Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

VimpelCom (NASDAQ:VIP)

Q1 2008 Earnings Call

June 4, 2008 10:30 pm ET

Executives

Alexander Izosimov – Chief Executive Officer

Elena Shmatova – Chief Financial Officer

Nikolai Pryanishnikov – Executive Vice President

Kent McNeley – Chief Marketing Officer

Jean-Pierre Vandromme – Executive Vice President, Network Resource Management and CEO, Golden Telecom

Alexander Boreyko – Director, International and Investor Relations

Michael Polyviou – FD, Investor Relations

Analysts

Herve Drouet – HSBC

Sergei Arsenyev – Goldman Sachs

Alexander Wright – UBS

Dalibor Vavruska – ING Capital

Kay Turner – Citigroup

William Kirby – Nevsky Capital

Olga Bystrova – Credit Suisse

Alex Kazbegi – Renaissance Capital

Yevgeny Golosnoy – Troika Dialog

Tibor Bokor – Renaissance Capital

Vladimir Postolovsky – UBS

Anna Kurbatova – UniCredit

Operator

Good evening and welcome to this VimpelCom Conference Call. Today’s call is being recorded. At this time I would like to turn the call over to Mr. Michael Polyviou. Please go ahead sir.

Michael Polyviou

Good evening and good evening. And welcome to VimpelCom’s Conference Call to discuss the company’s First Quarter 2008 financial and operating results. Before getting started, I’d like to remind everyone that except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties. These statements relate in part to the company strategy and development plans, the anticipated benefits of the Golden Telecom acquisition, market growth, and the competitive environment in Russia and the CIS, broadband internet development in Russia, and projections relating to the company’s capital expenditures. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements including the risks detailed in the company’s press release announcing the first quarter 2008 financial and operating results. The company’s earnings presentation is entitled Presentation of 1Q 2008 Financial and Operating Results. The company’s annual Form 20-F of the year ended December 31, 2007, and other public filings made by the company with United States Securities and Exchange Commission, each of which are posted on the company’s website at www.vimpelcom.com. In addition, the company’s first quarter 2008 financial and operating results press release and Form 20-F are posted on the Securities and Exchange Commission’s website at www.sec.co. VimpelCom disclaims any obligation to update developments of these risk factors which we announce publicly, any revision to any of the forward-looking statements made on this conference call, or to make corrections to reflect future events or developments. If you have not received a copy of the first quarter 2008 financial and operating results press release, please contact FD at 212-850-5600 and it will be forwarded to you. In addition, the press release and the earnings presentation each of which includes reconciliation of non-GAAP financial measures presented on this conference call can be downloaded from the VimpelCom site. At this time, I would like to turn the call over to Alexander Izosimov, Chief Executive Officer of Vimpel Communications.

Alexander Izosimov

Thank you for joining our conference call today. Let me introduce the team participating on this call. Here with me as usual are Elena Shmatova our Chief Financial Officer, Nikolai Pryanishnikov our Executive Vice President who is in charge of operations in Russia, Kent McNeley our Chief Marketing Officer, Jean-Pierre Vandromme, Executive Vice President of Network Resource Management and the CEO of Golden Telecom, and Alexander Boreyko, our Director of International and Investor Relations.

Today’s presentation will start with a general overview of our performance in the first quarter of 2008. After that, we will review in more detail Russia and discuss highlights from other markets where we operate. And at the end of the presentation, we will touch upon our integration with Golden Telecom as part of the implementation of our strategy.

Our overall performance in the first quarter of 2008 was strong with an OIBDA margin about 50% and year on year revenue growth about 40%. It is notable that this happened in spite of the negative impact caused by economic problems in central Asia and particularly in Kazakhstan. Strong financial figures became a good backdrop for the acquisition of Golden Telecom which I believe was a historic deal. Golden Telecom adds a new dimension to our business. It makes us an integrated operator which is able to provide its customers a broad variety of the most modern telecommunication services. The combined entity will help to ensure our future growth and value creation for our shareholders. Later in the presentation we will discuss the six steps we are taking in this direction, but before that, let me turn the floor over to Elena who will present a detailed account of our quarterly financial results.

