VimpelCom Ltd ADR Earnings Call Insights: Russian Business and Revenue Market Share

VimpelCom Ltd ADR (NYSE:VIP) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Russian Business

Cesar Tiron – Morgan Stanley: Jo mentioned that (3G’s) upside to the Russian business in the next quarters, would that be an acceleration of revenue growth or is it more on the OpEx side? If it’s on the OpEx side, can you please explain to which cost items that would apply? Last question on Russia, I would like to understand where do you stand in terms of matching your competitor’s network, in terms of 3G? I remember, for example, that (Anton) committed to double 3G base stations in Moscow at the Investor Day, so if you could please comment on that.
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Jo Lunder – CEO: I think when I talk about upside in Russia, I think that what we’ve seen progress during 2012 and also what we saw progress in the first quarter of ’13 is that we are building now storm by storm and building ourselves stronger and stronger. I think we clearly admit that we had some difficult years in 2009, 2010 and 2011. You also see the numbers announced earlier today for MegaFon that we are growing less slowly than on the top line. At the same time, I think also it gives us some upside and potential for improvement. We focus a lot on the network right now, and at the end of this year, we will have cash stock without remain competitors in Moscow and all the key regions outside Moscow in Russia. This is the number of 3G base stations and this goes with network quality and capacity, and of course, this is the core product we delivered and it’s going to help us projecting further. At the same time, we also think that there is still upside to gain on the cost side and for that reason, we hope to see – the trend we see right now with a gradual improvement on the top line relative to competitors as a result of improved network and base product, and at the same time, we will keep working on operational excellence and bring cost down, so that we can also see a margin expansion in Russia. So my take on Russia is that, this is long-term play where we need to be patient and allow ourselves time to close the gap. We’re doing that this year in terms of network and we clearly see that the performance is quite good to many other markets, but not good enough yet relative to competitors which I had no problems admitting to and as I said, that’s why I also believe it’s upside.

Revenue Market Share

Dalibor Vavruska – Citigroup: I just have one question, just a follow-up on the Russian situation. If I understand correctly, your aim was to stop losing revenue market share this year. I don’t know exactly how you define these, but assuming that you’re talking about more wireless service revenue market share, it seems that you still have some work to do when you look at the MegaFon numbers. I’m just wondering, I mean, assuming that you upgrade your network and that you kind of improved the quality, how are you going to persuade customers to – I mean what are you going to do commercially to (stop reversing) the market share trend? Or do you think that will just come itself or do you think that you will have to take some actions? Also, I think if you could comment on this in light of what’s happening now in the market, for example, I understand that MegaFon, MTS are now pushing these very low cost smartphones. If I understand correctly, MegaFon now has opened up the 4G network which they have to add to smartphones as well as dongles. I mean do you think that these things are important? Are you going to respond to some of these things? I just wanted to get a little bit clarity on how you want to tackle the market share issue in Russia.Regular Posts

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Jo Lunder – CEO: Good questions. I think we want to stabilize the revenue market share this year. The main driver for this objective is really the catch-up on the network side. As I said, we are now – and we also told you that in January that we will have a CapEx to revenues this year in Russia at 22%, which is much higher than last 12 months, and the whole catch-up is related to that. So the main, of course, it starts with the basic products. In addition to that, frankly speaking, Beeline is also having a very strong brand. We have a very strong position in Moscow and we have a number of good activities ongoing on the commercial side. We are also growing the number of mono brands this year from 400 to 1,000 at the end of the year and the combination of an improved network building on a strong brand and growing the number of mono brands, we hope is enough to stabilize the revenue market share this year, and then we will enter into 2014 even stronger than when the year started. When it comes to 4G, we will also commercially open our LTE network at the end of this year. If you look to other markets, it’s not going to happen a lot with 4G, not in Russia either this year. I think we talk probably 2015 until LTE will have real commercial impact on the performance in the marketplace. So we also believe that the plans we have on LTE and 4G is good enough. For sure, we’re not going to put ourselves in a position where we also have to catch up and delayed from LTE compared to what we experienced on 3G. So this is very much a focus area for us, but at the same time, there is no need to spend money too early and too much before it has real impact on return to shareholders. So I don’t have a better answer than that’s delivered.