bearn stear latam 2q05.pdf

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Emerging Markets Equity Research

JULY 25, 2005

Pulses Latin America and EMEA Telecom Weekly

Latin America Snippets ................................................................................................................................................Pages 3-6 ♦ America Movil Compensates Clients in Ecuador ♦ AMX Might Face Lower CPP Rates in Colombia ♦ Brazil Had 75.5 Million Cellular Subs at the End of June 2005 ♦ Anatel to Discuss the Productivity Factor on August 4 ♦ No Changes in Brazilian Telecom Regulations for Now ♦ Minister Helio Costa Meets with the Wireline Companies ♦ BRP Second-Quarter 2005 Results Conference Call ♦ CANTV Authorized to Distribute Dividends in U.S. Dollars ♦ CTC’s CEO Moves to Madrid Feature: Mexican Telecommunications – Increasing Price Targets Due to Macroeconomic Forecast Revision ................................................................................................................................................Pages 7-8 Graphic Insight: 1Q05 Results Snapshot ...............................................................................................Page 9 In the News.......................................................................................................................................Pages 10-11 Comparative Valuations ................................................................................................................Pages 12-18 Telefonos de Mexico: 2Q05 Preview .....................................................................................................9 Brasil Telecom Participações: 2Q05 Results in Line – Wireless Margin Under Pressure........Pages 20-23

EMEA Snippets ............................................................................................................................................Pages 25-27 ♦ Revenues of Ukrainian Wireless Operators Grow ♦ Vimpelcom Gets Regulatory Permission to Acquire URS ♦ Svyazinvest and Ukrtelecom May Be Sold in 2006 ♦ Russian President Supports Alfa’s Investment in Turkey In the News.......................................................................................................................................Pages 28-30 Comparative Valuations ............................................................................................................... Pages 31–34 Research Analysts Rizwan Ali Miguel Garcia (212) 272-3513 (212) 272-4239 [email protected] [email protected]

Bear Stearns 2005 South American Telecommunications Conference Co-opting New Technologies rticipati Companies (subject to change) Thursday, September 15 - Friday, September 16, 2005 Copacabana Palace Hotel – Rio de Janeiro – Brazil Tentative Agenda Day 1: September 15 12:00pm-1:30pm Lunch with Mr. Luciano Dias (Political Consultant) 1:30pm-2:30pm Embratel 2:30pm-3:30pm Telemig Celular 3:30pm-4:30pm TIM Participações 4:30pm-5:00pm Break 5:00pm-6:00pm Telesp Celular 6:00pm-7:00pm Telemar 8:30pm Dinner Day 2: September 16 8:30am-9:30am Claro 9:30am-10:30am Brasil Telecom 10:30am-11:30am Net Serviços 11:30am-12:30pm Nextel International 12:30pm-2:00pm Lunch with Cantv Registration To register for the conference or obtain more information, please call the Bear Stearns Latin America Sales Desk at (800) 245-0641 Rizwan Ali (212) 272-3513 Alexandre Constantini - Bear Stearns do Brasil LTDA Miguel Garcia (212) 272-4239 Cheryl Eisler (212) 272-9183

BEAR, STEARNS & CO. INC.

Snippets

America Movil Compensates Clients in Ecuador Porta, AMX’s Ecuadorian subsidiary, received complaints for the way it accounts for the duration of prepaid calls. Porta, following the rules of its contract, begins counting air time when the subscriber dials and hits the send button, as opposed to when the call is connected. Calls that do not go through are not charged at all. Following the protests of consumer groups, AMX has started charging from the moment the call is connected. Ecuadorian regulator recommended some type of compensation for prepaid clients who claim to have been overcharged, and AMX has responded with aggressive promotions for prepaid cards. The $30 prepaid card will include 100% more minutes, and the $20 prepaid card will include 50% more minutes. The promotion will last until September 30. Given AMX’s dominance of the Ecuadorian wireless market (~60% market share of subs), we expect these promotions to hurt Porta’s smaller competitors, forcing them to lower rates. Main competitors are Telefonica (TEF.MC-€13.59-Outperform/Market Weight), with over 30% market share, and Alegro, controlled by a local consortium. We expect the aggressive promotions to have only a slight negative impact because of the elasticity effect.

AMX Might Face Lower CPP Rates in Colombia AMX’s Colombian operation, Comcel, is facing a significant challenge as the regulatory agency is preparing changes in the CPP rate. The CPP rate in Colombia is about $0.40 per minute, one of the highest rates in the region. According to current regulation, companies set their interconnection rates themselves. CRT, the Colombian telecom regulator, proposed the regulation of CPP rates based on costs. This change in rules may trigger lawsuits by companies that invested under completely different rules. According to CRT’s proposal, the rate should be CoP$356 per minute, or about US$0.15. This is in line with other countries in the region. Wireless companies are arguing that CRT has underestimated some Colombia-specific costs that make comparison with other countries invalid. We believe that CRT will probably take into account operators’ observations and will end up setting a CPP much higher than the proposed $0.15. However, we expect AMX to be negatively impacted in any case. CPP represents a significant revenue source, and Comcel is one of AMX’s largest operations. Comcel’s revenues from wireless services represented almost 5% of AMX’s total consolidated revenues in 2004. Therefore, a 10% decline in service revenues from Colombia, for example, would have almost 0.5% negative impact on consolidated revenues and more than 1.0% negative impact on consolidated EBITDA. This calculation does not consider the positive impact of elasticity, which could be significant given the high level of the rates. Although CRT has indicated that the new rate would be announced in August, we expect companies to start applying the new rates much later given their strong opposition.

PULSES: LATIN AMERICAN TELECOM WEEKLY

Brazil Had 75.5 Million Cellular Subs at the End of June 2005 According to figures provided by Anatel, Brazil had 75.5 million cellular subscribers at the end of second-quarter 2005, suggesting net adds of roughly 1.78 million subscribers in June alone – and roughly ten million subscribers in the first six months of 2005. This illustrates how aggressive the marketing campaigns were for Mother’s Day and Valentine’s Day, largely explaining expectations of depressed margins in the second quarter. Year over year, the subscriber base increased 39.8%, with cellular penetration reaching 41.1%. Prepaid customers account for 81.06% of the total subscriber base (up from 79.06% in the year-ago period). On average, band A operators (incumbents) still have an average market share of 46.5%. The popularity of GSM is evident, with a market share of 43.75% in Brazil, followed by CDMA and TDMA with shares of 29.11% and 26.91%, respectively.

Anatel to Discuss the Productivity Factor on August 4 Anatel is conducting a public hearing on August 4 to discuss the productivity factor to be applied in the fixed-telephony tariff adjustments between 2006 and 2008. In addition, any interested party can submit suggestions by August 15. The productivity factor is one of the pending issues of the new concession contracts.

No Changes in Brazilian Telecom Regulations for Now After a meeting with President Lula last Thursday, Telecom Minister Helio Costa and Anatel President Elifas Gurgel reiterated that the government has no intention of changing the sector’s regulations, which are based on the General Telecom Law. This statement puts to rest the recent debate whether Tele Norte Leste could or could not buy a stake in Brasil Telecom. Two weeks back, Folha de São Paulo newspaper reported that Tele Norte Leste could be eyeing Brasil Telecom. The General Telecom Law prevents incumbent wireline companies from having stakes in other incumbent wirelines. This also means that Telecom Italia (TLIT.MI-€2.5900-Underperform/Market Weight) remains the most likely buyer of the pension funds’ and Citigroup’s (C-$44.42-Outperform/Market Weight) stakes in BRP.

Minister Helio Costa Met with the Wireline Companies On Friday, July 22, Telecom Minister Helio Costa met with representatives of the wireline companies to discuss, among other things, the controversial monthly fee. The minister has suggested that the current monthly fee is expensive and has suggested a cheaper rate that would no longer offer free pulses. According to his preliminary calculations, the new monthly fee could be at least 15% cheaper than the current one. In his opinion, this would be a first step toward even cheaper rates in the future. The minister also suggested lower taxes on telecom services for customers who earn less than one minimum wage per month and defended the utilization of the FUST tax to finance the expansion of the services in less profitable areas. Costa is expected to have private meetings with each of the operators in the coming weeks.


BRP Second-Quarter 2005 Results Conference Call BRP held its conference call to discuss its second-quarter 2005 results. These are the highlights:

ADSL. The extraordinary growth in the second quarter was due to promotional activity. ADSL is not cannibalizing dialup yet, as both are growing strongly. The guidance for ADSL subs for year-end 2005 is 1 million but with a total of 747k subs at the end of the second quarter and accelerating growth, the guidance might be conservative.

Wireless Operations. The wireless business should break even after 18 to 20 months of operations (around second-quarter 2006). Lower net adds in the second quarter (compared to first quarter) is due to the emphasis on postpaid subs. BRP is satisfied with the strategy, which has allowing postpaid to represent over 26% of the subscriber base. BRP estimates that over 50% of postpaid subs are corporate clients of the fixed-line operations. The Pula-Pula promotion has been extended to Father’s Day in August, but with increasing restrictions: the duration of the promotional discounts is shorter (only until ’08 now), and the maximum credit allowed from month to month is lower.

Monthly Fee. The proposal to lower the monthly fee by eliminating free pulses should have little impact as BRP already offers plans with these characteristics, with even higher discounts on the monthly fee than the 15% suggested by the telecommunications minister.

Capex. Universalization targets require R$500 million in capex according to BRP’s estimates. For 2005, wireline capex guidance continues to be R$1.2 billion. For the wireless operations, capex will depend on the level of competition and its impact on sub growth. BRP believes that second quarter capex of R$87 million is a fair proxy for the rest of the year. This implies capex of R$340 million for 2005. The suggested consolidated capex of about R$2 billion for 2005 compares to our estimate of R$1.7 billion. BRP is still hopeful that Anatel will allow for cheaper alternative technologies to meet universalization targets.

Local Traffic. BRP has made efforts to grow, or slow the decrease of, local traffic. This includes new plans offering bundled minutes for flat tariffs. As a result, in the second quarter, the consecutive quarterly growth in local traffic (7.3%) was higher than the 5.3% in the same period of last year. Growth in dialup Internet has also contributed to the improvement.

Operating Costs. Subcontracted services grew significantly year over year as a result of increasing the personnel in calling centers, of higher maintenance expenses, and of higher expenses related to sales. Going forward, the amount of subcontracted service might remain at second quarter levels.


CANTV Authorized to Distribute Dividends in U.S. Dollars This past week, CANTV announced that Cadivi, the Venezuelan foreign exchange regulator, authorized the company to exchange US$92.2 million at the official rate of Bs2,147/US$ to pay dividends to shareholders outside the country. The dividend distribution was approved for March 31, but not distributed to shareholders abroad due to current currency exchange restrictions. The dividend was Bs505 (US$0.24) per share (each ADR represents seven shares).

CTC’s CEO Moves to Madrid CTC announced that its CEO, Claudio Muñoz, is leaving the company to take new responsibilities with Telefónica de España in Madrid. Mr. Muñoz led CTC through an important time, becoming CEO in 1999 when CTC’s tariffs were reduced significantly as a results of the tariff decree. The new CEO, Jose Moles Valenzuela, should start on September 1. Mr. Valenzuela is currently the director of Telefónica Móviles’ (TEM.MC-€8.44-Outperform/Market Weight) operations in Mexico and served as general manager of CTC Telefónica Móviles in Chile from 2000 to 2003.