Elena Shmatova

The main news in our first quarter financials is of course the acquisition of Golden Telecom. This transaction significantly expanded the scope of our business, and to reflect this, we changed our reporting structure starting from the first quarter of this year. Going forward, we will present our results for two geographic segments, Russia and the other countries of the CIS where we operate, and two business segments and mobiles.

On a consolidated level, our first quarter revenue increased more than 40% year on year and close to 5% quarter on quarter. This includes $133 million of Golden Telecom revenue net of $7 million revenue for services rendered to VimpelCom. OIBDA margins showed strong dynamics in spite of the one-month impact of lower margin business. Margins were supported by very strong results in our mobile segment and partial reversal of stock option accrual owing to fluctuation in our stock price. In the first quarter, we reversed approximately $43 million in connection with employee stock-based compensation program. These fluctuations made comparison of OIBDA and OIBDA margins between periods more complicated, but taking out the effect of stock option accounting, our consolidated OIBDA margin for the first quarter would have been about 50%. This affirms that our business remains in good shape.

Our balance sheet at the end of the first quarter also changed substantially with the Golden Telecom acquisition. Mainly due to this transaction, our total assets increased by more than 50% and our total debt increased by more than 2.4 times. Our liquidity ratio changed substantially with debt to OIBDA ratio equal to 1.7 compared to 0.8 in the previous quarter. However, this is still below 2, our self-imposed ceiling for this ratio. It is also important to mention that our debt structure itself [__________] our acquisition of Golden Telecom with a $3.5 billion syndicated loan including $1.5 billion of a 12-month bridge facility. In May, the bridge was refinanced by $2 billion bond placements, one-half maturing in 5 years and another half in 10 years. Our cash generation continues to increase in line with our business growth. On a past 12-month basis at the end of third quarter our free cash flow before acquisitions was already above $1.4 billion, an increase of 12% when compared to the end of 2007. I will pass the call to Alexander to discuss in more detail our activities by segment and product line.

Alexander Izosimov

Reviewing our sources of growth in the past, we distinguished between Russia and the other countries of the CIS. Now, as we already mentioned, with the acquisition of Golden Telecom, our business has gained another dimension further enhancing our growth capabilities. Accordingly, we will now analyze our growth both by segments and product line, mobile and fixed. Naturally, Russian mobile, our historical core business, remains our largest component. At the same time, our CIS operations have been gaining momentum. At the end of the first quarter 2008 our business in the CIS generated about 50% of our total revenue. Our fixed line business will become a strong additional growth driver; however, as we consolidated fixed line business of Golden Telecom for just one month in the first quarter of 2008, we will begin to see the full effect of the Golden Telecom consolidation from the second quarter. Now I’ll move to specific markets, starting as usual with Russia.

On a consolidated level, our performance was strong with solid revenue growth and record breaking OIBDA numbers. This was largely driven by the development in the mobile segment. Our CapEx to revenue ratio stabilized in the past three quarters at a 17% to 18% level, which is in the middle of the targeted corridor of 15% to 20%. Going forward, we may temporarily go somewhat above this quarter primarily due to the forthcoming full scale development of our 3G network. Moving now to the Russian mobile segment, we see that our reported first quarter mobile OIBDA margin in Russia was 57%. If we exclude the non-cash effect of reversals of stock option accruals, our mobile OIBDA margin in the first quarter would still be approximately 55%. Strong OIBDA margins in the first quarter resulted from our focus on margin preservation. We did it for two reasons; first the need to compensate for the downward pressure on our margins caused by absorption of the lower margin business of Golden Telecom, and second, the desire to maximize our cash flow in view of our debt related to the Golden Telecom acquisition. In the first quarter we controlled our margins by restricting marketing expenses and maintaining stable pricing. This coupled with [traditional weak] seasonality resulted in a slight sequential decline in our RPU and revenues in the Russian mobile segment. Of course, the decline in mobile revenues was more than compensated by the addition of fixed line revenues in March. Now that we have successfully completed the initial stage of the Golden Telecom integration, we feel more comfortable to step up marketing pressure in order to defend our mobile revenue market share. At the same time, we intend to continue with our measured pricing policy.

