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Mobile TeleSystems (MBT)

Q2 2012 Earnings Call

August 28, 2012 10:00 AM ET


Andrei Dubovskov - President and CEO

Alexey Kornya - VP, CFO

Aleksander Popovskiy - VP, COO

Michael Hecker - VP, Strategy, Corporate Development and M&A

Oleg Raspopov - VP, Foreign Subsidiaries


JP Davids - Barclays

Cesar Tiron - Morgan Stanley

Alexander Vengranovich - Otkritie Capital

Herve Drouet - HSBC

Alex Balakhnin - Goldman Sachs

Tibor Bokor - ING Bank

Tatiana Boroditskaya - UBS

Ivan Kim - VTB Capital

Thomas Heath - Handelsbanken

Anna Lepetukhina - Troika Dialog

Igor Semenov - Deutsche Bank

Anna Kurbatova - Gazprombank


Unidentified Company Representative

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Welcome to today's conference call to discuss the company's second quarter 2012 financial and operating results. Before beginning our discussion, I would like to remind everyone that except for historical information, comments made during this call may constitute forward-looking statements which may involve certain risks. These statements may relate to one of the following issues, the strategic development of MTS's business activities both in Russia and abroad, revenue and our subscriber growth, loan facilities and their usage, legal actions or proceedings directed against the company or its representatives, regulatory developments and their impact on the company's operations in markets in which we operate, financial indicators such as operating income before depreciation and amortization, average revenue per user, cash flow projects and/or return on invested capital, technical matters that they pertain to our mobile communications networks including equipment licensing our network technologies, capital expenditures and operating expenses and macro-economic developments within our markets of operation. A comprehensive overview of these issues is available in MTS's annual report and Form 20-F which is available on our website or to the US SEC.

Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These statements may include company press releases, earnings presentations, MTS's Form 20-F as well as other public filings made by the company with the United States SEC, all of which are available on the company website or that of the US SEC at MTS disavows any obligation to update any previously made forward-looking statement uttered on this conference call or make any adjustments to previously made statements to reflect changes in risk. Copies of the presentations and materials used and referenced in this conference call are available on our company website.

I'll now turn the call over to Andrei Dubovskov, President and Chief Executive Officer of MTS.

Andrei Dubovskov

Ladies and gentlemen thank you for joining us on today's conference call to discuss the company's financial and operating results of the second quarter 2012.

Joining me today are Alexey Kornya, Vice President, Chief Financial Officer; Aleksander Popovskiy, Vice President, Chief Operating Officer; Michael Hecker, Vice President, Strategy, Corporate Development and M&A; and Оleg Raspopov, Vice President Foreign Subsidiaries.

(Inaudible) and other strong set of results for MTS Group for the second quarter. Group revenue for the quarter to reach over $3.1 billion USD in spite of a significant weakening of our core currencies versus the USED. We saw sustained growth in usage of voice and data products in each of our markets of operation. We also see signs of stability and moderate competitive pressures in our markets. For the period total revenue in Russia increased in ruble terms by 9% year-over-year to 82.8 billion rubles. (inaudible) city voice usage, higher value subscribers through our efforts to optimize dealer relationships and sell more through MTS's proprietary retail chain and growth in headset sales including sales of higher value smartphones. Year-over-year our mobile business grew by 10% to 69.3 billion rubles. As we predicted, we continue to see benefits in our mobile business through a combination of strong tariff plans, prudent sales strategies and continued investments in our networks.

We see strength in upselling our mass market subscribers to better voice plans as ARPU and MOU by 12% and 15% year-over-year respectively. We also are attracting better subscribers through our own retail and partner channels. Net subscribers also contributed to the rise in ARPU and demonstrate more loyalty.

For the period churn rate percent 11.3% to 10.5% and modem sales remain strong despite the cancellation of subsidies. Sustained investment in our networks makes entails the logical choice for customers who want to speak and access to the internet.

Our fixed line business remains stable year-over-year both residential and corporate ARPUs sales slightly due to increased competition and the addition of lower value customers also added roughly 50,000 new subscribers. We remain focused on network improvement both in Moscow and the regions. The work being done to upgrade to full fiber in our networks, we are confident that better networks will all last to further grow this business and increase customer value.

In Ukraine, revenue growth continued at 7% year-over-year to nearly 2.4 billion US. Handsets in the market continues to favor us as we saw definite year-over-year growth in ARPU, MOU, and data traffic. We also were able to benefit for the euro 2012 through higher (inaudible) overall contribution from (inaudible). Data traffic grew 9% year-over-year which is strong given the fact that there is no 3G yet in the market. in Armenia, revenue increased by 2% year-over-year to 19.1 billion. The market continued to trend towards stable as we improved churn and subscribers increased their calling and data usage.

In Uzbekistan, we did recognize the full quarter of revenue and OIBDA as we witness separation of impact of our district with regulatory authorities only in the third quarter. Operationally realized a strong quarter of revenue increased 22% year-over-year. as four further in Uzbekistan, I will speak to this topic later.

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