Of special interest to investors in Russian telecoms -- A Russia Today piece (with both good news & bad):
Y2K: Emerging Telecom Stocks Bugged More than Others
MOSCOW, Dec. 01, 1998 -- (SKATE Financial) The differences
between developed and emerging markets are particularly striking
when reviewing future policies and do not necessarily incorporate the
effects of current reality.
Whether those policies concern environmental issues, pension
schemes or corporate business practices, developed economies seem to
be strikingly different in their ability to anticipate and plan for the
future as well as their financial abilities to support future policies.
The Year 2000 millennium bug is a particularly good example of how
emerging markets are dealing with identification and solutions for the
problem. Emerging markets, in general, seem to be ignoring the
anticipated breakdown of systems caused by the two-digit year format.
In this issue of Skate Report on Capital Markets we look at whether
European emerging markets are vulnerable to the Y2K problem.
Say the "Year 2000" in the European emerging markets and the
response you will more than likely get will be about the upcoming
presidential elections in Russia rather than the millennium bug.
There are a number of reasons, apart from the general preoccupation
of the short-term needs of these emerging economies.
The first reason, the trading infrastructure supporting local financial
markets operates using more up-to-date computer programs than
many in the developed markets. The software supporting the trading
infrastructure in the developed markets is particularly vulnerable to
Y2K simply because it was developed years before Y2K awareness.
Most of the domestic financial markets, including the technologically
advanced Istanbul, Budapest and Warsaw stock exchanges as well as
the Russian RTS and MICEX, use technology developed in the early
'90s. This technology was developed as green-field technology with a
full awareness of the Y2K issue, while in developed economies most of
the programming used is based on periodic enhancements of existing
software thereby creating the whole cost intensive issue of "identifying
Y2K risk."
Prominent international technology providers such as the Australian
software developer Computershare Pty and local companies like Polish
Softbank and Russian Diasoft claim that their clients will not have to
deal with the Y2K issue. And, that most of the technology sold in the
past few years including most automated programs used by local
brokerage houses, banks and online trading desks dealing with
equities and domestic debt, has been designed using the four digit year
format. Surprisingly, the most vulnerable area for the European
emerging markets are their international debt markets cleared and
settled through the established institutions Cedel and Euroclear. Both
are currently exerting enormous efforts to remedy the Y2K bug.
Second, the financial institutions, where most of the Y2K issues are
related to tracking clients positions, loans and investment portfolios.
Again most of the problems in the developed world are tied to old
programming used by the financial sector. Compounding the
problems are the diversity of financial services offered and the massive
retail and institutional customer bases.
The development of the financial service industry in the European
emerging markets is much less impressive. The retail stock market is
in an embryonic stage, the retail insurance market is very limited in
terms of coverage and product diversity and mortgages are only
starting to be offered even in the most developed economies of the
region. In contrast to the developed markets, many local financial
institutions just recently bought or internally developed their software,
this happening after the liberalization of financial services and
creation of the necessary regulatory bases in the early nineties.
Generally speaking the financial industry across the region is much
less vulnerable to Y2K issue than in developed economies.
However, there are certain industries where Y2K is a big issue, and
those are mostly sectors that are dependent on technology and
equipment imported or modernization in the '80s. While Y2K risks
definitely exist in some of the region's largest sectors such as
engineering and utilities, the sector with the largest exposure to the
millennium bug is the telecommunications industry.
Even if many of the companies in the region underwent
modernization such as switching to digital technology, introducing
new mobile communications or Internet related businesses in the early
nineties much of the equipment supplied by international
manufacturers, particularly those supplying core telephone
equipment, incorporates the Y2K problem.
As Mr. Hassan Tavakoli, Russian Country Manager for Motorola,
said in an interview with Skate Report on Capital Markets, there is
almost no awareness of the problem in the region and a total lack of
initiative to address the issue at both the corporate and government
levels. CIS states that were particularly affected by the Russian
August crash are home to most of the telecoms particularly
vulnerable to the Y2K bomb. And are often lacking the adequate
resources to address the problem in this environment where they are
defaulting on lease payments for imported equipment and watching
their customer base, particularly the very profitable mobile services,
shrinking.
Our advice is that when buying Russian telecom stock, make sure
that the discount is enough to compensate for the highly possible Y2K
risk -- it very well may not be there after the spectacular November
stock rally. ( (c) 1998 SKATE Financial)
russiatoday.com:80/rtoday/business/news/98120110.html
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