In the first quarter we consolidated only one month of Golden Telecom’s operations. For the full first quarter the revenue of Golden Telecom was 61% higher than a year ago. This is a healthy business with very good growth in all business lines. For the same period, revenue of the business segment increased by 45%. The wholesale segment grew by 60% and the residential segment by 300%. The OIBDA margin of the Russian fixed operations for March 2008 was around 25%. Global margins of fixed line business will have a dilutive effect on the group OIBDA margin. We intend to partially compensate for this effect by extracting co-synergies especially on the network development side and by accelerating the development of higher margin broadband services.

Currently penetration of broadband internet in Russia is just over 10%. This is expected to grow to 36% by 2012. But even in 2012 almost half of PC users would still not have a broadband connection, which shows unsatisfied demand for such services. We expect broadband internet to be one of the fastest growing segments in the Russia telecom market, and we are positioning VimpelCom to be the major beneficiary of this growth. We are going to do our best to capture this growth. We plan to re-brand Golden Telecom services under the Beeline name. With the help of VimpelCom marketing machine we hope to push fiber-to-the-building take-up on the Russian market and substantially increase our presence in the regions. Our combined infrastructure should help to accelerate this process as well.

The broadband business in Russia is developing very rapidly with FTTB being the primary part of this business. Our revenues from broadband access services increased during the first quarter of 2008 by 242% to $24 million. The number of our broadband subscribers increased by 190% reaching 530,000 by the end of the first quarter of 2008. As of June 1, 2008, our FTTB network has already passed 4.5 million households. Currently we provide broadband services in 22 cities. Originally Golden Telecom planned to build the network in 65 Russian cities by 2012. For the consolidation, we plan to accelerate and expand the FTTB development even further. This should put us in a very strong position in the Russian telecom market.

Moving now to the CIS centers, we see that Kazakhstan remains our largest market outside of Russia. It is the largest contributor to our business accounting for half of revenues and 60% of our OIBDA in the CIS. However, we are also pleased to see that many other markets have reached a meaningful size and all of them are OIBDA positive except Georgia, our newest market. Let’s now look at some of the major markets in more detail.

In Kazakhstan, in the first quarter of 2008, we observed continued subscriber growth, 4% on a quarter on quarter basis and a robust OIBDA margin of over 50%. At the same time, our operations were adversely affected by the economic problems which hit Kazakhstan in recent months. Liquidity crisis led to a spike in unemployment and a decrease in the disposable income level. The difficulties in the Kazakhstan market were temporary and we believe in the underlying strength of the local economy. In Ukraine, the pricing environment in the mobile market remains challenging. Despite that, in the first quarter of 2008, we managed to increase our RPU quarter on quarter by 9% on the back of 15% sequential growth in usage. It suggests that our effort to improve the quality of our subscriber base has exceeded. Going forward, the consolidation of the Golden Telecom business which is comparable in size with VimpelCom’s operations, will substantially help to strength our position in the Ukranian telecom market. In Armenia, our turn-around efforts have started to pay off. Our sales and marketing push resulted in an 18% increase in the number of active subscribers during the first quarter. We recently introduced our Beeline brand in the Armenian market and further intensified marketing activities which will help to sustain the momentum. Our focus in Armenia will remain on building market share and expanding fixed mobile convergence opportunities. As far as the other markets are concerned, they demonstrated very good dynamics which you can see in the attachments to our presentation materials.

Now a few words about our strategy; strategy outlines long-term commitments of the company; it sets forth basic directions and defines our path to progress; and everything we do stems from our strategy. Acquisition of Golden Telecom was a logical step in realizing this. It opens new areas of growth with broadband as a key element. Now, three months after the completion of the Golden Telecom transaction, we can report that integration is going according to our plan, and we have already made good progress. We have already optimized traffic routing and centralized procurement. We have foreign corporate and mass market sales teams on the basis of sales forces of both companies, rich corporate databases for VimpelCom and Golden Telecom, and already have some cross sales. Jean-Pierre Vandromme the CEO of Golden Telecom is at the heart of this process, and his involvement has been key to a rapid and smooth integration. Jean-Pierre also assumed additional responsibilities for managing the network of the combined company.

So, in conclusion, I believe we had a very good first quarter. With an OIBDA margin of about 50% and revenue growth rate of about 40%, VimpelCom remains a rare example of a large, fast growing, and highly profitable business. The underlying strengths of our core business coupled with new opportunities of an integrated player will provide a robust platform for our future growth. Thank you for your attention and now let me open the floor for questions.

