Eurasian
      nations that sit on that
      wealth. NATO and its CFR
      corporate sponsors want to be
      able to use American
      military assets to assure their ability to
      that area should there be "ethnic disharmony" or

      "human rights violations." Who would be the enemy in

      that area?

      Zuckerman writes, "The competition
      for dominance in the
      Caspian will be the 21st
      century version of the 19th century
      covert duel
      between the Russian and British empires for
      of central Asia." Zuckerman asks, "What are we

      doing about it?" His solution: "The first and most
      strategic step is clearly for the United States
      to ensure that
      multiple pipelines will be built
      out of the Caspian region,
      including at least one
      main export pipeline that would go
      through Turkey,
      a crucial ally."

      Aha, now we know why NATO
      is not concerned over how
      Turkey is treating its
      Kurdish dissidents. Forget about
      humanitarianism and
      ethnic cleansing. We need Turkey for
      NATO's Eurasian

      Finally, Zuckerman writes, "There is
      anxiety that American
      opposition to Russia might play
      into the hands of the even
      more undemocratic and
      anti-Western nationalist politicians
      waiting for a crisis
      in Moscow. These are reasonable
      arguments -- but
      make no mistake about it, the risks pale by

      comparison with the risks we run if Russia wins the
      game while we sit on the sidelines."

      There you have it in a nutshell. We must risk
      World War III in order to gain political and
      military control
      of natural resources on Russia's
      borders. I wonder how we
      would feel if a group of
      foreign powers, armed with bombers
      and nuclear
      missiles, began surrounding the United States
      with its
      intention of gaining control over the natural
      in our backyard. I think we might begin to
      like the Russians who have good reason not to
      trust NATO.
      All they have to do is read Mortimer
      Zuckerman's editorial
      to know exactly what NATO is
      thinking and planning.

      Meanwhile, the mad bomber
      keeps bombing Belgrade,
      accidentally hitting the
      Chinese embassy, killing three
      people, wounding 20.
      American pilots are being used by
      NATO to kill
      innocent people and permanently damage
      America's moral
      standing in the world. And Congress can't
      do a thing
      but provide Clinton with more money to
      the bombing. Never has the Congress been more

      divided and confused in its deliberations.

      has actually happened is that America has become
      colony of NATO, which can now use American men
      women and our military assets to carry out its
      Concept without the consent of the American
      forcibly paid for by the American taxpayer. Is
      there a better
      definition of a colony?

      Meanwhile, we'd better start asking on what do we base
      prosperity? On the resources of other nations, or
      economic freedom and the resourcefulness of the
      people? Mort Zuckerman has got it wrong. We don't
      need to
      control everybody else's resources in
      order to be prosperous.
      Nor should it be the policy
      of our government to prevent
      Russia from gaining
      wealth from the resources in its own
      backyard. A
      prosperous Russia would not be a threat to our

      Samuel L. Blumenfeld is the author of
      eight books on
      education, including "Homeschooling:
      A Parents Guide to
      Teaching Children." His
      books are available on

      MAY 11

      Did Mort
      let the cat out of the bag?

      Samuel L. Blumenfeld
      � 1999

      In a column several weeks ago, we expressed the
      that the real target of NATO is not puny
      Yugoslavia, but that
      huge continental expanse known as
      Russia. We pointed out
      that NATO had formed a string
      of political-military
      partnerships with nations
      bordering Russia -- from
      Lithuania and the Ukraine in
      Europe to Georgia and
      Azerbaijan in the Caucasus. We
      quoted NATO's own
      publication as our source of
      information. Subsequent to that
      column, NATO had its 50th
      anniversary hoopla in
      Washington in which it proclaimed
      its new mandate as
      Globocop. There wasn't much of
      an objection from
      Congress, which has yet to
      ratify this new NATO treaty that
      commits America's
      military forces to support NATO in its
      new aggressive
      geopolitical Strategic Concept.

      As we all know, NATO
      is not a global charity.
      Humanitarianism is
      merely a convenient propaganda front
      created to gain
      popular support for its present war against

      Yugoslavia and its future humanitarian wars. There is
      doubt that NATO knew what the consequences of
      bombing would be: retaliation against the
      Kosovars and
      their mass expulsion from Kosovo. NATO
      also knew that
      neither Milosevic, nor any other
      Serbian leader, could accept
      its blunt ultimatum,
      thus precipitating a war. The war was
      needed to
      serve notice on future enemies that NATO had
      military means to impose its will unconditionally, and

      that it was better to surrender than fight.

      But let's get real. Behind all of the hypocritical
      rhetoric about
      human rights is a much more powerful
      motivation. What is
      really at stake is not ethnic
      harmony, but enormous
      economic wealth in the form of
      oil and other minerals.