Feature: Mexican Telecommunications – Increasing Price Targets due to Macroeconomic Forecast Revision

Sector Rating: Market Overweight

• Our economists now expect Latin currencies to remain strong through the end of next year. Thus, our new exchange rate for the Mexican peso is P$11.0/US$ for year-end 2005 and P$11.4/US$ for year-end 2006, compared to the previous P$11.4 and P$11.8, respectively.

• Given the persistent low levels of the long-term rates in the U.S., we have also decreased our estimate for the risk-free rate to 5.25% for year-end 2005, from the previous 5.75%. We use the risk-free rate to determine the discount rate in our DCF analysis.

• Our AMX and TMX estimates have been boosted additionally by changes in our forecasts for Brazil and Argentina. For Brazil, our new FX estimates of R$2.60/US$ for year-end 2005 and R$2.8/US$ for year-end 2006 compare to the previous R$2.75 and R$3.0, respectively. For Argentina, the new estimates for FX are A$3.0/US$ for YE’05 and A$3.35/US$ for year-end 2006, compared to the previous A$3.2 and A$3.5 respectively.

• We have also revised our estimates for AMX based on higher-than-expected subscriber growth in Colombia and Brazil. For Brazil, we are forecasting 4.3 million net adds for 2005, compared to 3.8 million previously. For Colombia we now expect 4.3 million net adds in 2005, compared to the previous 3.0 million.

• Given the changes in our estimates, our year-end 2005 price target for AMX (AMX-US$21.34-Outperform/Market Overweight) increases to US$24 per ADR from the previous US$21 (adjusted for stock split). For TMX (TMX-US$19.81-Outperform/Market Overweight), our price target increases to US$23 per ADR from US$21.

Changes in Macroeconomic Estimates

New Old New OldReal GDP Growth 3.4% 3.4% 3.2% 3.2%CPI Inflation 3.4% 4.1% 3.5% 3.9%Benchmark Interest Rates (year end) 9.3% 10.2% 9.5% 10.8%Exchange Rate (year end) 11.0 11.4 11.5 11.8

2005 2006

Source: Company; Bear, Stearns & Co. Inc. estimates.

• Based on the new macroeconomic forecasts, we have increased our operating forecasts in US$ for both TMX and AMX.


Changes in AMX estimates New Est. Old. Est. New Est. Old. Est.2005E 2005E % Ch. 2006E 2006E

Net Revenues 15,668,441 15,092,559 3.8% 17,652,732 16,995,496 3.9%EBITDA 4,879,458 4,749,480 2.7% 6,047,077 5,851,495 3.3%EBITDA Margin 31.1% 31.5% -33 bps 34.3% 34.4% -17 bpsOperating Income 3,033,490 2,953,544 2.7% 3,893,447 3,719,515 4.7%Net Income 2,021,437 1,887,715 7.1% 2,678,069 2,576,449 3.9%EPADR 1.13 1.06 6.6% 1.53 1.48 2.9%Capital Expenditures 2,544,826 2,534,978 0.4% 2,550,000 2,550,000 0.0%Free Cash-Flow 1,445,444 1,335,428 8.2% 2,783,508 2,603,256 6.9%


Changes in TMX estimates New Est. Old Est. New Est. Old Est.

2005 2005 % Ch. 2006 2006 % Ch.Net Revenues 14,553,984 14,132,679 3% 13,945,109 13,697,221 2%

EBITDA 6,647,870 6,500,379 2% 6,427,376 6,304,589 2%EBITDA Margin 45.7% 46.0% -32 bps 46.1% 46.0% 6 bpsOperating Income 4,310,167 4,210,775 2% 4,030,005 3,945,106 2%Net Income 2,596,632 2,492,771 4% 2,383,382 2,225,204 7%EPADR 2.33 2.24 4% 2.28 2.13 7%Capital Expenditures 2,236,262 2,207,232 1% 2,350,000 2,350,000 0%Free Cash-Flow 2,804,646 2,723,989 3% 2,639,995 2,547,761 4%


• Risks to our Telmex and America Movil forecasts, valuations, and price targets include macroeconomic uncertainty, regulatory changes, and competition from other operators in their markets.


Graphic Insight: 1Q05 Results Snapshot

Latin Telecom Operators - 1Q05 Results Snapshot

(US$mn except for EPADR, LIS and subs)

Estimate 2Q04 Estimate 2Q04 Estimate 2Q04 Estimate 2Q04 Estimate 2Q04 Estimate 2Q04

Telmex TMX 3,598 2,619 1,651 1,313 45.9% 50.2% $0.76 $0.63 350 383 NM NMReporting date: Revenue growth should reflect the strong growth of EMT and other smaller South American operations. 07/26/05 Strong LIS growth in Mexico should come with much lower ARPU as prepaid expands rapidly. Margin should be impacted by EMT's lower margins.FX 11.5 per USD We expect bottom line to be boosted by strong local currencies and low inflation in Mexico.

CANTV VNT 547 502 174 166 31.7% 32.9% $0.42 $0.46 40 93 80 41Reporting date: Wireless and data should drive revenue growth with local service decreasing in real terms due to the lack of rate adjustment in the residential segment.07/27/05 EBITDA margin should remain weak due to the direct sale of subsidized equipment and the increasing importance of wireless.FX 2,147 per USD Bottom line should be boosted by increasing financial expenses as debt is trending up.

Telemar BRP 1,762 1,231 735 501 41.7% 40.7% $0.32 $0.07 20 76 700 685Reporting date: Strong revenue should be supported by strong wireless growth, broadband expansion and tariff increases at the end of '04.07/28/05 Margins under pressure due to strong promotional activity in wireless in 2Q. FX 2.33 per USD Bottom line should be boosted by strong local currency.

Telemig Celular TMB 121 99 44 40 36.2% 41.0% $1.26 $0.74 NM NM 137 109Reporting date08/02/05 Despite the fierce competition from Oi and TIM, we project EBITDA margin of 36%, probably the best among its local peers.Fx 2.33 per USD

Tele Norte Celular TCN 47 43 10 10 21.5% 22.4% -$0.10 -$0.27 NM NM 21 51Reporting date08/02/05 Numbers below the Brazilian average given the ferocious competition in the northern region.Fx 2.33 per USD

TIM Participações TSU 313 195 92 57 29.4% 29.2% $0.41 $0.21 NM NM 515 348Reporting date07/25/05 Record Net Adds in the quarter.Fx 2.33 per USD On the other hand, profitability under pressure due to promotions.

Embratel EMT 808 586 186 113 23.0% 19.2% $0.19 ($0.31) NM NM NM NMReporting date07/25/05 The operating performance should still be affected by the strong competition in both Data & LD businesses. Fx 2.33 per USD We are not taking into account any potential provisions.

Telesp Celular TCP 816 597 210 210 25.7% 35.1% -$0.11 -$0.04 NM NM 1,031 1,233Reporting dateLate July Disappointing results largely affected by efforts to retain customers and staunch market share loss.Fx 2.33 per USD Claro & TIM remain aggressive competitors, though we stress that numbers should improve as the subscriber growth slows down.

Tele Centro Oeste TRO 255 182 70 79 27.4% 43.6% $0.41 $0.35 NM NM 425 449Reporting dateLate July TRO continues to switch customers from its TDMA network to the CDMA network.Fx 2.33 per USD In addition to that, BRP GSM & Claro remain aggressive competitors.

Tele Leste Celular TBE 55 39 12 7 21.3% 18.4% -$0.40 -$0.42 NM NM 65 51Reporting dateLate July TBE should post very weak results given the unfavorable market conditions in the region (4 players & limited GDP per capita)Fx 2.33 per USD

Results(US$mn except for EPADR, LIS and subs)

Revenues EBITDA EBITDA Mg EPADR LIS net adds (000s) Subs net adds (000s)Ticker Actual Expected Actual Expected Actual Expected Actual Expected Actual Expected Actual Expected

Brasil Telecom BRP 1,082 1,080 355 357 32.8% 33.0% $0.40 $0.58 28 10 342 380Reporting date Revenues in line. Strong data, public telephony and interconnection helped offset lower wireless revenues. Local and LD revenues in line.07/20/05 EBITDA was in line, but margin was slightly lower because of lower margins in wireless.FX 2.33 per USD Bottom line was lower because of higher depreciation, higher financing costs and higher income tax provisions.

CTC CTC 252 249 130 129 51.5% 52.0% $0.10 $0.10 18 13 NM NMReporting date Revenues in line. Strong long distance, interconnection and broadband offset weak corporate data.07/22/05 EBITDA margins in line. Capex higher but company maintains guidance below our estimate for the year.FX 578 per USD Bottom line in line. Higher income taxes offset lower depreciation, higher foreign exchange gains and lower monetary correction.

LIS net adds (000s) Subs net adds (000s)

Previews

Revenues EBITDA EPADREBITDA Mg


In the News

Vivo Expects 300,000 EV-DO Users by Year-End Brazil’s largest mobile operator, Vivo, expects to attract 300,000 clients to its CDMA2000 1x EV-DO network by year-end, partly as a result of its new multimedia channel Play 3G, a company source told BNamericas. Vivo launched the Play 3G service on Friday, having begun advertising for the channel earlier this month. The Play 3G portal will provide users with broadband entertainment content such as music and video. Vivo would not comment on the investment in technology, but said that it will invest R$10 million in marketing. The operator launched EV-DO, which allows mobile Internet access at 2.4Mbps, in Sao Paulo, Rio de Janeiro, and Curitiba in October last year. Vivo will expand the service to other cities in the next few months, the source said. Vivo is part of a group of 22 operators worldwide that have already launched EV-DO services. Vivo has 28 million users and is the largest mobile phone operator in Latin America, according to the company. - BNamericas.com, 7/15/05

Telecom Italia Begins IPTV trials Telecom Italia has started free trials of IPTV services to more than a thousand Italian households in the cities of Bologna, Rome, Milan, and Palermo. The service offers a range of TV broadcasts and video-on-demand content over ADSL technology using equipment supplied by Alcatel, Microsoft, and Pirelli. Users are supplied with a set-top box, an infrared keyboard, and an ADSL Wi-Fi modem. Telecom plans to launch commercial IPTV services in 21 cities this autumn. – TeleGeography’s CommsUpdat, 07/21/05

CEO: VTR Profits to Return in First-Quarter 2006 Chilean triple-play provider VTR expects to report a loss this year as a result of merging with sister company Metrópolis Intercom but will become profitable again by March or April 2006, local press quoted company CEO Mateo Budinich as saying. As a result of the merger, VTR laid off 370 employees, incurring a total cost of US$70 million, a key factor in this year’s losses. However, 2005 revenues are estimated at US$400 million, mostly driven by broadband, which now represents 20% of VTR sales. The company aims to build its broadband client base to 350,000 in 2005 compared to 250,000 in 2004. VTR’s other business areas are cable, representing 50% of the company’s sales, and telephony, with 30%. “It is possible that in a few years broadband will represent the company’s most important business,” Budinich said. VTR has devised a five-year investment plan of US$500 million with the aim of growing sales by 12%-15% a year on average. Most of the investment will be financed through the synergies created after the merger, which is expected to generate savings of US$60 million annually. Chile’s antimonopoly tribunal TDLC approved the merger with 11 restrictions, two of which are still to be sorted out: a rule prohibiting VTR from having equity stakes in any Chilean satellite or microwave TV operator; and a requirement to offer wholesale services to any ISP interested in reselling broadband connections. Regarding the first item,


the new VTR plans to sell its stake in satellite TV company TV Max in August and has already received at least five proposals. Commenting on the wholesale offering, Budinich said VTR plans to launch this service in October, the final deadline established by TDLC. - BNamericas.com, 07/21/05