Question-and-Answer Session

Operator

[Operator instructions]. Your first question comes from Herve Drouet with HSBC.

Herve Drouet – HSBC

My first question is regarding Kazakhstan and Uzbekistan. You mentioned in Kazakhstan you are currently experiencing some temporary economic problems; can you tell us a bit more about how long you think those economic problems may last and may be reflected in weaker RPU than what could have been expected before and something for Uzbekistan. My second question is regarding synergies; is it possible to give an update on the synergies now that you have started the integrations; you mentioned initially synergies in the region of $400 million in terms of entity value and on the network; could you give us any additional guidance, maybe on a cross setting or other operational synergies?

Alexander Izosimov

Let me start with Kazakhstan. The economic problems are not ours per se. The whole market is down and I will just illustrate with a few examples. Tobacco companies ran a research and that research indicated that 700,000 of guest workers have left the country in the recent months and this compared to a 50 million population you can see how big the exodus is. We pulled 1500 companies and 90% of them said that they stopped services due to either laying off staff or experiencing economic problems. I recently visited Astana and Astana used to be a buzzing construction site and you see cranes there all over the place; all of them were idle. So, if you look at the overall situation there, the banks basically got overextended and therefore liquidity squeeze hit them hardest and it has been pretty hard lending for the economy. It is hard for us to say how long will it continue and whether we see or not necessity to go deeper on our RPU and price cuts in order to stimulate people to stay online and keep on talking. We hope that actually the underlying strength of the economy is there and Kazakhstan is going to increase dramatically its oil production, and of course, that is supposed to trickle back in, but to say exactly the timing of this would be difficult.

Herve Drouet – HSBC

Would you say it’s a matter of quarters or longer than a few quarters?

Alexander Izosimov

I think it’s really, I mean, I’m not a microeconomist and it would be very difficult for me to give you an exact dating on this one. If you look at the rest of the region of Central Asia, their nature or their problems were somewhat different. It was mainly related to very severe weather conditions during the winter, which led to power outages and food supply interruptions and so on. In many cases actually, UN considers Tajikistan being on the verge of humanitarian crisis. We need to go through the summer, I believe, before it comes more or less back to normal, and as they actually depend quite a bit on hydel power; so bringing back water into running condition might help actually to improve the electricity supply there. Hence, we need to wait and see basically what’s happening in those markets. If synergy is a concern, I would ask Jean-Pierre to give us some light.

Jean-Pierre Vandromme

It is very difficult to put a number on it, but if we go over the synergies, they really fall into 5 big categories; the first one is of procurement. The integration of the two procurement teams is completely done, so every single tender whether it is VimpelCom or former Golden, all goes through the same e-tender process, and vendors are all treated as if it is one company, which it is of course. So there the work is done. So whatever we have foreseen to come up with that $400 million number to end up with savings this year is done and we’re a couple of months ahead of schedule. The second one was the routing of traffic away from other network providers to the Golden Telecom network; for international traffic, that is today all done, so 100% of the international traffic already runs over the former Golden network. As far as Russian long distance or Ukrainian long distance traffic is done, that is finished about 80%, the reason for that being that network of Golden itself has to be beefed up. We expect as the weeks go by that in the next month or two that that is going to be probably not 100%, but 95%. The next component was network; the joint construction or construction of long-distance cables, the network is now being planned as one network already. There are a number of long distance cables that Golden was planning to construct that have been canceled because VimpelCom already had cables along these routes. As far as the core rings in different cities was concerned, that was planned by VimpelCom to connect its 3G network and base stations, all of these have been integrated in the FTTB construction plans of Golden and that’s also one network already. So that’s on the cost savings part. As far as lost sales is concerned, we have registered the customer bases of both companies to see where the overlaps are. We now know where the cross-selling opportunities are. The sales forces are being cross-trained, and in the B to B segment, cross sale has started, but before we see the real results of that, it will probably be Q4 of this year because sales cycles in the B to B segment are by definition low. As far as B to C is concerned, we expect cross sales of the FTTB services into the Beeline customer base to start somewhere, either end of Q3 or beginning of Q4. Overall, I would say that we are definitely not behind our own fairly aggressive plans.