      NATO is the military
      front for the Council on Foreign
      Relations, which
      is supported by such corporate giants as
      Manhattan, Exxon, United Technologies, Lucent,
      AT&T, J.P. Morgan, Chevron, Texaco, Shell,

      Newsweek, Time Warner, Mobil, Pennzoil, and a hundred

      more companies. These corporate entities
      approve of the CFR as an instrument of foreign
      policy. Its
      directors and members are the individuals
      who have made
      the decision to go to war. All of
      the major players in the
      Clinton administration
      are from the CFR. These are the
      policy makers who
      voted for war against Yugoslavia. The
      CFR and NATO
      share the same world vision and operate in

      Mortimer Zuckerman, owner of U.S. News and
      Report, is a member of the CFR. He frequently
      editorials in his magazine. The May 10 editorial
      is entitled
      "The big game gets bigger. Russia
      will gain wealth and
      influence if it controls
      Caspian Sea oil." After taking note of
      present weakness in Europe, he writes, "But in

      southern Eurasia, off the political radar of the West,
      is making much of its limited resources in a
      region of
      weaker states where it still retains
      influence and remains
      welcome. We had better wake up to
      the dangers or one day
      the certainties on which
      we base our prosperity will be
      certainties no

    • It helps that their are a lot of rich Russian
      ex-patriots, but nevertheless it seams a little hard to
      envisage a scenario where there funds would be made
      readily available to corporations in Russia. I would
      assume that being ex-pats in countries like the USA or
      France, these individuals will demand the same level of
      accountability, disclosure, legal framework, etc., as is
      prevalent in there respective countries of domicile, before
      commiting funds. Since Russia has been marred by high
      profile corruption (sighted by the FT as #1 amongst the
      most corrupt countries), I am not sure that these
      ex-patriots would be so willing to entrust their money to
      individuals with less than an exemplary track record. On the
      other hand I may be wrong and the national feelings
      amongst Russian ex-pats may overwhelm any such
      considerations. India is one example where ex-pats raised over
      US$1 billion in ex-pat bonds when the international
      capital markets were not open to any but the most highly
      rated countries.

      As regards, investment banks
      rushing to the high yields available in Russia you will
      probably find that anyone who recommends lending to Russia
      will most likely be laughed out of the office. In the
      current environment, a mistake in Russia will probably
      result in the banker losing his job. I can't see to many
      altruistic bankers on the horison yet.

    • There are a lot of rich russians in russia and
      overseas (cyprus,usa,south of france, israel,etc...) and
      banks and investment banks will go where the growth
      is...even if they were once burned (as long as they see
      political stability of a decent sort). So Russia is a great
      bet now...equity and bond prices are selling at a
      market discount that is overly shell-shocked, in my
      opinion...and what happens with over corrections?...they
      correct themselves...that means higher multiples...these
      low multiples to earnings will not last too long.
      Just my opinion. I read a lot.

    • I appreciate your reply.

      I am very much
      interested in hearing about your negative experiences in
      Russia, getting bad terms on mergers. This is an element
      of risk that I am not fully aware of. Please tell me
      some of the details.

      I think you are correct
      in saying that we have not focused enough on this
      merger risk. I don't think we have discussed this merger
      hardly at all yet on this board.

      I would also
      like to know if anyone has any better information
      about what the possible merger terms with Svyazinvest
      will be, or what Belov's game plan may be.

      other thing I would like to discuss is ROS's short-term
      prospects. Please explain why you think that these prospects
      are bad and that ROS stands to lose money for the
      next couple of years.

      As for brokerages' hold
      recommendations, I would be interested in seeing their
      recommendations. I do not know where to find such recommendations
      on the internet, and would be interested to know if
      I could find them on the internet somewhere instead
      of having to call the brokerages themselves. Which
      brokerages are you referring to?

      I did see a Merrill
      Lynch report on ROS around December that showed it as a

      On this Yahoo site, under research, I see only one
      Hold recommendation, with a forecast of $1.92 per
      share earnings for 1999, which would give ROS a 1999 PE
      of around 4.