Telefónica de Argentina to Call Off Lawsuit Over Pricing Freeze Fixed-line operator Telefónica de Argentina has told a World Bank tribunal that it will withdraw its legal action against the Argentine government over a 2002 state-enforced tariff freeze. In January this year Telefónica renewed an appeal for US$2.8 billion in compensation from the government for forcing it to charge in pesos rather than dollars following the country’s economic crash of 2001. The appeal, first launched in mid-2003, was intended to keep the pressure on the government to negotiate new public service contracts with higher price ceilings, which it has promised to do before the end of 2005. In January 2002 the government passed an emergency law freezing telecoms tariffs, and as a result public service contracts were converted from dollar equivalents to Argentine pesos, leaving public service providers – including Telefónica and rival Telecom Argentina – with a significant mismatch between revenues (earned in devalued pesos) and debts (largely in U.S. dollars). The public service contracts of both Telecom and Telefónica de Argentina were due to be renegotiated by 31 December 2004, to allow the telcos to adjust their rates to reflect the current value of the peso, but the state passed a further bill to extend the deadline by a year. - TeleGeography's CommsUpdat, 07/21/05

Maxcom Aims to Grow SME Clients 17% in H2 in Mexico Mexican telecoms operator Maxcom expects to increase its SME subscriber base to 235,000 by year-end, up 17.5% from the current 200,000, local daily Reforma reported. Growth could come from Maxcom’s launch this week of switchboard services for SMEs using an HPBX switching center called Genus Voice System. By outsourcing the service to Maxcom’s platform, clients will be able to cut access costs as they will not be required to purchase equipment and will be able to manage their calls from a PC, mobile phone, PDA, or fixed-line phone. Meanwhile, Maxcom has seen excess demand for the P$150 million (US$14.1 million) in bond certificates it placed on the local market last week. This has led the company to suggest it may issue further debt, the newspaper reported. The company is 92% owned by Bank of America, 6% is in the hands of local investor Adrián Aguirre, and the remainder belongs to other private investors. In June, Maxcom installed a Juniper Networks IP routing platform to offer triple-play services of voice, data, and video. - BNamericas.com, 07/21/05


Comparative Valuation — Latin Integrated and Wireline Companies

(Amounts in US$)Company Telmex Telemar Brasil Tel. P. Embratel Telecom Arg. Telef. Chile CANTV ADR Ticker TMX (1) TNE BRP EMT TEO (2) CTC VNTCountry Mexico Brazil Brazil Brazil Argentina Chile Venez.Wireline Penetration (last quarter) 17.6% 16.0% 23.4% 22.0% 22.3% 20.3% 12.9%Cellular Penetration (last quarter) 38.5% 31.3% 49.5% 30.6% 37.5% 60.9% 35.0%GDP Per Capita (2005E) $6,586 $4,067 $4,067 $4,067 $3,899 $6,153 $4,193Population (mn) (2005E) 106 100 43 180 40 16 27Majority Interest 95.0% 80.8% 66.4% 98.8% 100.0% 100.0% 100.0%

ADR Price (7/22/05) $19.81 $15.38 $34.00 $9.81 $12.21 $10.54 $19.88ADR (million) 582.8 378.8 72.5 151.7 196.9 239.3 110.9ADR Ratio 20 1,000 5,000 5,000 5 4 7Mkt. Cap. (million) $11,545 $5,825 $2,465 $1,488 $2,404 $2,522 $2,205

Price Target YE 2005 $23.0 $23.0 $52.0 $14.0 $12.0 $12.0 $22.0Upside 16.1% 49.5% 52.9% 42.7% -1.7% 13.9% 10.7%Stock Rating Outperf. Outperf. Outperf. Outperf. Underperf. Peer Perf. Peer Perf.

VALUATIONP/E 2005E 8.5x 10.2x 16.3x 15.3x 3.7x 23.8x 10.2xP/E 2006E 8.7x 9.3x 9.2x 11.3x 104.8x 19.3x 8.2x

P/CE 2005E 4.7x 3.8x 3.3x 2.8x 4.5x 5.4x 3.1xP/CE 2006E 4.5x 3.9x 3.2x 2.7x 3.6x 5.4x 2.4x

Firm Value / 05E EBITDA 2.8x 3.6x 3.6x 3.7x 5.2x 6.6x 3.2xFirm Value / 06E EBITDA 2.9x 3.6x 3.3x 3.8x 4.9x 6.4x 2.3x

FV / 2006E FCF 6.7x 7.8x 11.6x NM 7.3x 9.0x 10.5xFV / 2006E FCF 7.1x 7.8x 7.3x 8.1x 7.4x 10.4x 7.7x

2005E FCF Yield (FCF/FV) 14.9% 12.8% 8.6% NM 13.7% 11.1% 9.5%2006E FCF Yield (FCF/FV) 14.0% 12.8% 13.7% 12.3% 13.5% 9.6% 12.9%

P/BV 1.2x 2.0x 1.0x 1.0x 8.4x 1.6x 1.2xBV / (LIS + Wireless subs) (US$) $558 $162 $308 NM $33 $642 $310Firm Value / (LIS + Wireless subs) (US$) $1,072 $427 $422 NM $436 $1,387 $358Dividend Yield 3.1% 4.9% 1.1% 7.4% 0.0% 17.0% 8.2%

FINANCIAL RATIOSROE (2005E) 34.3% 24.3% 6.9% 3.7% 125.6% 6.3% 10.9%Operating Margin (2005E) 29.6% 24.1% 8.2% 6.9% 15.3% 19.4% 11.3%EBITDA Margin (2005E) 45.7% 43.4% 33.8% 23.5% 42.3% 51.9% 32.3%EBITDA Margin (2006E) 46.1% 43.6% 36.7% 25.2% 43.6% 50.7% 37.2%Net Margin (2005E) 17.8% 9.2% 4.0% 2.7% 38.3% 10.6% 10.2%

5-Year EPADR CAGR ('05-'10) 6.4% 13.9% 35.9% 26.6% -17.6% 16.0% 17.2%5-Year CE CAGR ('05-'10) 7.7% 4.6% 5.6% 4.9% 5.6% 1.9% 6.9%5-Year EBITDA CAGR ('05-'10) 0.2% 2.8% 7.7% 2.8% 5.5% 2.7% 9.1%

P/CE vs. CE Growth 61% 82% 59% 57% 81% 288% 45%FV/EBITDA (05E) vs.EBITDA Growth 1491% 126% 46% 130% 95% 245% 35%

LEVERAGE / COVERAGEDebt / Capital (Book Value Equity) 49% 53% 36% 44% 89% 38% 22%Debt / Capital (Market Value Equity) 45% 42% 44% 45% 58% 27% 19%EBITDA / Int. Exp. (2005E) 9.3x 9.1x 4.4x 4.1x 3.1x 8.8x 63.2xNet Debt / 2005E EBITDA 1.0x 0.9x 0.7x 1.4x 1.9x 1.7x 0.0x

PRODUCTIVITYLines / Employee 372 2,784 1,902 NM 609 630 653Revenue / Average (LIS+Subs) (2005E) $814 $268 $347 NM $188 $408 $339EBITDA / Average (LIS+Subs) (2005E) $372 $116 $117 NM $80 $212 $110

Sector Ratings: Mexican telcos- Market Overweight, Brazilian wireline- Market Overweight, Chile- Market Overweight, Venezuela- Market Underweight, Argentina- Market Underweight, Brazilian wireless- Market Weight. Risks to price targets include macroeconomic deterioration increased competition,and regulatory developments. (1) Telmex projections include consolidation of Embratel. (2) TEO's debt adjusted for debt restructuring (37% debt reduction).Price target valuation methodology: Discounted cash flow.Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates. Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.


Comparative Valuation — Latin Cellular Companies

(Amounts in US$)Company Am. Movil Telesp Telemig TIM Part. Tele C.Oeste Tele Norte Cel TelelesteADR Ticker AMX (2) TCP (3) TMB TSU TRO TCN TBECountry Mexico (4) Brazil Brazil Brazil Brazil Brazil BrazilWireless Penetration (last quarter) 38.5% 39.6% 35.3% 27.4% 34.8% 25.2% 20.2%GDP Per Capita (2005E) $6,586 $3,005 $3,639 $1,211 $1,744 $1,681 $1,615Population (million) (2005E) 676.7 89.7 16.5 47.1 32.4 14.3 15.5Majority Stake 100.0% 87.0% 82.9% 81.7% 98.0% 75.0% 100.0%

ADR Price (7/22/05) $21.34 $4.30 $31.55 $15.34 $9.90 $5.98 $6.45ADR (million) 1834.3 632.7 17.3 69.5 127.1 6.7 9.6ADR Ratio 20 2,500 20,000 10,000 3,000 50,000 50,000Mkt. Cap. (million) $39,145 $2,721 $547 $1,066 $1,259 $40 $62

Price Target YE 2005 $24.0 $8.0 $48.0 $23.0 $15.0 $12.0 $12.0Upside 12.5% 86.0% 52.1% 49.9% 51.5% 100.7% 86.0%Stock Rating Outperf. Outperf. Outperf. Outperf. Peer Perf. Peer Perf. Peer Perf.

VALUATIONP/E 2005E 18.9x NM 10.5x 8.6x 6.0x NM NMP/E 2006E 14.0x 11.3x 8.6x 8.3x 5.1x 76.3x 30.5x

P/CE 2005E 10.6x 4.4x 4.1x 3.8x 4.2x 1.5x 1.6xP/CE 2006E 7.8x 3.3x 3.9x 3.8x 3.8x 1.4x 1.5x

Firm Value / 2005E EBITDA 8.8x 4.8x 3.2x 2.9x 3.3x 3.0x 3.3xFirm Value / 2006E EBITDA 7.1x 4.1x 2.6x 2.9x 2.9x 3.0x 3.1x

FV / 2005E FCF 29.7x 10.6x 7.1x 4.4x 6.8x 12.7x 14.5xFV / 2006E FCF 15.4x 8.5x 5.0x 7.1x 10.9x 11.6x 8.0x

2005E FCF Yield (FCF/FV) 3.4% 9.4% 14.1% 22.8% 14.6% 7.9% 6.9%2006E FCF Yield (FCF/FV) 6.5% 11.8% 19.9% 14.0% 9.2% 8.6% 12.5%

P/BV 1.8x 1.1x 1.4x 1.3x 1.3x 0.5x 0.4xBV / Sub (US$) $107 $100 $134 $133 $159 $65 $103Firm Value / Sub (US$) $648 $263 $171 $181 $170 $113 $123Firm Value / Pop 2005E (US$) $64 $53 $30 $23 $32 $10 $11Dividend Yield (2005E) 0.4% 0.0% 2.9% 2.7% 1.3% 4.2% 0.0%Blended ARPU (US$) $17 $11 $12 $14 $11 $12 $10

FINANCIAL RATIOSROE (2005E) 27.0% NM 13.9% 15.9% 21.2% NM NMOperating Margin (2005E) 19.4% 13.9% 12.9% 17.6% 26.8% 4.8% 2.1%EBITDA Margin (2005E) 31.1% 36.0% 36.8% 37.2% 37.7% 25.5% 26.5%EBITDA Margin (2006E) 34.3% 40.6% 41.4% 41.4% 39.8% 25.8% 28.9%Net Margin (2005E) 12.9% -2.0% 12.7% 12.5% 25.6% -1.0% -3.7%

5-Year EPADR CAGR ('05-'10) 29.8% NM 14.0% 10.6% 6.5% NM NM5-Year CE CAGR ('05-'10) 24.3% 12.7% 5.9% 4.0% 6.2% 10.5% 9.3%5-Year EBITDA CAGR ('05-'10) 13.5% 7.4% 10.2% 4.9% 8.2% 8.7% 8.6%

P/CE vs. CE Growth 44% 35% 70% 95% 68% 14% 17%FV/EBITDA (05E) vs.EBITDA Growth 65% 65% 32% 59% 40% 35% 38%

LEVERAGE / COVERAGEDebt / Capital (Book Value Equity) 42% 52% 31% 4% 8% 55% 46%Debt / Capital (Market Value Equity) 12% 42% 24% 3% 6% 72% 65%EBITDA / Int. Exp. (2005E) 7.1x 2.5x 5.9x 31.7x 6.1x 2.0x 2.8xNet Debt / 2005E EBITDA 0.8x 1.6x -1.1x -0.6x -0.8x 1.9x 2.1x

PRODUCTIVITYSubscribers / Employee 2,196 4,419 1,518 5,168 2,719 1,501 1,409Revenue / Avg. Subscriber (2005E) 219 145 138 160 130 141 134EBITDA / Avg. Subscriber (2005E) 68 52 51 60 49 36 36

Sector Ratings: Mexican telcos- Market Overweight, Brazilian wireless- Market Weight. Risks to price targets include macroeconomic deterioration, increased competition, and regulatory developments.