Alexander Izosimov

I guess I can make one addition to this which is anticipating further questions around this, how much? And the answer to that is that it actually doesn’t matter because the most important thing that we intend was capturing this plus other efficiency measures to bring our integrated margins to high 40s in the space of 18 to 24 months. Hence we’re saying that absorbing all of Golden’s volume will bring it to roughly the same level of margins as we had before.

Operator

Your next question comes from Sergei Arsenyev with Goldman Sachs.

Sergei Arsenyev – Goldman Sachs

This was my question about the margins; I was actually wondering if you could talk a little bit about the mobile margin specifically. You used to say that your target mobile margin is in the range of 45% to 50% and if it goes significantly beyond that it attracts competitors and the regulators. In the first quarter you were at 55%. Does this worry you? Do you think this will attract the regulators and then competitors, and will you manage the margin down purely in the mobile segment and by some revenue growth with the decrease of this margin in the remaining quarters of this year? And the followup question for Jean-Pierre is whether he can give us the breakdown of the broadband subscriber base between Moscow and the regions.

Alexander Izosimov

Let me tackle the margin question first. I think it’s a question which needs to be taken a bit broader. I know that it is not popular to answer on the Q&As kind of in the long winding fashion, but nevertheless, I’ll use this opportunity. First, we will be looking upon ourselves as an integrated player, and that’s a very important shift in our mentality, and when you have this approach, you manage the overall margin and you might want to balance in a different way between the different segments because you will have actually increasingly more revenues which will go for the [eliminations] and more cost which is shared and then it becomes a question of allocation which impacts margin. So, we will manage overall margin and that’s why I am saying comfortably that we are targeting high 40s.

Second, when we’re talking about targeted level of the margin, we’re saying in the mid to long-term. And we were always saying as well that in any given quarter it can go either up or below certain quarters. Therefore, I wouldn’t take extrapolations coming just out of one data point like single quarter when we have these margins and therefore that’s what you are going to have because it’s not going to be true.

I also would like to give a little bit of color what happened in the first quarter, and I think in the script which you heard when we were talking about the loan, just imagine the management’s feelings when we are going into a $4.5 billion deal which is the largest in the telecom space in the CIS and you go in the midst of financial crisis. You are going into the deal and you are taking $1.5 billion in short-term loan which you have to refinance reasonably fast because there are also a lot of covenants attached to that bridge facility which would restrict us in what we can do, and hence given all this we were very very cautious, what we can afford to do and what we will be willing to do in the first quarter before we acquired a comfort that we could raise that bond which we did in May. We placed a $2 billion bond, and now it’s a completely different feeling. So, it’s a bit of a very short-term reaction by the management and sort of conscious or subconscious effort of restraining ourselves on how we behaved on the market, both in terms of pricing, and certainly in terms of marketing activities and the pressure exerted there. Going forward, we’re going to bring these margins to a more normal basis, but again, we will be balancing between the two trying to find optimal combination and certainly not to be read more letter for the boo, i.e., kind of disturbing the regulator with very high numbers, but high 40s I would feel very very comfortable with.

Sergei Arsenyev – Goldman Sachs

And paraphrasing your answer, does this mean that you’ve stepped up the marketing activity in the second quarter already and you are much more comfortable with the business overall and with the way the integration is going that you have started spending more and consequently presumably we can start expecting an increase in revenues on the back of that and the revenue growth rate rather.

Alexander Izosimov

I think that the lead time is a bit longer, right? So even if we have increased and we’re just ramping up, shall I say this, because again when we completed the bond placement only in May, and so we have very little time pass between that. We’re ramping it up, the revenue benefit, of course we’ll see the seasonal effects which are coming through regardless of what we do, and the true competitive move you will see probably towards the end of second quarter and more in the third quarter. So, that’s how I would read it.

Jean-Pierre Vandromme

As far as the distribution of the broadband customers is concerned, I will give you the distribution of the FTTB customers, the fiber-to-the-building customers, that’s 77% is in Moscow, 14% is in Petersburg, and 5% in the rest of Russia which follows more or less the trend of the timing that the network has been constructed; so the oldest network has most customer penetration and the youngest network is the ones where you have the least penetration.

Operator

Your next question comes from Alex Wright with UBS.

