Mobile Telesystems OJSC ADR Earnings Call Insights: Pricing in Russia and VimpelCom

Mobile Telesystems OJSC ADR (NYSE:MBT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Pricing in Russia

Cesar Tiron – Morgan Stanley: Two questions actually, first on Russia, well done on the performance of your core business. I would like to ask if you can comment on the data pricing environment in Russia and why you think you are growing data revenues significantly faster than Megafon. Second question on the Ukraine you continue to gain quite a substantial market share in the quarter. Can you please explain what you think the driver is and also let us know if you are seeing the margin improvement in Ukraine is that sustainable? Thank you very much.

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Vasyl Latsanych – VP, Marketing: It’s Vasyl Latsanych, CMO, replying to the first part of question regarding the data pricing and data growth. The data pricing is a substantial, but not far from being the only factor of growth of data revenues in 2013. We have to take into account the significant increase of our network, both in terms of coverage and in terms of the throughput in most of places where data does matter, which is the result of very significant buildup of the data capacity in 2011 and 2012. At the same time, as we indicated, we have committed and we have executed huge number of activities to promote the data capacity that we build and to enhance the customer experience with the data devices like smartphones and tablets. We have seen quite substantial growth of both tablets and smartphones throughout 2012 in all of our territories and especially in big cities. We believe that that all is quite equal contributor of the overall data sales and we believe that that is quite – that is going to be quite a substantial – there is going to be quite a substantial growth in 2013 as we see that our efforts are unfolding through the year and our plans are pretty aggressive to go after the data market and to grow to be the leader in the market quite soon.

Andrei Dubovskov – CEO: It’s Andrei Dubovskov. I just want to talk about your second question and it’s very simple answer and it’s not concerned in our Ukrainian aggregation also but other markets of course. In my opinion, the normal base for all results across the MTS countries is its subscriber loyalty. If you have good subscriber loyalty you have very good possibility to translate it into your revenue and after that you have very good possibility to translate it to good marginality and we are going to do the same in the Russian market of course.

Cesar Tiron – Morgan Stanley: So do you believe that the uplift in the EBITDA margin in the Ukraine is sustainable?

Andrei Dubovskov – CEO: I think it can be no less than 50% in Ukraine and maybe better. It depends on the economy in Ukraine. It depends on the latter factors but I think it will be no less than 50%.


JP Davids – Barclays Capital: Two questions for me please. The first one on Russia, your competitor VimpelCom has announced a ramp up in its mono-brand distribution platform. What do you think this means for the market as a whole and does it make you relook at your own strategy in any way? The second question please, is on the Ukraine, just following up on maybe the margin outlook but slightly broader question. Do you see the change in ownership at Ukraine Telecom as a very important milestone in this market? What do you think it – and more broadly what do you think it means for the spectrum auctions and the future for the market?

Vasyl Latsanych – VP, Marketing: This is Vasyl. Regarding the sales situation with the channels and Euroset, VimpelCom Megafon, we don’t have any pressure from Euroset being a part of VimpelCom and a private ownership and then being a part of VimpelCom and Megafon. We believe that our position with a very high-profile monobrand MTS network in Russia as well as our good relationships with other networks, including those local networks (indiscernible) in Russia are a good sustainable platform for us to gain the sales that we believe are fair and that will give us the growth in the future periods. We do not think that there is a threat coming from Euroset anymore as it used to be in the end of the years of 2000s.

Andrei Dubovskov – CEO: It’s Andrei Dubovskov. Speaking about the question of UkrTelecom, in my opinion there should be no change in the Ukrainian market because during last five years as you know telecom have 3G license and nowhere the results speaking about market share, revenues et cetera, and the change in shareholders’ ownership issue in my opinion have no impact into this market.

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JP Davids – Barclays Capital: If I may quickly follow up on the Russian distribution question, specifically looking there at VimpelCom’s ramp up in monobrand, it plans on increasing its square footage by fourfold over the next three years. So aside from Euroset put that to one side, its change, I guess, it’s more aggressive stance on monobrand. Is that going to have an impact on the way you approach the market or do you think it actually maybe helps consolidate a part of the independent distribution channel? Thank you.

Vasyl Latsanych – VP, Marketing: This is Vasyl answering. We have built the biggest brands and we believe the best mono-brands in Russia during the years of 2010 to 2011. We may be seeing our competitors trying to catch up with us on that side. We don’t think that this gives us any potential threats from redistribution of the networks and of the sales in Russia as we believe that we have already done what they are trying to accomplish right now.