Price target valuation methodology: Discounted cash flow.Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.

(2) Wireless penetration for Mexico, ARPU for Telcel only; (3) Net debt & EBITDA figures are consolidated and multiples are adjusted for TRO minority stake; (4) Smaller operations in Brazil, US, Argentina, Uruguay, El Salvador, Guatemala, Nicaragua, Honduras, Colombia, Peru and Ecuador.

Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.


Global Wireless Trading Multiples

Priced as of: 7/21/05

EV/EBITDAEV/EBITDA/

Growth EV/RevenueEV/Rev/Growth EV/FCF1

EV/FCF/Growth P/E Ratio Div. YTD EV/ Access EV/ EV/

2005E 2006E 2006E 2005E 2006E 2006E 2005E 2006E 2006E 2005E 2006E Yield Return Line Pop SubWirelessU.S. Wireless 9.5x 8.2x 1.06x 3.0x 2.7x 2.90x 21.1x 14.0x 1.22x 46.0x 22.0x 0.2% 50.8% N/A $157 $2,575Europe Wireless 6.6x 6.0x 1.13x 3.2x 2.9x 0.54x 10.4x 9.4x 1.06x 15.3x 13.4x 2.9% -3.1% N/A $413 $1,272Latin America Wireless 8.3x 6.8x 0.74x 2.6x 2.4x 0.38x 18.0x 11.9x 0.42x 17.9x 13.6x 0.7% 16.4% N/A $60 $587Russian Wireless 6.5x 5.5x 1.45x 3.3x 2.8x 0.04x 397.4x 10.8x 0.83x 13.4x 11.0x 1.0% 3.4% N/A $94 $373Asia Wireless 4.5x 4.5x 1.97x 1.5x 1.5x 0.81x 10.8x 9.4x -1.86x 13.2x 12.7x 2.4% 1.9% N/A $183 $693 Source: Company data; Bear, Stearns & Co. Inc. estimates.


Latin Telecoms — Financial Forecasts

(A m o u n ts in U S $ m illio n s u n le ss o th e rw ise s p e c ifie d )

C o m p a n y T ic k e r T M X T N E B R P E M T T E O C T C V N T

A s s u m e d E x c h a n g e R a te s p e r U S D o lla rY E 0 5 F x ra te 1 1 .0 0 2 .7 5 2 .7 5 2 .7 5 3 .2 0 6 0 0 2 ,5 0 0Y E 0 6 F x ra te 1 1 .5 0 3 .0 0 3 .0 0 3 .0 0 3 .5 0 6 2 0 3 ,0 0 0

In c o m e S ta te m e n t E s tim a te sN e t R e ve n u e s '0 5 E 1 4 ,5 5 4 6 ,2 0 6 3 ,7 9 3 2 ,7 6 0 1 ,7 1 3 1 ,0 0 1 2 ,1 3 2N e t R e ve n u e s '0 6 E 1 3 ,9 4 5 6 ,0 4 8 3 ,7 5 7 2 ,4 8 8 1 ,7 7 1 1 ,0 4 7 2 ,5 7 3

O p e ra tin g In co m e '0 5 E 4 ,3 1 0 1 ,4 9 6 3 1 1 1 9 0 2 6 1 1 9 4 2 4 2O p e ra tin g In co m e '0 6 E 4 ,0 3 0 1 ,5 7 8 4 9 4 2 1 3 3 3 3 2 2 3 5 9 0

E B IT D A '0 5 E * 6 ,6 4 8 2 ,6 9 2 1 ,2 8 4 6 4 8 7 2 5 5 2 0 6 8 9E B IT D A '0 6 E * 6 ,4 2 7 2 ,6 4 0 1 ,3 7 9 6 2 7 7 7 2 5 3 1 9 5 7

C a p e x '0 5 E 2 ,2 3 6 9 2 3 6 2 0 4 5 1 2 2 7 1 2 8 3 8 4C a p e x '0 6 E 2 ,3 5 0 9 0 0 5 8 0 3 6 7 2 6 5 1 6 0 4 0 0

P e r A D R E s tim a te sE P A D R '0 5 E $ 2 .3 3 $ 1 .5 1 $ 2 .0 8 $ 0 .6 4 $ 3 .3 3 $ 0 .4 4 $ 1 .9 6E P A D R '0 6 E $ 2 .2 8 $ 1 .6 5 $ 3 .6 9 $ 0 .8 7 $ 0 .1 2 $ 0 .5 5 $ 2 .4 1

C E P A D R '0 5 E $ 4 .2 6 $ 4 .0 9 $ 1 0 .3 1 $ 3 .5 2 $ 2 .6 9 $ 1 .9 4 $ 6 .3 2C E P A D R '0 6 E $ 4 .4 4 $ 3 .9 5 $ 1 0 .6 2 $ 3 .6 3 $ 3 .4 0 $ 1 .9 6 $ 8 .3 4

B a la n c e S h e e t (L a te s t Q tr .)S T d e b t 2 ,2 5 5 1 ,1 3 9 3 9 1 7 5 0 3 ,1 3 6 3 0 1 1 0 1L T d e b t 7 ,1 1 4 3 ,0 3 1 1 ,5 1 5 4 8 8 3 9 7 6 5 0 4 2 7C a s h 2 ,7 2 3 1 ,7 8 9 1 ,0 1 8 3 4 9 1 ,3 5 1 6 4 5 3 9N e t d e b t 6 ,6 4 5 2 ,3 8 1 8 8 8 8 8 9 2 ,1 8 2 8 8 6 -1 1

% o f d e b t in fo re ig n c u rre n cy 9 2 % 6 8 % 2 9 % 4 1 % 1 0 0 % 6 7 % 7 0 %% o f F x d e b t th a t is h e d g e d 0 % 0 % 0 % 0 % 0 % 1 0 0 % 0 %B o o k v a lu e p e r A D R ($ ) $ 1 6 .7 9 $ 7 .7 5 $ 3 3 .9 6 $ 1 0 .2 6 $ 1 .4 5 $ 6 .5 9 $ 1 7 .1 4

P la n t (L a te s t Q tr .)F ixe d L in e s in S e rv ic e (0 0 0 s ) 1 7 ,5 3 6 1 5 ,1 0 4 9 ,5 4 0 N M 3 ,9 0 2 2 ,4 5 7 2 ,9 4 4M o b ile S u b sc rib e rs (0 0 0 s ) N M 7 ,3 7 8 1 ,3 4 5 N M 4 ,7 5 8 N M 3 ,1 9 1

C o m p a n y T ic k e r A M X T C P T M B T S U T R O T C N T B E

A s s u m e d E x c h a n g e R a te s p e r U S D o lla rY E 0 5 F x ra te 1 1 .0 0 2 .7 5 2 .7 5 2 .7 5 2 .7 5 2 .7 5 2 .7 5Y E 0 6 F x ra te 1 1 .5 0 3 .0 0 3 .0 0 3 .0 0 3 .0 0 3 .0 0 3 .0 0In c o m e S ta te m e n t E s tim a te sN e t R e ve n u e s '0 5 E 1 5 ,6 6 8 2 ,7 4 7 4 1 0 1 ,0 0 0 8 2 1 1 8 8 1 8 8N e t R e ve n u e s '0 6 E 1 7 ,6 5 3 2 ,8 2 5 4 5 0 8 9 3 8 9 9 1 8 6 1 8 7

O p e ra tin g In co m e '0 5 E 3 ,0 3 3 3 8 1 5 3 1 7 6 2 2 0 9 4O p e ra tin g In co m e '0 6 E 3 ,8 9 3 6 4 2 9 7 1 8 6 2 7 5 1 0 1 5

E B IT D A '0 5 E 4 ,8 7 9 9 9 0 1 5 1 3 7 2 3 0 9 4 8 5 0E B IT D A '0 6 E 6 ,0 4 7 1 ,1 4 5 1 8 6 3 7 0 3 5 8 4 8 5 4

C a p e x '0 5 E 2 ,5 4 5 5 1 8 1 1 9 1 7 7 1 4 6 3 8 3 7C a p e x '0 6 E 2 ,5 5 0 3 5 8 7 9 1 5 9 1 2 7 3 6 3 3

P e r A D R E s tim a te sE P A D R '0 5 E $ 1 .1 3 -$ 0 .0 9 $ 3 .0 1 $ 1 .7 9 $ 1 .6 5 -$ 0 .2 8 -$ 0 .7 2E P A D R '0 6 E $ 1 .5 3 $ 0 .3 8 $ 3 .6 9 $ 1 .8 5 $ 1 .9 5 $ 0 .0 8 $ 0 .2 1

C E P A D R '0 5 E $ 2 .0 0 $ 0 .9 8 $ 7 .6 9 $ 4 .0 8 $ 2 .3 3 $ 4 .0 6 $ 4 .0 6C E P A D R '0 6 E $ 2 .7 4 $ 1 .3 1 $ 8 .1 4 $ 4 .0 0 $ 2 .6 0 $ 4 .3 3 $ 4 .4 3

B a la n c e S h e e t (L a te s t Q tr .)S T d e b t 4 8 2 1 ,1 7 6 7 3 1 6 3 9 4 3 6 5L T d e b t 4 ,7 5 4 7 7 7 1 0 0 1 3 4 2 6 0 5 2C a s h 1 ,3 8 8 3 6 6 3 4 5 2 5 8 3 3 8 1 2 1 5N e t d e b t 3 ,8 4 9 1 ,5 8 7 -1 7 1 -2 2 8 -2 5 7 9 1 1 0 3

% o f d e b t in fo re ig n c u rre n cy 7 0 % 7 4 % 8 0 % 1 3 % 7 0 % 7 8 % 1 0 0 %% o f F x d e b t th a t is h e d g e d 0 % 1 0 0 % 7 8 % 1 0 0 % 8 4 % 9 0 % 1 0 0 %B o o k v a lu e p e r A D R $ 1 1 .6 2 $ 3 .8 4 $ 2 2 .1 5 $ 1 1 .3 9 $ 7 .5 5 $ 1 2 .4 5 $ 1 4 .3 6

P la n t (L a te s t Q tr .)M o b ile S u b sc rib e rs (0 0 0 s ) 6 6 ,3 4 1 1 7 ,9 4 9 2 ,8 5 8 5 ,9 4 3 6 ,0 4 7 1 ,2 7 9 1 ,3 3 9

S o u rc e : C o m p a n y d a ta ; B e a r, S te a rn s & C o . In c . e s tim a te s . Source: Company data; Bear, Stearns & Co. Inc. estimates.


