For Russian telecommunications companies, that deficit has been a boon: Their stock has risen by multiples since last year, when the mania to get into Internet stocks spread to Eastern Europe. Analysts, however, are urging caution. Though phone traffic in Russia is certain to rise in the coming years, some of the run in prices is based on wishful thinking.

Shares in Rostelecom, Russia's virtual monopolist in long-distance telephone traffic, may already be a case in point. The company provides some wholesale support to Internet-service providers, but analysts disagree on whether it will benefit much from a surge in Internet traffic. American depository receipts of the company on the New York Stock Exchange were up 3.5 per cent at $25.75 (26.80 euros or 0.906 ruble) early Wednesday, a gain of 87.5 cents, but up from around $5 a share in September.

Rare opportunity
"Basically this company has benefited because it's one of the few ways that people can get into the Internet thing in Russia," said Tom Adshead, analyst at the Moscow-based Troika Dialog brokerage house. "There are people in the market who say it's going to come out with a big Internet announcement, but we are not aware of it and none of our sources at the company are aware of it either. So we would be shocked if it were true."

Russia's Internet is minuscule by Western standards, but is growing fast. Registered users number about 1.8 million, compared with 73 million in the US. "Conservative estimates are that it will double this year, but its anyone's guess, because everything is going online in Russia right now," Said Alexander Kabanovsky, telecommunications analyst at Brunswick Warburg brokerage in Moscow.

For that reason, Kabanovsky isn't worried about the recent surge in prices - there is more to come, he says. He still recommends Golden Telecom, a Russian Internet service provider traded on the Nasdaq Stock Market. The stock was up 11 per cent, or $4.625, at $46.5625 early Wednesday in New York; the stock was up from $12 a share at the time of its initial public offering in September. It has been buying up local portals on the cheap in private deals. He also recommends Russia's second-largest mobile telephone provider, Vimpelcom, which was up 4.5 per cent, or $2, at $46.4375 on the New York Stock Exchange, compared to $13 a share in September. Kabanovsky says it will benefit when the Internet becomes a hand-held phenomenon.

But the hunger for Internet exposure has also spurred interest in the 89 regional telephone companies on Russia's thinly-traded stock exchange, the Russia Trading System. Most of those companies, like Khanty Mansiysk Okrtelecom, have been ignored by investors since the market crash of 1998, when the RTS index fell 88 per cent and trading fell to a standstill. A year after the crash, fund managers were valuing their regional telecom stock at about one-tenth of their pre-crash levels.

Still cautious
Even analysts who are still bullish on Russia's bigger telecommunications companies are wary of any broad buying of the regional companies. Ari Krel, telecommunications analyst with United Financial Group investment bank in Moscow, says some regional companies will eventually see big revenue gains from the growth in Internet use. Their competitive advantage is that they control access to the Russian population. But management at the companies varies, and he recommends investors assess these companies "on a case-by-case basis."

The Wall Street Journal "Some of them will be aggressive and forward-looking about this opportunity, and others will be passive and let competitors take a large share f the market," he says.

Kabanovsky has "strong buy" recommendations on five of the regional companies: Nizhny Novgorod Sviazinform, Samara Sviazinform, Rostov Electrosviaz, Chelyabinsk Sviazinvform, and Irkutsk Electrosviaz.

James Fenkner, equity strategist at Troika Dialog in Moscow, says the regional telecommunications stocks could once again be unsellable in a market crash. But, he says, that risk is already in the price: Most are valued at about $300 per access line, where the average for emerging markets is around $1,500.

Even without the Internet, telephone use should surge this year as Russia's economy, spurred by a devaluation of the ruble and a spike in oil prices, will grow this year by about 5%, according to consensus estimates.

"If there's a growth in revenue because of the Internet or the economy, what's the difference?" Fenkner said.