Estimating earnings for Russian telecoms appears to be exceedingly dicey business. Last quarter, for example, the earnings estimates for No. 2 Russian cell phone provider Mobile TeleSystems (NYSE:MBT) were off 23% to the upside (sort of). The quarter before that, analysts were 35% too conservative. So chances are, whatever analysts think MTS will report in tomorrow's Q1 2007 announcement, they'll be wrong.

What analysts say:

  • General consensus. 18 analysts follow MTS, with 14 rating it a buy, and four a hold.
  • Revenues. On average, they expect to see sales rise 37% to $1.76 billion.
  • Earnings. Profits are predicted to more than double to $1.03 per American Depositary Receipt. (Note that each ADR represents five shares of common stock over in Moscow.)

What management says:
When last we left MTS, it was coming off a very successful -- and very misunderstood -- fourth fiscal quarter 2006. Free cash was flowing, margins soaring, and sales were up 35% year over year. Since then, the firm has released an update on its business, circa April 2007, and the good news just kept on coming.

Although subscriber growth continued to slow, if you compare it to the rapid deceleration we saw in recent quarters -- 48.5% subscriber growth in May, then 31% in October, then 22% in February -- the 21% year-over-year increase posted in April suggests that stable growth lies not far ahead. As usual, growth was slowest in the supersaturated Russian market, and St. Petersburg in particular. Meanwhile, the company powered ahead in Ukraine and Belarus, with 40%-plus growth, and Turkmenistan at 90%. Most impressive, subscriber growth topped 149% in Uzbekistan, where MTS also won licenses to provide 3G phone service and WiMax service. It may not add up to growth on the scale of VimpelCom (NYSE:VIP), but it's still pretty hot.

What management does:
Also slowing for MTS (and also in a good way) were the declines in gross margin. The rolling gross slipped just 30 basis points from September's tally. Meanwhile, operating margins continued their resurgence, and net -- well, that's where the misunderstanding I mentioned above kicks in. If you clicked through the link, you already know that net margins only fell because MTS wrote off an investment gone bad.

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

80.6%

80.3%

79.3%

78.4%

77.9%

77.6%

Operating

32.4%

33.6%

31.0%

31.1%

32.1%

33.4%

Net

22.2%

22.5%

20.6%

19.4%

20.4%

19.5%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflect trailing-12-month performance for the quarters ended in the named months.

One Fool says:
What you may not know is that since last quarter's news came out, there have been two developments at MTS. First, the bad news: The villain of last quarter, "Nomihold Securities, Inc.", is proceeding with its arbitration complaint against MTS, seeking to put the remainder of its worthless Tarino Limited subsidiary to MTS and receive $170 million in compensation.

And the good news? MTS presented its investors with a "heads you win, tails you don't lose" situation in regard to the Nomihold situation. On the one hand, MTS says its antagonist's complaint is "without legal basis" and so MTS expects to prevail on the merits in this dispute. Second, even if MTS loses: "a group of individual shareholders of Sistema has agreed to compensate MTS Finance for any potential loss up to $170 million." Who are these mystery shareholders in MTS' parent company, and why are they engaging in this act of altruism?

You know what they say: Daryonomu konyu v zuby ne smotryat. (Don't look a gift horse in the mouth.)

What did we expect out of MTS last quarter, and what did it give us? Find out:

Global Gains lead analyst Bill Mann departs for China, India, and Taiwan on June 2 in search of new investment opportunities in some of the world's fastest-growing economies. Get updates and analysis live from the field by sending Bill an email at BillTrip@Fool.com.

Fool contributor Rich Smith has no interest, short or long, in any company named above. The Fool has a disclosure policy.