      Why do you think there will be
      further ruble devaluation this year? If oil prices stay
      up where they are now, Russia will get lots more
      hard currency revenues, which will tend to support the

      Even Indonesia's currency, the rupiah, has appreciated
      back from its lows somewhat against the dollar, even
      though Indonesia has been much harder hit than Russia by
      the Asian crisis. As of December I think the forecast
      for Indonesia was -9% "growth" (i.e., a depression),
      whereas the worst case scenario for Russia was -5% (which
      may indeed be revised upwards now - J.P. Morgan
      forecasts a much better scenario for Russia). Practically
      all Indonesian companies except the two Indonesian
      phone companies were then said to be virtually
      bankrupt, which is not the case with Russian companies such
      as Lukoil and Rostelecom and Vimpelcom and
      Surgutneftegaz and Gazprom and UES and Mosenergo and others.
      Rostelecom has already restructured their debt, Lukoil has
      paid all of its debts, Surgut has no debt at all.
      Tatneft has lots of debt ($1 billion) but also has lots
      of oil reserves (6 billion barrels, which if priced
      at $4 per barrel, would amount to $24 billion in

      I would like to know if you or anyone could tell me
      exactly what percentage of Rostelecom's revenues are in
      dollars from International calls.


      As for VIP, how much has this class of people (New
      Russians) been decimated? I know that their numbers are
      reduced, but I don't know exactly by how much. What
      proportion of new sales are low-margin prepaid subscribers?
      I have noticed that even in 1998 they had a net
      increase in new subscribers, even though it is true they
      have lost market share. New subscribers this March I
      also notice are up significantly both compared to
      February and I believe year-on-year as well.

      is the name of VIP's Moscow competition and how does
      one go about getting information on its new ADR
      listing now?

      I do notice that Zimin has one
      planned sale of VIP but where do you get the information
      that he is selling it hand over fist?

      come over to the VIP message board for your reply on

    • Thanks, I appreciate the time that you have taken
      to highlight some of the key points regarding ROS. I
      too share the opinion that Russia, and therefore
      Russian debt and equity, has been hit extremely hard
      since the events of last July. My chief concern is that
      the liquidity crisis which resulted in Russia
      technically defaulting on its public external debt may have
      substancially damaged any chances of foreign investment
      returning to Russia anytime soon. With Russian euro prices
      trading at less that 50 cents on the dollar (and I
      believe having fallen to as low as 20), eurobond
      investors have been stung pretty badly and are unlikely to
      finance growth in Russia anytime soon. Thus can
      comparisons be suitably made with companies in Mexico or
      China, for which these respective countries have
      established pretty strong access to external funds? Companies
      need access to financing at a reasonable cost of
      financing if there is any chance of capitalizing on the
      investment opportunities and I believe that domestic rates
      are pretty high in Russia. Furthermore, I am not sure
      that there are sufficient domestic savings in Russia
      that can be channelled to potentially highly
      attractive investment opportunities such as Rosteleom. FDI
      is ofcourse one source of funds and in this respect
      it defintely helps to have the backing of
      heavyweights like Gerorge Soros.

      Overall, I like your
      analysis and believe that ROS may indeed be highly
      attractive given its low PE and P/Book. At almost 4X
      earnings it definetly looks pretty cheap given its
      monopoly status. I agree it looks undervalued, both
      relative to other emerging market telcos and with respect
      to its potential earnings power. With a long-term
      view in mind, I managed to add ROS to my portfolio. I
      have taken a position which if it performs I may
      increase in the near-term. Lets see what happens. Thanks
      again for your advice.

    • I am long a lot of ROS and I also know something
      about the company. What none of you is focusing on is
      that the stock has a merger risk. Belov, the former
      head of ROS, has gone over to head Svyazinvest, the
      holding co. for the regional telcos. This could be good
      if he retains his loyalty to ROS and engineers a
      merger that is on good terms for ROS; but it could also
      be bad, if his loyalties are shifting away from ROS.
      (I have had my share of terrible experiences in
      Russia, getting merged on bad terms.) At the moment I
      just don't know how this merger will play out -- of
      course, one could argue that at these prices, an
      investment in ROS will pan out over time, even if the merger
      terms are less than great.

      But the point is that
      a shadow hangs over ROS, and if anyone out there
      has better info than I do about what the merger terms
      with Svayzinvest will be, or what Belov's game plan
      is, I'd be delighted to hear it. By the way, a merger
      with Svyaz is important for ROS, so that it can avoid
      its biggest long-term risk: getting cut out of
      Russian DLD when the regional telcos create "regional
      loops" for long distance. Of course, short-term
      prospects are bad, as ROS stands to lose money over the
      next couple of years. It is for the above reasons that
      virtually all brokerages covering Russia have a Hold on the

      While I think it is worth owning some ROS, you are much
      safer buying SGUZY or LUKOY, even after their rallies.
      They are also better insulated against further ruble
      devaluation, which is likely this year. ROS has too much
      dollar-denominated debt in relation to its dollar

      By the way, VIP is not too good. Their 1Q '99 is
      likely to be a disaster, as they have been losing their
      good subscribers and replacing them with prepaid card
      holders, which is a low margin business. VIP's
      previous-year profits were mostly driven by extremely high
      ARPU's, meaning "New Russians" using their cell phones as
      their main phones and talking for hours. But this class
      of people has been decimated.