Latin Wireline Tariff Comparison

TMXa TNEb BRPc TEOd CTCe VNTf

Mexico Brazil Brazil Argentina Chile VenezuelaTRAFFIC INFORMATIONBase for local charges Calls Pulses Pulses Pulses Seconds MinutesLocal traffic (4Q04) 6,583mn calls 22,294mn mins 4,214mn mins 3,548mn mins 3,495mn mins 2,529mn minsAve. number of fixed LIS (000s) 16,994 15,221 9,554 2,413 3,854 2,858Average traffic per month per LIS 129 calls 460 pulses 368 pulses 313 minutes 468 minutes 287 minutesMonthly local minutes per LIS (voice) 392 minutes 158 minutes 115 minutes 313 minutes 318 minutes 287minutes

RATE INFORMATIONFX (per USD) 10.62 2.36 2.36 2.86 566.9 2,147.3

Residential Tariffs*Installation (US$) $ 106.37 $ 9.07 $ 9.06 $ 52.43 $ 53.20 $ 57.19Monthly Rent (US$) $ 14.69 $ 10.83 $ 10.84 $ 4.61 $ 12.31 $ 5.05Measured Svc. (Variable ch.) (US cents) c$ 13.93 c$ 4.16 c$ 4.37 c$ 1.05 c$ 0.03 c$ 1.55 Based on call pulse pulse minute second minutePer minute charge (US cents) c$ 2.96 c$ 1.66 c$ 1.75 c$ 1.05 c$ 1.79 c$ 1.55Average DLD cost per minute (US cents) c$ 10.11 c$ 11.46 c$ 9.58 c$ 6.29 c$ 6.08 c$ 8.20Average ILD cost per minute (US cents) c$ 41.20 NA c$ 50.49 c$ 24.47 c$ 27.27 c$ 38.98

Commercial Tariffs*Installation (US$) $ 122.28 $ 9.07 $ 9.06 $ 52.43 $ 53.20 $ 57.19Monthly Rent (US$) $ 18.64 $ 18.96 $ 12.09 $ 9.54 $ 12.31 $ 9.13Measured Svc. (Variable ch.) (US cents) c$ 13.93 c$ 4.16 c$ 4.37 c$ 1.05 c$ 0.03 c$ 1.63 Based on call pulse pulse minute second minutePer minute charge (US cents) c$ 2.96 c$ 1.66 c$ 1.75 c$ 1.05 c$ 1.79 c$ 1.63Average DLD cost per minute (US cents) c$ 10.11 c$ 11.46 c$ 9.58 c$ 6.29 c$ 6.08 c$ 17.08Average ILD cost per minute (US cents) c$ 41.20 NA c$ 50.49 c$ 24.47 c$ 27.27 c$ 38.98

ASSUMPTIONS

Per minute conversion estimate 1 voice pulse= 2.5 min1 voice pulse= 2.5 min.

Monthly rent includes: Residential monthly rent includes: 100 free calls 100 free pulses 100 free pulses no free mins. no free mins. 50 free mins. Commercial monthly rent includes no free calls 90 free pulses 90 free pulses no free mins. no free mins. no free mins.

NOTES

a- Local traffic as reported, includes long distance and Internet. Local minutes of voice is BS estimate.b- Tariff plans are for Rio de Janeiro. Traffic figures are estimated. TNE does not release traffic data.c- Tariff plans are for Brasilia. Trafic is BS estimate. BRP reports only billed pulses.d- Local traffic does not include internet or long distance.e- Traffic includes local and internet. Rates are for Santiago. Local rate is weighted average among rates for 3 different time slots. f- "Plan Clasico" for residential users and "Telefono Principal" for commercial users. Installation charge includes a one-time subscription cost

Source: Company data; Bear, Stearns & Co. Inc. estimates. Source: Company data; Bear, Stearns & Co. Inc. estimates.


Short Interest Ratios

CompanyU.S. Short Interest*

Ave. 30-day volume*

Short Interest ratio

Short Int. ratio (last week) % Ch. Company

U.S. Short Interest*

Ave. 30-day volume*


Short Int. ratio (last week) % Ch.

BRP 1,047,664 168,680 6.2 5.0 25% AMX 16,438,347 3,332,033 4.9 4.7 4%CTC 245,548 323,403 0.8 0.7 10% CEL 33,621 18,443 1.8 2.3 -22%EMT 421,427 147,806 2.9 1.5 90% TBE 16,870 6,263 2.7 3.2 -17%TAR 5,089 3,103 1.6 3.6 -55% TCP 4,244,328 1,203,356 3.5 4.0 -11%TEO 2,633,244 232,510 11.3 11.3 0% TRO 706,576 205,443 3.4 3.4 1%TMX 10,177,616 1,398,073 7.3 5.8 25% TSD 1,168 443 2.6 0.6 343%TNE 9,249,965 1,092,696 8.5 8.0 6% TSU 706,742 208,253 3.4 4.7 -27%TSP 205,176 47,796 4.3 4.7 -9% TCN 4,056 3,856 1.1 10.1 -90%VNT 71,218 193,553 0.4 0.6 -39% TMB 248,105 31,906 7.8 9.7 -20%

Integrated Company Average 4.8 4.6 5% Cellular Company Average 3.5 4.8 -27%

*Number of ADRsSource: Bloomberg, Figures as of July 22, 2005 Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.


EV/EBITDA Charts

12-Month Forward and 12-Month Trailing EV/EBITDA

EV/EBITDA

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

12T 12F

TMX

EV/EBITDA

-

5.00

10.00

15.00

20.00

25.00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

12T 12F

AMX

EV/EBITDA

-1.002.003.004.005.006.007.008.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

TNE

EV/EBITDA

-1.002.003.004.005.006.007.008.009.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

BRP

EV/EBITDA

-2.004.006.008.00

10.0012.0014.0016.00

Jul-9

9Oc

t-99

Jan-

00Ap

r-00

Jul-0

0Oc

t-00

Jan-

01Ap

r-01

Jul-0

1Oc

t-01

Jan-

02Ap

r-02

Jul-0

2Oc

t-02

Jan-

03Ap

r-03

Jul-0

3Oc

t-03

Jan-

04Ap

r-04

Jul-0

4Oc

t-04

Jan-

05Ap

r-05

Jul-0

5

12T 12F

CTC

EV/EBITDA

-

5.00

10.00

15.00

20.00

25.00

30.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

TCP

EV/EBITDA

-2.00

4.006.008.00

10.00

12.0014.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

EMT

Source: IBES estimates; Bloomberg.


Telefonos de Mexico: 2Q05 Preview (7/19/05)

<NYSE: TMX> $19.58 Rating: Outperform, DCF target $21 Sector Rating: Market Overweight

52-W k R an g e: AD S M kt C ap .U S $20.43 - $14 .90 2004A 2005E 2006E 2004A 2005E 2006E D iv Y ie ld (m n ) U S $m nE P A D R (U S $) $4 .17 $2 .24 $2.13 4 .7x 8 .7x 9 .2x $0 .61 3 .1% 1,166 $22,822E B IT D A (U S $) $5 ,977 $6,500 $6 ,305 5 .1x 4 .7x 4 .9x* R atios fo r E P A D R a re P /E and fo r E B IT D A are E V /E B IT D A . A D R ra tio is 20 to 1 .

R a tios*

Summary and Recommendation

TMX is expected to report second quarter results on July 26, after the market closing. We expect second-quarter 2005 EPADR of $0.56 (was $0.76) compared to $0.31 in the same period last year and First Call consensus of $0.49. Our new estimate is based on the following forecasts:

We expect consolidated revenues of P$38.7 billion (US$3.60 billion) in the quarter, 23% higher (in constant pesos) than in the same period of 2004. The significant growth is mainly due to the full consolidation of Embratel (EMT-$10.30-Outperform/Market Overweight, DCF target US$14) and the smaller other operations in South America.

Our estimates for consolidated revenues include P$30.1 billion in revenues from the Mexican operations (2.3% lower in constant pesos than in the same quarter of 2004) and P$8.6 billion from the international operations. Our revenue estimate for EMT for the quarter is equivalent to P$7.65 billion.

Our estimate for LIS net adds in Mexico is 350k, compared to 364k net adds in the previous quarter and 383k in the same quarter of second-quarter 2004.

We expect EBITDA of P$17.3 billion (US$1.60 billion), with an EBITDA margin of 44.5%. This estimate is 10% higher than in second-quarter 2004, when the consolidated EBITDA margin was 50.2%. Importantly, our estimates are based on an EBITDA margin of 50.9% for the Mexican operations (versus 50.9% in second-quarter 2004) and a 23% EBITDA margin for EMT. Margins should show a downward trend as South American operations with lower margins increase their importance.

Our bottom-line estimate for the quarter is P$6.88 billion (US$640 million), compared to P$4.4 billion (US$383 million) reported in second-quarter 2004. We expect bottom lines to be boosted by strong foreign exchange gains, given the strength in the Mexican and Brazilian currencies.

Risks to our Telmex and Embratel forecasts, valuations, and price targets include macroeconomic uncertainty, regulatory changes, and competition from other operators in their markets. Note: Since the companies do not issue employee stock options, there are no stock-option expenses to subtract from our earnings estimates.


Brasil Telecom Participações: 2Q05 Results in Line – Wireless Margin Under Pressure (7/21/05)

<NYSE: BRP> $34.87 Rating: Outperform, DCF target $52 Sector Rating: Market Overweight

52-W k Range: AD S M kt C ap.U S $38.70 - $26.56 2004A 2005E 2006E 2004A 2005E 2006E D iv Yield (m n) US $m nE P AD R (U S$) $1.37 $2.08 $3.69 25.5x 16.8x 9.5x $0.39 1.1% 72.5 $2,528E B ITD A (U S$) $1,383 $1,284 $1,379 3.4x 3.7x 3.4xE P AD R (U S$) ** $1.37 $2.08 $3.69 25.5x 16.8x 9.5x* R atios for E PA D R are P /E and for E B ITD A are E V /E B ITD A. A D R ratio is 5000 to 1.** P roform a post-B TM option earnings estim ates

R atios*

Summary and Recommendation

BRP reported EPADR of $0.40 compared to our estimate of $0.58 and to $0.23 in the same period of 2004. First Call consensus was $0.41. Lower operating income and higher financing costs explain the difference from our estimate. Higher depreciation and amortization (noncash expense) was the main reason for lower operating results.

Net revenues of R$2.52 billion were right in line with our estimate and grew 17% from the same quarter of 2004. The year-over-year growth is mainly explained by the launch of wireless services and the three tariff increases in second-half 2004. Higher revenues from data, public telephony, and interconnection services offset lower wireless revenues.

EBITDA of R$828 million was largely in line with our estimate of R$832 million. The resulting EBITDA margin of 32.8% compared to our estimate of 33.0% and to 42.6% reported in the same quarter last year. Lower margins in wireless explain the small difference from our estimate as the reported EBITDA margin from the wireless operations, -104.8%, was lower than our projection of -100%.

