OREANDA-NEWS. November 25, 2009. The number of mobile phone subscribers in Russia increased by 0.6% MoM in October to reach 204.99m SIM cards, bringing the level of penetration to 141.1%, reported the press-centre of OTKRITIE Financial Corporation.

Megafon has been the sector’s best performer for 6 months, with its subscriber base growing by 1.6% MoM in October and its market share increasing to 23.8% (+0.2% MoM). The market share of MTS (subscriber base +0.3% MoM) is now at 33.6%, while Vimpelcom (subscriber base -0.4% MoM) has 24.9% of the market. Siberia Telecom stood out as an underperformer, with a 4.2% MoM decline in its user base.

View: The data suggests that Megafon continues investing into the subscriber base while MTS and Vimpelcom have stepped back, focusing more on quality and high ARPU. The 3Q results for MTS confirm that its strategy works. The key is to grow ARPU with minimal costs, and so far MTS and Vimpelcom have been successful in this endeavor. MTS posted all-time high revenues in Q3 and we estimate that Vimpelcom will follow suit (the company posts its Q3 results tomorrow). The slight decline in subscriber statistics by Vimpelcom is nothing to worry about at this stage, though if the underperformance continues Vimpelcom will be forced to invest into its subscriber base, as Megafon is currently doing.

Valuation: MTS trades on a 2010E EV/EBITDA of 4.6x, while Vimpelcom trades at 5.2x.

Action: We take the news neutrally and retain our positive view on Russian mobile operators. our preference is MTS, based on valuations.