S A ADVISORY November 1998



Vimpel-Communications-phone# 212- 815-2372-The company is a provider of cellular telecommunications services in Russia, including the City of Moscow and the Moscow region.

VimpelCom is the largest provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line." The VimpeICom Group operates the only Digital-AMPS cellular network and the first Russian PCS network, using GSM technology, in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The VimpelCom Group holds various GSM-1800 and AMPS/D-AMPS-licenses covering a total population of approximately 100 million (68% of Russia's population).

For the six months ending June 30th sales equaled $177 million (US dollars) and income/share equaled $1.17 - based upon 19.2 million shares (actually 25 million fully diluted). The third quarter numbers could be terrible since the devaluation. The book value at the end of the second quarter was around $8.72 and had $48 million in cash. This is going to change! The 52-week range $59-$4.25.

VIP's IPO a couple of years ago was at around $26.00. Shares are listed on the NYSE. VIP uses a "big" 5 accounting firm. Shares outstanding: 25,700,000 million. Soros & Fidelity own stakes in VIP.

Hit by the crisis, but less so than others. Russia's financial crisis is likely to have a significant impact on VimpelCom, negatively affecting its short-term performance as well as its growth prospects: 3Q98 results are likely to be disastrous as the company writes off its short-term investments and realizes massive foreign exchange losses. Fourth quarter mostly will be ugly, as well. In the short term, VimpelCom will probably see a contraction of its subscriber base and sharp decline in usage rates. At the same time, relative to other Russian telecoms, the company is likely to be less affected by the financial turmoil. Its dollar earnings will not be eroded by the ruble devaluation. It does not have massive short-term debts. It is not subject to tariff control and does not bear a risk of hard currency expropriation.

Despite a temporary setback, the mobile industry in Russia is likely to return to growth in the medium term. With a sensibly structured debt, a relatively price-insensitive core subscriber base and a virtually complete D-AMPS network, VimpelCom is poised to survive the crisis.

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(OCT. 29, 1998)

The company is still getting new subscribers, with about 1,000 new users per week. It is also losing customers, with a net loss of 4,500 users in September. October is also expected to be negative, but not as bad as September. November may be negative, but only just. This is on top of a subscriber base of 135,400 as of 30 June 1998. Next year should see net growth in subscriber numbers.

In addition there has been no fall off in weekly traffic usage. This means that the customers that have been lost are not the heavy-traffic customers who have been generating such good results for the company. The company is hopeful that the introduction of a prepaid card system will enable it to reach out to a less well-heeled customer base, or enable those who cannot afford the full service to stay as customers.

The company sees the acquisition of GSM-900 licenses as good news, because it will be able to capture roaming traffic in Moscow, which is high margin, and will be able to boost coverage in the Moscow region and the Central region at low cost. There is some political risk attached to the allocation of 900 MHz spectrum, as this is scarce, but the company feels that it should be able to maintain its presence.

On the basis of fundamentals, VimpelCom is grossly undervalued compared with other European operators. Given its high share liquidity, business transparency, strong fundamentals and quality of management, we believe that VIP is one of the best call "options" on Russia.

The "news" in Russia has been terrible and every listed and unlisted security there has suffered by dropping 80% - 90% off recent highs. The slightest positive disseminated from the Kremlin could cause rapid share appreciation. Despite a negative short-term outlook, we truly believe that VIP is grossly undervalued and that the stock has significant upside potential, while accepting that this scenario may not be realized until investors return to Russia. We rate VIP a strong buy for risk tolerant accounts.

We initially recommended VIP at $5.75 via e-mail on September 23, 1998. We intend to monitor VIP for percentage gain performance.

Broker contact: Greg Nelson at 800-269-9460.

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