Capex of R$440 million was higher than our expectation of R$280 million. Thus, pretax free cash flow (EBITDA – capex) of R$388 million was much lower than our expectation of R$552 million.

Based on second quarter results, we may increase our revenue estimates for data and local service. The increase should come from a higher number of LIS and ASDL subs. We might have to trim our EBITDA margin forecast based on the slightly lower wireless margin in the second quarter. We should not change our capex estimate yet, as the difference from our estimate may be explained by seasonality. We believe the net impact of these changes should not be significant to our year-end 2005 price target of $52.

The risks to our valuation and price target include uncertain macroeconomic conditions, regulatory overhang, increased competition, and overpayment for investments.

Revenues, Traffic, and LIS

First-quarter 2005 consolidated net revenues of R$2.45 billion were right in line with our estimate, growing 17% from same period last year. The annual growth is mainly explained by the tariff increases (three in second-half 2004), the acquisition of smaller high-growth operations (MetroRed, iBest, Globenet, Vant, and iG), and the new wireless operations. Most items were largely in line with our estimates, except


for interconnection and public phones, which were higher than our forecast, helping to offset wireless revenues coming slightly short of our forecast.

Gross local revenue of R$1.23 billion was slightly higher than our forecast, growing 10% from same period last year. Monthly fees, the most important item, was almost 3% higher than our expectation. However, adjusting for the reclassification of R$22 million from per-pulse charges into monthly fees, monthly fees would be in line with our estimate. Variable charges were 3.7% below our estimate, but after adjusting for the reclassification they are 2.6% higher, which is explained by traffic. Local traffic of 2.47 billion local billed pulses was 4.4% higher than our forecast and decreased 9% from the same quarter in 2004.

Net wireline additions of 28k in the quarter compared with our expectation of 10k and with 77k net disconnections reported in second-quarter 2004. Hybrid lines are growing strongly but less than in 2004, which might be the result of better revenue collection (hybrid lines are offered to subscribers with payment problems).

Gross revenue from the wireless business was R$151 million, 3.1% lower than our expectation of R$156 million. Brasil Telecom GSM reported unconsolidated revenue of R$211 million, almost 8.5% higher than our forecast. However, a much larger than expected percentage came from interconnection with BRP and, thus, was eliminated in the consolidation. Revenue from handset sales of R$67 million compared to our expectation of R$44 million despite lower-than-expected net adds. Subtracting handset sales, we obtain reported gross revenues of R$144 million, compared to our estimate of R$151 million. Lower average subs and lower ARPU (R$27 versus our estimate of R$29) explained the difference. The rapid increase of prepaid subs might explain in part the difference from our ARPU estimate. At 73.5%, the proportion of prepaid subs compared to our estimate of 70%.

Net wireless adds in the quarter were 342k compared to our forecast of 380k. Given the high promotional activity in the second quarter, we were surprised that net adds were less than in the previous quarter (381k). However, the market share increase, to 6% from 4.8% in the previous quarter, shows that the entire region grew less than we would have expected.

BRP 2Q05 Comparative Results

Reported Estimated % Reported % Reported Estimated % Reported %2Q05 2Q05 Difference 2Q04 Growth 2Q05 2Q05 Difference 2Q04 Growth

Net Revenues 2,523 2,519 0.1% 2,163 16.7% 1,082 1,080 0.1% 701 54.3%Operating Expenses 2,361 2,337 1.0% 1,840 28.3% 1,012 1,002 1.0% 596 70%EBITDA 828 832 -0.5% 922 -10.2% 355 357 -0.5% 299 19%EBITDA Margin 32.8% 33.0% -21 bps 42.6% -982 bps 32.8% 33.0% -21 bps 42.6% -982 bpsOperating Income 162 182 -11.1% 322 -49.8% 69 78 -11.1% 105 -34%Operating Margin 6.4% 7.2% -81 bps 14.9% -850 bps 6.4% 7.2% -81 bps 14.9% -850 bpsNon-Oper. Expense (Inc.) 93 84 10.6% 271 -65.8% 40 36 10.6% 88 -55%Net Income 69 98 -29.6% 51 35.3% 30 42 -29.6% 17 79%EPADR (US$) 0.40 0.58 0.23

LIS net adds (000s) 28 10 175.2% -77 -136.2%Total LIS (000s) 9,540 9,522 0.2% 9,647 -1.1%Cellular subs net adds (000s) 342 380 -10.1% 0 NMTotal wireless subs (000s) 1,345 1,384 -2.8% 0 NM(*) FX rate 6/30/04: R$3.09/US$; FX rate 6/30/05:R$2.33/US$

Millions of Reais Millions of US$, except EPADR (*)



Gross data revenue of R$452 million was 2.2% higher than our forecast and 55% higher than in the same period of 2004. Rapid expansion of ADSL and the consolidation of new operations explain the annual growth. ADSL subs grew more rapidly than our estimate. The 122k net adds in the quarter compared to our forecast of 90k and to 58k in the same quarter of 2004. Total subs reached 747k at quarter-end and doubled in 12 months.

Long distance revenue of R$446 million was slightly over our forecast and grew 6.5% from the same period last year. Rapid growth in new long distance services with higher rates per minute (i.e., inter-regional and international) explains the annual growth. Surprisingly, traffic was 2.1% lower than our forecast. The higher-than-expected revenue per minute might be explained by lower competition and/or a larger-than-expected proportion of inter-regional and international traffic.

Gross fixed-to-mobile (F-M) revenue, at R$867 million, was exactly in line with our forecast and 17% higher than in second-quarter 2004. F-M traffic was 1.12 billion minutes, slightly higher than our forecast of 1.10 billion and 8.3% higher than in second-quarter 2004. Revenue growth from the previous year is explained therefore by traffic and the rate increase applied in June 2005.

Gross interconnection revenue of R$175 million was almost 5% higher than our forecast and 2.4% lower than in second-quarter 2004. Interconnection revenue is declining as BRP’s market share in long distance has grown.

EBITDA

Despite the higher revenues, EBITDA of R$828 million was marginally below our R$832 million estimate and down from R$922 million in the same quarter of 2004. The resulting EBITDA margin of 32.8% compared to our estimate of 33.0% and to 42.6% reported in the same quarter last year. Lower margins in wireless explain the small difference from our estimate as the reported EBITDA margin from the wireless operations, -104.8%, was lower than our projection of -100%.

The difference from our wireless EBITDA margin estimate seems to be generated by higher costs of handsets as R$119 million in materials expense compared to our estimate of R$86 million.

Importantly, provision for nonpayment reached only 2.3% of gross revenues, compared to our estimate of 3%. However, extraordinary contingencies for R$45 million were much higher than our estimate, offsetting the difference.

Net Income and Cash Flow

Bottom line of R$69 million compared to our estimate of R$98 million and to R$51 million in the same period of 2004. The difference from our estimate is explained by lower operating results and higher net financing costs as income tax credits of R$26 million were largely in line with our estimates. Higher depreciation and amortization (R$666 million versus our forecast of R$650 million) explain the lower operating income. Net financing costs of R$63 million compared to our estimate of R$49 million.

Capex of R$440 million was lower than our expectation of R$280 million. This, combined with EBITDA in line with our forecast, resulted in pretax free cash flow (EBITDA – capex) of R$388 million, much lower than our expectation of R$552 million.


What We May Change

Based on the second-quarter 2005 results, we will have to fine-tune our assumptions in the following manner:

We will have to revise our net LIS addition forecast closer to 100k this year, up from 50k at present, which should have a positive impact on our revenues.

Wireless revenues during the quarter were lower than our forecast, although in unconsolidated terms they were much higher. To adjust our model, we may have to increase our handset revenues (based on higher revenues per handsets) and decrease our ARPU forecast. These changes combined may not have a significant impact on total wireless revenues. Our current estimate for wireless net adds of 1.56 million for 2005 may decrease slightly.

We may increase data revenues based on higher net ADSL net adds. Our current estimate for ADSL net adds of 410k may be closer to 450k.

Second-quarter capex of R$480 million was much higher than our estimate, but we are projecting high seasonality (64% spent in the second half). The total capex reported in the first half is still well below 50% of our estimate of R$1.7 billion for 2005. Thus, it is too soon to adjust our estimate.

We may have to trim our EBITDA margin estimate of 33.8% for 2005 after lowering our EBITDA margin forecast for wireless. However, we do not expect the change to be significant.

We believe the net impact of all the changes should not be significant to our year-end 2005 price target of $52.


EMEA


Snippets

Revenues of Ukrainian Wireless Operators Grow According to the Statistical Committee of Ukraine, revenues of Ukrainian wireless operators grew 5% to $243.2 million (UAH1,216 million) in June compared with $231.5 million (UAH1,158 million) in May. Revenues of wireless operators represented approximately 51.4% of the total revenues of telecommunication companies. Therefore, accumulated revenue of wireless companies operating in Ukraine amounted to $1,226 million (UAH6.13 billion). The published results confirm assumptions incorporated in our model and suggest that despite declining ARPUs, Ukrainian wireless companies still have potential for revenue growth. We also expect that UMC, the Ukrainian wireless hand of Russian Mobile TeleSystems, is accountable for approximately 50% of the total revenue from wireless services. The data also confirm our assumption that wireless traffic and roaming charges should grow in the summer months. Influence of seasonal factors is very visible when revenue in April is compared with revenue in May. Statistical data show a dramatic 17.5% wireless revenue growth in May when compared with wireless revenue reported in April. We believe that similar seasonal effect exists in Russia and expect to see increases in minutes of use and roaming charges in the second quarter of 2005.

Vimpelcom Gets Regulatory Permission to Acquire URS The Ukrainian regulator has given permission to Vimpelcom to acquire Ukrainian Radio Systems, a small Ukrainian wireless operator. Therefore, shareholder approval is the only barrier preventing Vimpelcom from entering the new market. As we had reported earlier, Alfa Telecom is hoping to get shareholder approval for the company’s Ukrainian expansion during an extraordinary shareholder meeting scheduled for August 15, 2005. Although Telenor (TEL.OL-NKr54.50-Underperform/Market Weight) reiterated last week that it may consider an exit strategy if Vimpelcom buys URS, we view this statement as more of a threat than an actual intention. We also believe that Vimpelcom’s minority shareholders are likely to support Alfa Telecom because there are some operational and financial synergies in entering the Ukrainian market, which is less saturated and more consolidated than the Russian market. However, we believe that the proposed acquisition price of $206 million may largely offset the benefits of entering the Ukrainian market. Therefore, we would not rule out that minority shareholders request a significant reduction in the acquisition price. We do not think that shareholders of Ukrainian Radio Systems have strong negotiating power because the company lacks the scale to become a nationwide player without partnering with a larger company. Additionally, we would not rule out that shareholders may consider other ways of entering the market.

In our opinion, a merger between Vimpelcom and Kyivstar may be the best outcome. Apart from the potential synergies, there are several other reasons to believe that this option may be considered. First, Alfa Telecom and Telenor are the major shareholders of both companies. Second, both Alfa Telecom and Telenor filed requests with the Russian regulator to increase their stakes in Vimpelcom,


which would be a prerequisite should Alfa and Telenor agree to merge their assets. Third, by merging Vimpelcom and Kyivstar, Alfa and Telenor would avoid direct competition between two subsidiaries, which would be negative for both operators.

