VimpelCom Expands to Vietnam

By Zacks Equity Research
July 21, 2009

The second-largest cellular carrier in Russia, VimpelCom (NYSE: VIP - News), announced the commercial launch of its wireless operation in Vietnam under its Beeline brand. The company will initially roll out services in Hanoi, Ho Chi Minh City and Danang, covering a population of over 15 million. This follows the launch of the company's mobile operation in Cambodia in May 2009.

In July 2008, VimpelCom signed a definitive agreement to establish GTEL-Mobile, a mobile telecom joint-venture company for constructing GSM-based wireless networks in Vietnam. The other parties in this joint-venture pact are Global Telecommunications Corporation, a state-owned enterprise, and GTEL TSC, a subsidiary of GTEL.

Under the deal terms, VimpelCom has acquired 40% interest in GTEL-Mobile with GTEL and GTEL TSC retaining 51% and 9% stake, respectively. In early 2009, VimpelCom obtained a license from the Vietnamese government to build and operate a GSM cellular network under the joint-venture.

VimpelCom remains the second-largest wireless operator in Russia with over 25% market share. Nevertheless, the company has a higher projected growth rate than its nearest competitor, Mobile Telesystems (NYSE: MBT - News) as it continues to demonstrate the ability to succeed in emerging markets bolstered by sustained subscriber growth. Besides maintaining its strong market position in the rapidly-maturing Moscow metropolitan area, VimpelCom has instituted expansion activities in regions outside of Russia. As part of this strategy, the company is currently exploring business opportunities in relatively under-penetrated incipient markets in Southeast Asia.

Being one of the fastest-growing economies (GDP growth of 6.2% in 2008) in Southeast Asia, Vietnam represents a significant growth prospect for VimpelCom with approximately 58% penetration in mobile telephony. The company will invest approximately $1 billion in the country over the next several years for the development of GSM-based wireless services. The GTEL-Mobile joint venture plans to cover over 40 provinces of Vietnam by the end of 2009, addressing a population of 41 million, translating into 48% penetration of the country's population.

We expect acquisitions and expansion opportunities in emerging markets to foster much of the company's growth moving forward. Consequently, we maintain our Buy rating for VimpelCom.