      Also, VIP is
      having their lunch eaten by the Moscow competition,
      which will list an ADR later this year. I'd wait for
      that one if you want exposure to Moscow cellular. VIP
      just ain't worth the current price. No wonder Zimin
      (the founder) has been selling it hand over fist.

    • The Internet of course will still be around and
      will grow, but I don't know about Internet stock
      prices. As it grows, Rostelecom I think may very well be
      the "" stock to own. TMX is considered the
      "bellweather" Mexican stock, ROS I believe is certainly one of
      the Russian "bellweather" stocks. It already is one
      of the top 5 or six stocks traded on the Russian
      stock exchange. Yet all of the stocks on the Russian
      stock exchange, including practically all of Russia's
      electric utilities, a number of huge oil companies
      comparable in size to Exxon if not larger, a natural gas
      company that employs some 300,000 people and holds 25-33%
      of the world's reserves of natural gas, Rostelecom,
      and a number of other companies, at the beginning of
      this year had a market cap less than that of

      Mexico is right next door to a major economic power, the
      U.S. Russia is right next door to a major economic
      power, the European Union (as well as an emerging
      economic power, China). It is very possible that Russian
      growth in the next ten to fifteen years will be
      phenomenal, as was Germany's growth after the Second World
      War (an "economic miracle") and China's growth over
      the last ten years or so.

      In my opinion, there
      is no better bet on Russia than Rostelecom. Compare
      it to any major national telecom, such as TMX, Hong
      Kong Telecom (HKT), China Telecom, TLK, IIT, VNT, the
      Brazilian telecoms, VNT, the Hungarian telecom, the Polish
      telecom, or any other and I believe you will see it is far
      undervalued in comparison.

      Last year, around May, when
      ROS was at $20 - $24, and VIP was at $50 - $59, there
      MAY have been some hype. I know Merrill Lynch was
      recommending VIP as a "BUY" back then. And obviously when ROS
      came out as an ADR in April at around $20 it was being
      recommended in order to sell the initial ADR's to the public.
      So that MAY be considered as hype. But I don't see
      hype now, but I do see that both ROS and VIP are much
      better buys now, especially ROS.

    • My opinion is that this rally is much more than
      just hype. In fact, I see very little hype in it.
      There is very little attention paid to Russian stocks
      now. The big funds I believe don't even give Russian
      stocks a sector weighting because they are so small.
      Look at the news today. Telephonos de Mexico (TMX) was
      just given a "Buy" today by a major brokerage. It is
      now at about 90. Last September it hit a low of
      around 32. TMX has a market cap of $35 billion, ROS has
      a market cap of $750 million. Why is ROS valued 50
      times less than TMX? TMX is the virtual monopoly
      telecom in Mexico (although the Mexican telephone market
      has now been freed up to outside competition). ROS is
      the monopoly long distance and international telecom
      in Russia. With a merger with Svyazinvest, the
      combined company will also hold practically all the local
      Russsian telecoms. (Both the Russian government and the
      billionare George Soros are the two top shareholders of
      Svyazinvest.) Mexico has a population of 100 million, Russia
      has approximately 150 million, I believe. In terms of
      price/sales and price/book value, ROS is extremely
      undervalued compared to TMX or any other national teleco. In
      terms of 1997 earnings of over $2 per share, ROS is now
      trading at a PE of 3. (ROS's 1998 earnings I believe are
      an anomaly because the Russian devaluation created
      foreign exchange losses and other losses that adversely
      affected earnings.) Microsoft just bought $5 billion worth
      of AT&T. What phone company will a company like
      Microsoft have to deal with in the future in Russia if it
      wants a strategic position? The answer is

      There was also an article today saying that OPEC
      compliance on their oil cuts is extremely strong. Oil
      benefits Russia at this point far more than it does
      Mexico. 50% or more of Russia's tax revenues come from
      oil and gas. Only 20% of Mexico's revenues do. The
      reason we have seen this rally not only in Russian
      stocks but also in Mexican stocks in the last couple of
      months has been partly because oil prices have recovered
      from $10 to $18 a barrel and partly because money is
      starting to flow back to emerging markets because the
      Asian crisis is now perceived to be pretty much

      Finally, after months of negative news articles about
      Russia, we have two positive articles in Barron's, only a
      week apart. We have Mark Mobius' comments that Russia
      will be the best performing market this

      Sunrise and sunset look very much the same. IMHO, this is
      the sunrise for Russian stocks (after a night in
      which they went down some 90%), whereas it may well be
      a sunset for Internet stocks.

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