However, the shareholders may consider other options as well. For example, DCC/Astelit, controlled by Turkcell (TKC-$13.77-Not rated), may be one of the options. Since Alfa Group has recently lent about $3.4 billion to Cukurova, Turkcell’s parent company, we believe that the senior managements of both companies have established strong relationships and a high level of trust. Moreover, we would not rule out that Alfa Group may eventually convert debt into Turkcell shares. Since Cukurova originally planned selling a 27% stake in Turkcell to TeliaSonera (TLSNF-$4.70-Not Rated), Alfa Group may eventually become owner of a controlling stake in Turkcell.

Svyazinvest and Ukrtelecom May Be Sold in 2006 Last week, German Gref, the Russian minister of economic development and trade, confirmed what we have been expecting – that privatization of Svyazinvest in 2005 is unlikely. Talking at a press conference, Mr. Gref highlighted that preparation of Svyazinvest for privatization is well behind the original schedule and that the privatization is unlikely to happen in 2005. We believe that delay of privatization is related to opposition of some Russian security and law enforcement agencies as well as delayed implementation of several new legal initiatives.

It is interesting to note that despite opposition of the Ukrainian parliament, the Ukrainian government decided to sell 42% of state telecommunication major Ukrtelecom in 2006. According to the governmental decree published last week, all legal paperwork necessary for privatization of Ukrtelecom should be completed by the end of 2005. Ukrtelecom has over 9.3 million wireline subscribers and controls over 80% of the total fixed-line telephone market.

We would not be surprised if privatization of Ukrtelecom, a Ukrainian peer of Svyazinvest, would finalize prior to privatization of Svyazinvest. First, security and law enforcement services do not have such a strong influence in the Ukrainian government. Second, significant budget surplus likely diminishes the intention of the Russian government to increase revenue from privatization. Third, the Russian telecom industry is experiencing dramatic regulatory changes, which makes investment into Svyazinvest a risky venture and thus demands a lower price. Finally, a 75% stake in Svyazinvest is worth much more than a 42% stake in a smaller Ukrtelecom, which suggests that there may be only a few parties able to buy the entire stake. The government currently has a 92.86% stake in Ukrtelecom.

Russian President Supports Alfa’s investment in Turkey Vladimir Putin commented positively on Alfa’s investment in Turkey and stated that Alfa may invest over $3 billion into the Turkish telecommunications sector if a favorable investment environment is created. We view this statement as a positive for Vimpelcom. Due to a market perception that Mikhail Friedman, the major Alfa shareholder, might be the next government target after Mr. Khodorkovsky,


Vimpelcom stock has been under pressure this year. Although we cannot rule out the possibility of Yukos-type scenario completely, we believe that it is unlikely. Therefore, we view the recent positive comments of the Russian president as a confirmation of our original outlook that Alfa Group and Vimpelcom are unlikely to experience the same treatment as Yukos (YUK.LI-$2.75-Underperform/Market Weight).


In the News

Ukraine's UMC Mobile Subscriber Base Up to Ten Million The total subscriber base of Ukraine Mobile Communications (UMC), Ukraine’s largest mobile phone operator, was up 35.7% since January 1 to ten million users as of now, the company’s press office told Prime-Tass Monday. The number of subscribers on contracts stood at 1.145 million, up 13.7% year to date, while the number of prepaid subscribers stood at 4.377 million, up 25.8% since January 1. The subscriber base of Jeans, Ukraines mobile virtual network operator, or MVNO, which uses UMC’s network, stood at 4.480 million users, up 55.3% year to date. Russia’s largest mobile phone operator, Mobile TeleSystems, holds 100% of UMC. As of January 1, the subscriber base of UMC totaled 7.374 million people.

Having reached a subscriber base of ten million, the company now plans to invest more in increasing network capacity, optimizing the network, development, and improving the quality of service, UMC said. UMC’s network covers more than 87% of Ukraine’s territory, which includes 93% of the country’s population. - Prime-TASS Newswire, 07/18/05

North-West Telecom: Rating Upgrade Standard & Poor’s Ratings Services said it raised its long-term corporate credit rating on North-West Telecom (NWT), the incumbent fixed-line telecommunications operator in the northwest region of Russia, to B+ from B-, reflecting the company’s improving performance. The outlook is stable. At the same time, Standard & Poor’s raised its long-term Russia national scale rating on NWT to ruA+ from ruBBB+. “The upgrade reflects NWT’s improved business position, marked by leading market shares in fixed-line and long distance telephony; continuing progress in network improvement; and positive trends in regulated tariffs and social benefits monetization,” said Standard & Poor’s credit analyst Lorenzo Sliusarev.

“Furthermore, NWT has eliminated its previously unsettled financial obligations, with the company’s exposure to financial risk continuing to be one of the most manageable among its peers. This supports the company’s ability to implement its capital program and face the looming restructuring of Russia's telecoms market.” Standard & Poor’s notes that the rating is, however, constrained by the limited diversification of the company’s business, the continuing need for further spending on infrastructure improvements, the need to improve cost structure and profitability, and the uncertainty of evolving regulatory and market environment. Further positive changes to the ratings on NWT would require a strengthening of the company’s business position, an increase of its revenue diversification, and favorable developments in the evolution of the Russian telecoms market. Conversely, prolonged uncertainty, increased risks of the country’s regulatory and market environment or unforeseen substantial weakening of the company’s financial profile could put pressure on NWT’s current creditworthiness. - Business Communications Agency - Russian Company News, 07/19/05


KCP Approves Telefonica’s Buyout Offer for Cesky Telecom at €15.1 per Share Czech Securities Commission (KCP) has permitted Spanish telecommunications company Telefonica, the new owner of a 51.1% stake in Czech fixed-line operator Cesky Telecom, to buy out shares in the company at CZK456 (€15.1) per share, Cesky Telecom reported. We note that Telefonica must offer the buyout to Telecom’s minority shareholders within 60 days after buying a majority share in the company, that is, by mid-August; moreover, the offer will be valid 52 days from its announcement.

Telefonica paid CZK82.6 billion for the state-owned stake in Cesky Telecom in mid-June, which corresponds to CZK502 per share. However, despite KCP’s decision, Telecom shares on the Prague Stock Exchange declined by 0.5% to CZK459. - IntelliNews, 07/21/05

Russia's Internet Access Market Soars to $1.02 Billion in 2004 Russia’s Internet access and data transmission services market rose by 57% to US$1.02 billion in 2004, consultancy J’son & Partners said in a report released Wednesday. In the first quarter of 2005 the market rose by 55% on the year to $350 million for the quarter, J’son & Partners said. The figures exclude interoperator data transmission services. Significant growth was seen in all segments of the market, especially in broadband access for domestic users and mobile Internet services, the consultancy said in the report. J’son & Partners predicted that the market for the services would grow by 46% to $1.5 billion in 2005.

J’son & Partners’ report differs from official data distributed by the IT and telecommunications ministry and the Federal State Statistics Service. The company said it used both official and company data for its estimates and believes that Russia’s Internet access and data transmission services market grew slower than official statistics suggest. Telecommunication companies’ revenues from data transmission and telematics services rose 75% on the year to $1.038 billion in 2004 and 76% on the year to $360 million in January-March, according to the IT and telecommunications ministry and the Federal State Statistics Service. - Prime-TASS Newswire, 07/20/05

Telekom Austria Buys Bulgarian Mobiltel Telekom Austria is already the new owner of 100% of Bulgarian mobile phone operator Mobiltel. After nearly one year of negotiations, the Austrian firm bought on July 13, 2005, the shares of the Bulgarian company for €1.6 billion. The sellers are three Austrian businessmen – Josef Taus, Herbert Cordt, and Martin Schlaff – who used to hold a 60% stake in Mobiltel, with seven investors holding the remaining 40%. After the deal, Mobiltel became a part of a large telecoms holding for the first time, although the ownership of the Bulgarian group had been changed several times. The deal is the largest investment of an Austrian company, carried out abroad, Telekom Austria said. The Bulgarian operator will become a part of the mobile phone department of its new owner – Mobilkom Austria Group.


The main priority of the new owners will be to keep the leading position of Mobiltel on the Bulgarian market. “We will achieve it through the launch of new products and services at competitive prices,” the new executive officer of Mobiltel, Josef Vinatzer, said. The new owner plans to offer third-generation mobile services as of end-2005 or the beginning of 2006. Fixed phones for business clients are also expected to be launched by end-2005. Mobiltel has a market share of 65% in terms of subscribers and a market share of 72% in terms of mobile phone services revenue. The competition is expected to get more fiercer with the launch of the third GSM operator in Bulgaria in the autumn of 2005. Mobiltel also has a new management team. Out of six managers of the company, four are representatives of the new owner. Austrian representatives also dominate in the supervisory council. Telekom Austria said it would shortly refinance the debt of Mobiltel, standing at some €500 million. “We expect to refinance the debt of Mobiltel at a significantly lower interest rate,” Heinz Sundt, the executive director of Telekom Austria, said. At present, the new owner does not plan to offer Mobiltel shares at the Bulgarian Stock Exchange. - Capital Weekly, 07/20/05

Competition Board Endorses Sale of Turk Telekom The Competition Board has given the green light to the sale of Turk Telekom to a consortium made up of Saudi group Oger and Telecom Italia. The CB announced on Thursday that there was no obstacle in the way of the sale of Turk Telekom. Oger Telecom had won the tender for Turk Telecom with a higher-than-expected offer of $6.550 billion at the beginning of July.

The CB decision will be submitted to the cabinet for ratification and will be finally sent to the State Council before publication in the official gazette. Turk Telekom is the country’s only fixed-line telecommunications provider, with 19 million subscribers. The company employs 55,794 workers. It posted a net profit of 2.1 quadrillion Turkish lira in 2004. The Turkish government is planning to sell Turk Telekom as part of an agreement with the International Monetary Fund. - Cihan News Agency - Economy News, 07/21/05

Ukrainian Cabinet Decides to Prepare Ukrtelecom for Privatization in 2005 At a meeting on July 20, the cabinet of ministers approved an additional list of facilities to be prepared for privatization this year, among which was the state’s 42% stake in Ukraine’s largest telecommunications company, Ukrtelecom. Prime Minister Yulia Tymoshenko made this statement to the press. She said Chysti Metaly (Pure Metals) enterprise is also on the list. The prime minister did not further elaborate on the list, noting only that the government will begin preparations for privatization this year, while the privatization itself will take place at the end of this year or early next year.

As Ukrainian News earlier reported, the Verkhovna Rada suspended in early July the law on peculiarities of privatization of Ukrtelecom until adoption of a privatization program. 7.14% of the shares in the company have been sold to its employees via the preferential subscription. The remaining 92.86% of the shares are held by the state. Ukrtelecom has over 9.3 million subscribers and controls over 80% of the fixed-line telephone market. - Ukrainian News - on-line, 07/21/05


Comparative Valuation — EMEA Cellular Companies

Company VimpelCom MTSADR Ticker VIP MBTCountry Russia RussiaWireless Penetration (2004) 51.2% 80.5%GDP Per Capita (2005E) $4,270 $4,270Population (million) (2005E) 144.1 144.1Majority Stake 99.9% 97.6%ADR Price (07/22/05) $38.71 $36.60ADR (million) 204.5 397.2ADR Ratio 0.25 5Mkt. Cap. (million) $7,917 $14,538Price Target YE 2005 $42.0 $40.0Stock Rating Outperf. Outperf.

