MOBILE OPERATORS SEEING DECLINES; MBT, VIP, DT, BT

Learning Markets
Tuesday, 11 August 2009 08:22

Mobile TeleSystems OJSC (MBT), the largest mobile phone operator in
Russia and the Commonwealth of Independent States, on Tuesday reported
a 14.6% year-over-year decline in profit for the second quarter
as quarterly revenues dropped 23.3%. The results for the latest
quarter were negatively impacted by operating results from four of
the company’s major operating regions Russia, Ukraine, Uzbekistan
and Turkmenistan.

In a statement, president and chief executive officer, Mikhail
Shamolin said, "The Company demonstrated sound results during the
quarter on the back of seasonal and organic growth. Despite continuing
macroeconomic volatility in Russia and the CIS, strong subscriber
additions, a seasonal increase in usage and on-going cost saving
initiatives facilitated quarter-on-quarter revenue growth and higher
operating margins."

Moscow, Russian Federation-based Mobile TeleSystems or MTS, which
provides GSM services in the regions of Russia, as well as Armenia,
Belarus, Turkmenistan, Ukraine, and Uzbekistan, reported consolidated
net income of $563.04 million or $0.30 per share for the second
quarter, lower than $659.20 million or $0.34 per share in the
prior-year quarter.

On average, analysts polled by Thomson Reuters expected earnings of
$1.32 per share for the second quarter. Analysts’ estimates typically
exclude special items.

Consolidated revenues for the quarter declined 23.3% to $2.02 billion
from $2.64 billion in the same quarter last year, and topped three
Wall Street analysts’ consensus estimate of $1.98 billion.

Amongst others in the industry, another Russian telecommunications
service provider Vimpel-Communications (VIP) is scheduled to announce
financial results for the second quarter on August 27.

Last Thursday, German telecommunications giant Deutsche Telekom AG
(DT) reported a 32.2% rise in second-quarter profit, reflecting strong
international revenue growth benefited mainly by contribution from the
Greek acquisition OTE. Meanwhile, domestic revenues declined 5.1% from
the previous year and mobile customer additions plunged 25.9%. Further,
Deutsche Telekom confirmed its forecast for fiscal 2009.

British communications solutions and services provider BT Group Plc
(BT, BT-A.L) last week reported that first-quarter profit declined
to GBP 214 million from the GBP 381 million last year, as BT Global
Services subsidiary posted an operating loss. On an adjusted basis,
profit fell to GBP 244 million from last year’s profit of GBP 400
million. Reported earnings per share decreased 43% to 2.8 pence
from 4.9 pence in the previous-year quarter, while adjusted earnings
per share declined 18% to 4.2 pence from 5.1 pence in the prior-year
quarter. For the quarter, revenue edged up 1% to GBP 5.24 billion from
GBP 5.18 billion including favorable foreign exchange movements and
impact of acquisitions. Excluding these, underlying revenue decreased
by 3% from last year.

Service revenue and connection fees for the second quarter dropped
to $1.96 billion from $2.63 billion in the year-ago quarter. Sales of
handsets and accessories soared to $64.27 million from $4.90 million
in the same quarter last year.

Segmental Details Operating income from Russian operations declined to
$463.6 million or 29.2% of revenues, from $701.4 million or 34.7% of
revenues, in the year-ago quarter. MTS added 2.3 million subscribers
in Russia and maintained its market share at 34%, with a churn rate
of 6.9%.

Operating income from Ukraine operations totaled $29.2 million or 11.3%
of revenues, sharply down from $91.4 million or 21.1% of revenues,
in the same quarter last year. During the quarter the company churned
155 thousand subscribers and market share was 33%, with a churn rate
of 9.7%.

At Uzbekistan operations, operating income for the quarter decreased
to $31.9 million or 32.8% of revenues, from $42.8 million or 46.0%
of revenues, in the prior-year quarter. The company added 0.6 million
customers and market share was 45%, with a churn rate of 7.1%.

Operating income from Turkmenistan operations declined to $14.3 million
or 37.9% of revenues, from $17.9 million or 52.1% of revenues, in the
corresponding quarter a year ago. The company added about 128 thousand
subscribers and market share was 85%, with a churn rate of 5.8%.

At Armenia operations, operating income was $9.2 million or 17.5% of
revenues, up from $3.8 million or 6.1% of revenues, in the year-ago
quarter. The company lost an insignificant number of subscribers and
market share was 81%, with a churn rate of 10.4%.

MTS added about 60 thousand subscribers at its Belarus operations
during the quarter, with a market share was 50%, and churn rate
of 5.6%. MTS owns a 49% stake in Mobile TeleSystems LLC, a mobile
operator in Belarus.

Other Metrics MTS’ net operating income for the second quarter
dropped 36.1% to $548.11 million or 27.1% of revenues, from $857.24
million or 32.5% of revenues, in the prior-year quarter. The company
organically added about 2.8 million new customers during the second
quarter. Total subscribers eop rose to 99.51 million from 90.97
million in the comparable quarter a year ago.

Sales and marketing expenses for the quarter decreased to $178.07
million from $227.13 million in the prior-year quarter, and general
and administrative expenses was $336.91 million, lower than $391.05
million in the year-ago quarter. However, cost of handsets and
accessories soared to $81.28 million from $28.60 million in the same
quarter last year.

Currency exchange and transaction gains for the quarter was
$197.65 million, sharply up from $30.76 million in the prior-year
quarter. Total other expenses increased to $45.10 million from
$16.56 million in the year-ago quarter. Provision for income taxes
for the quarter was $137.86 million, higher than $210.18 million in
the comparable quarter a year ago.

Capital expenditure from the second quarter totaled $489.8 million,
down from $545.0 million in the prior-year quarter. The company ended
the second quarter with cash and cash equivalents of $1.55 billion,
compared to $1.16 billion at end of the year-ago quarter.

The company also announced the appointment of Ron Sommer as the
chairman and Alexey Buyanov as the deputy chairman of the MTS Board
of Directors.

Further, the Boards of Directors of MTS and Sistema JSFC(SSA.L)
approved the acquisition of Sistema’s 50.91% stake in Comstar-United
TeleSystems (CMST.L), a supplier of integrated telecommunication
solutions, for $1.27 billion, or $5.98 per Global Depositary Receipt
or GDR, by a subsidiary of MTS. The deal was announced last week.

MTS also approved a dividend for fiscal year 2008 of RUB 20.15 per
ordinary share or $2.96 per ADR. This, the company said, amounted to
RUB 39.40 billion or $1.16 billion or 60% of US GAAP net income.

Half Yearly Highlights For the first six months, MTS reported
consolidated net income of $505.32 million or $0.27 per share, sharply
lower than $1.27 billion or $0.65 per share in the prior-year period.

Consolidated revenues for the year-to-date period dropped to $3.83
billion from $5.01 billion in the same period last year.

Looking Ahead…….

"As our markets are changing, we are adapting our strategic priorities
to meet new challenges and seize opportunities by developing our
monobrand retail channel and entering the broadband market to
deliver wider Internet access, integrated communications services
and innovative solutions to our customers," Shamolin added.

The company also noted that it continues to see sustained macroeconomic
volatility in its markets of operations that may impact the financial
and operational performance throughout the Group.

Stock Quote In Tuesday’s regular trading session, MBT is currently
trading at $43.88, up $0.25 or 0.57% on a volume of 0.38 million
shares. In the past 52-week period, the stock has been trading in a
range of $18.36 to $73.99.

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