VALUATIONP/E 2005E 14.6 13.3P/E 2006E 11.5 11.1P/CE 2005E 7.6 7.5P/CE 2006E 6.4 6.4

Firm Value / 05E EBITDA 6.6 6.7Firm Value / 06E EBITDA 5.6 5.6FV / 05E FCF NM 210.9FV / 06E FCF 18.3 14.005E FCF Yield (FCF/FV) NM 0.5%06E FCF Yield (FCF/FV) 5.5% 7.2%P/BV 3.5 5.3BV / Sub (US$) $74 $73Firm Value / Sub (US$) $303 $426Firm Value / Pop '05E (US$) $65 $114Dividend Yield (2005E) 0.0% 1.6%Blended ARPU (US$) $7.3 $9.5FINANCIAL RATIOSROE (2005E) 22.6% 37.2%Operating Margin (2005E) 30.6% 34.2%EBITDA Margin (2005E) 47.9% 52.4%EBITDA Margin (2006E) 48.5% 53.2%Net Margin (2005E) 18.5% 23.3%5-Year EPADR CAGR ('05-'10) 7.8% 8.2%5-Year CE CAGR ('05-'10) 8.4% 7.4%5-Year EBITDA CAGR ('05-'10) 7.2% 6.1%P/CE vs. CE Growth 90% 101%FV/EBITDA (05E) vs.EBITDA Growth 92% 109%LEVERAGE / COVERAGEDebt / Capital 45% 45%EBITDA / Int. Exp. (2005E) 8.9x 18.3xNet Debt / '04E EBITDA 1.0x 0.6xPRODUCTIVITYSubscribers / Employee N/A N/ARevenue / Subscriber (2005E) 110 137EBITDA / Subscriber (2005E) 53 72

Risks to price targets include macroeconomic deterioration, increased competition, and regulatory developments.Price target valuation methodology: Discounted cash flow.

Sector Ratings: Russian telcos-Market Overweight.

Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.


EMEA Telecoms — Financial Forecasts

(Amounts in US$ millions unless otherwise specified)

Company Ticker VIP MBTAssumed Exchange Rates per US DollarYE05 Fx rate 30.00 30.00YE06 Fx rate 32.00 32.00

Income Statement EstimatesNet Revenues '05E 2,934 4,673Net Revenues '06E 3,453 5,491

Operating Income '05E 898 1,599Operating Income '06E 1,117 1,959

EBITDA '05E* 1,406 2,448EBITDA '06E* 1,673 2,920

Capex '05E 1,397 1,991Capex '06E 916 1,338

Per ADR EstimatesEPADR '05E $ 2.66 $ 2.75EPADR '06E $ 3.37 $ 3.29

CEPADR '05E $ 5.10 $ 4.89CEPADR '06E $ 6.03 $ 5.74

Balance Sheet (Latest Qtr.)ST debt 186 305LT debt 1,669 1,973Cash 451 708Net debt 1,405 1,570% of debt in foreign currency% of Fx debt that is hedgedBook value per ADR ($) $ 13.04 $ 6.42

Plant (Latest Qtr.)Fixed Lines in Service (000s)Mobile Subscribers (000s) 30,748 38,683

* EBITDA are for the operating companies, where applicable Source: Company data; Bear, Stearns & Co. Inc. estimates.


Short Interest Ratios

CompanyU.S. Short Interest*

Ave. 30-day volume*


Short Int. ratio (last week) % Ch.

VIP 1,931,139 726,080 2.7 1.9 43%MBT 861,909 1,183,153 0.7 1.0 -23%

Integrated Company Average 1.7 1.4 20%

*Number of ADRs, Figures as of July 22, 2005 Source: Company data; Bloomberg; Bear, Stearns & Co. Inc. estimates.


EV/EBITDA Charts

12-Month Forward and 12-Month Trailing EV/EBITDA

EV/EBITDA

-2.00

4.006.008.00

10.00

12.0014.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

EMT

EV/EBITDA

-

2.004.00

6.00

8.00

10.0012.00

14.00

Oct-9

8Ja

n-99

Apr-9

9Ju

l-99

Oct-9

9Ja

n-00

Apr-0

0Ju

l-00

Oct-0

0Ja

n-01

Apr-0

1Ju

l-01

Oct-0

1Ja

n-02

Apr-0

2Ju

l-02

Oct-0

2Ja

n-03

Apr-0

3Ju

l-03

Oct-0

3Ja

n-04

Apr-0

4Ju

l-04

Oct-0

4Ja

n-05

Apr-0

5Ju

l-05

12T 12F

MBT

Source: IBES estimates; Bloomberg.


Companies mentioned:

EMEA Cesky Telecom (TKTEF-$18.00-Not Rated)

North-West Telecom (NWTEY-$33.00-Not Rated)

Telecom Italia (TLIT.MI-€2.5900-Underperform/Market Weight

Telefonica de España (TEF.MC-€13.59-Outperform/Market Weight)

Telekom Austria (TKA.AV-€16.21-Not Rated)

Telenor ASA (TEL.OL-NKr54.50-Underperform/Market Weight)

TeliaSonera AB (TLSNF-$4.70-Not Rated)

Turkcell Iletisim Hizmetleri A.S. (TKC-$13.77-Not Rated)

Yukos (YUK.LI-$2.75-Underperform/Market Weight)

Latin America Alcatel (ALA-$11.89-Not Rated)

Bank of America (BAC-$44.85-Outperform/Market Weight)

Citigroup (C-$44.42-Outperform/Market Weight)

Juniper Networks (JNPR-$23.84-Peer Perform/Market Weight)

Microsoft (MSFT-$25.68-Not Rated)

Pirelli (PC.IM-€0.8548-Not Rated)

Telecom Italia (TLIT.MI-Є2.5900-Underperform/Market Weight)

Telefonica de Argentina (TAR-$8.00-Not Rated)

Telefonica de España (TEF.MC-Є13.59-Outperform/Market Weight)

Telefónica Móviles (TEM.MC-Є8.44-Outperform/Market Weight)


TELECOM ANALYSTS at BEAR STEARNS

Bear Stearns International Ltd. Wireline: Jonathan Dann/William Main Cellular: Fanos Hira/Paul Harper/Maurice Patrick/Matthew Ward U.S. Cellular: Phil Cusick/Richard Choe Wireline: Michael McCormack/Steve Randall/Scott Goldman Latin America/EMEA Rizwan Ali/Miguel Garcia Asia Evan Erlanson/Celene Chang/Adam B. Clark Transmission Towers Jim Ballan Satellite Communications Robert Peck


Addendum

Important Disclosures

For important disclosure information regarding the companies in this report, please contact your registered representative at 1-888-473-3819, or write to Sandra Pallante, Equity Research Compliance, Bear, Stearns & Co. Inc., 383 Madison Avenue, New York, NY 10179.

Ratings for Stocks (vs. analyst coverage) Outperform (O) — Stock is projected to outperform analyst’s industry coverage universe over the next 12 months. Peer Perform (P) — Stock is projected to perform approximately in line with analyst’s industry coverage universe over the next 12 months. Underperform (U) — Stock is projected to underperform analyst’s industry coverage universe over the next 12 months.

Ratings for Sectors (vs. regional broader market index) Market Overweight (MO) — Expect the industry to perform better than the primary market index for the region (S&P 500 in the U.S.) over the next 12 months. Market Weight (MW) — Expect the industry to perform approximately in line with the primary market index for the region (S&P 500 in the U.S.) over the next 12 months. Market Underweight (MU) — Expect the industry to underperform the primary market index for the region (S&P 500 in the U.S.) over the next 12 months.

Bear, Stearns & Co. Ratings Distribution as of June 30, 2005 Percentage of BSC universe with this rating / Percentage of these companies which were BSC investment banking clients in the last 12 months. Outperform (Buy): 38.5 / 19.5 Peer Perform (Neutral): 50.4 / 12.4 Underperform (Sell): 11.1 / 6.0

For individual coverage industry data, please contact your account executive or visit www.bearstearns.com.Analyst


Addendum Important Disclosures Analyst Certification The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the specific recommendation(s) or view(s) in this report. Rizwan Ali

The costs and expenses of Equity Research, including the compensation of the analyst(s) that prepared this report, are paid out of the Firm’s total revenues, a portion of which is generated through investment banking activities.

This report has been prepared in accordance with the Firm's conflict management policies. Bear Stearns is unconditionally committed to the integrity, objectivity, and independence of its research. Bear Stearns research analysts and personnel report to the Director of Research and are not subject to the direct or indirect supervision or control of any other Firm department (or members of such department).

This publication and any recommendation contained herein speak only as of the date hereof and are subject to change without notice. Bear Stearns and its affiliated companies and employees shall have no obligation to update or amend any information or opinion contained herein, and the frequency of subsequent publications, if any, remain in the discretion of the author and the Firm.


Other Disclaimers This report has been prepared by Bear, Stearns & Co. Inc., Bear, Stearns International Limited or Bear Stearns Asia Limited (together with their affiliates, "Bear Stearns"), as indicated on the cover page hereof. This report has been adopted and approved for distribution in the United States by Bear, Stearns & Co. Inc. for its and its affiliates' customers. If you are a recipient of this publication in the United States, orders in any securities referred to herein should be placed with Bear, Stearns & Co. Inc. This report has been approved for publication in the United Kingdom by Bear, Stearns International Limited, which is authorized and regulated by the United Kingdom Financial Services Authority. Private Customers in the U.K. should contact their Bear, Stearns International Limited representatives about the investments concerned. This report is distributed in Hong Kong by Bear Stearns Asia Limited, which is regulated by the Securities and Futures Commission of Hong Kong. Additional information is available upon request. Bear Stearns and its employees, officers, and directors deal as principal in transactions involving the securities referred to herein (or options or other instruments related thereto), including in transactions which may be contrary to any recommendations contained herein. Bear Stearns and its employees may also have engaged in transactions with issuers identified herein. Bear Stearns is affiliated with a specialist that may make a market in the securities of the issuers referred to in this document, and such specialist may have a position (long or short) and may be on the opposite side of public orders in such securities. This publication does not constitute an offer or solicitation of any transaction in any securities referred to herein. Any recommendation contained herein may not be suitable for all investors. Although the information contained in the subject report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This publication and any recommendation contained herein speak only as of the date hereof and are subject to change without notice. Bear Stearns and its affiliated companies and employees shall have no obligation to update or amend any information or opinion contained herein. This publication is being furnished to you for informational purposes only and on the condition that it will not form the sole basis for any investment decision. Each investor must make their own determination of the appropriateness of an investment in any securities referred to herein based on the tax, or other considerations applicable to such investor and its own investment strategy. By virtue of this publication, neither Bear Stearns nor any of its employees shall be responsible for any investment decision. This report may not be reproduced, distributed, or published without the prior consent of Bear Stearns. ©2005. All rights reserved by Bear Stearns. Bear Stearns and its logo are registered trademarks of The Bear Stearns Companies Inc. This report may discuss numerous securities, some of which may not be qualified for sale in certain states and may therefore not be offered to investors in such states. This document should not be construed as providing investment services. Investing in non-U.S. securities including ADRs involves significant risks such as fluctuation of exchange rates that may have adverse effects on the value or price of income derived from the security. Securities of some foreign companies may be less liquid and prices more volatile than securities of U.S. companies. Securities of non-U.S. issuers may not be registered with or subject to Securities and Exchange Commission reporting requirements; therefore, information regarding such issuers may be limited. NOTE TO ACCOUNT EXECUTIVES: For securities that are not listed on the NYSE, AMEX, or Nasdaq National Market System, check the Compliance page of the Bear Stearns Intranet site for State Blue Sky data prior to soliciting or accepting orders from clients.

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