Alexander Wright – UBS

I just wanted to follow up on one of Sergei’s questions, which is on the timing of the step up of marketing which you have already answered. Just following on from that, can you give us any further detail on how you intend or how you are stepping up those marketing campaigns? You said already that you intend to maintain fairly stable pricing levels or similar wording to that effect. So, could you explain, is it more on the advertising spending, is it dealer incentives, is it some pricing elementary; if you could give us any further color on how you are addressing that please, that would be great.

Jean-Pierre Vandromme

We believe that conservative pricing policy is very good for the market and we would like to act according to all that. So it will be some price moves, but we don’t want to provoke competition and we want this market to be healthy because we see some clear examples, and an example is the Ukrainian example where operators were left to price wars and the whole market was destroyed. So, we don’t want this to happen to the Russian market. On the other hand, we would like to step up on marketing pressure by working more actively with the dealers. We’re already having some additional simulation progress with the dealers and with the personnel of the dealers. We’re developing new distribution channels in Russia and we’re increasing marketing activities.

Operator

Your next question comes from Dalibor Vavruska with ING Capital.

Dalibor Vavruska – ING Capital

I think I would like to follow up on the questions that have been discussed before. Basically I understand that you slowed down your marketing activity for the reasons that you explained, but I just wanted to ask about the market share targeting because it appears that obviously you kept your prices stable whereas your main competitor has been decreasing their prices over the last couple of quarters and hence you seem to have lost some market share on the revenue side, and now you are saying that basically you are going to invest more in advertising or dealer commissions, but I wonder, do you think that you can reverse the market share trend that we’ve seen in the last quarter and the last two quarters by simply doing that or by avoiding the pricing because it seems from the data that actually the players who are reducing the prices are gaining share. And the second question I may have is on the fixed line side of the business, I just wonder, there can be some major events such as the CIS investment privatization and some restructuring in the industry. I wonder just from a very general top down point of view how do you see the broadband market in Russia shaping up, and were some of these events important or relevant for you, and is there anything that you are worried about in terms of what the competition might do or how the situation might play out and what sort of scenarios would be more favorable for your business?

Alexander Izosimov

I think that when we talk about market share one has to be very careful, and I am not going to pretend that we know all the answers or we can precisely predict the behavior of the market and sort of plot our market share there. To be frank we were a bit surprised by the jump which has been shown by our competitors which is contrary to all the historical data. So, we’re yet to understand what is the true driver there; however, I think that at the moment we also need to bring into consideration not only revenue market share but also EBITDA market share and that’s where we need to find kind of a longstanding balance because the danger is that when market at the high point of saturation, and we saw it in many markets, if you engage into market share fights with diminishing returns, and you start essentially decreasing the value of the whole market. It’s certainly what we want to avoid. And one of the reasons of our increasingly talking about shifting gears, or if you wish shifting the gun fights, and looking more at broadband opportunities is exactly this. My ideal scenario would be to protect the market share on the mobile space with the minimum possible investment out of the margin and draw it very heavily the speed of the penetration on the broadband and capture market share there. That would be the ideal strategy. Of course, life is complex than that and one can have ideal scenarios as much as one likes and it would depend a lot on the competitive environment anticipating or sort of following onto the second question, I would ask Jean-Pierre to comment on the evolution of the broadband market.

Jean-Pierre Vandromme

If we look at the evolution of the broadband market and you look at what analysts are predicting, by 2012, which is in 4 years from now, two-thirds of the Russian population will have PCs at home, and a little bit over half of them will have broadband. So that means that there is still an unsatisfied demand of nearly a third of the market at that moment. So, the upside is huge. The reason for that we believe is that even by 2012, that there is a fair chance that not everybody will even have the possibility to have broadband. So, to say that the Russian broadband market is [inaudible] ability than of need. As far as the competitive environment is concerned, if we look competition today, more than or nearly half of all existing broadband customers in the Russian Federation takes their services from what are called home networks, which are literally thousands and thousands of small components that in many cases have anywhere from a couple of thousands to maybe 10,000 or 15,000 customers. I believe that longer term, these smaller companies are going to be either absorbed or simply disappear and that in the broadband space that you are going to end up in a landscape like we have today in the mobile market where you have two or three or maybe maximum four large players that dominate the market completely, and we believe that with the program that we have to roll out FTTB networks at a fast pace combined with the HSDPA rollout, the 3G rollout, that we should be one of the biggest beneficiaries of that uptake, do I don’t know whether that answers your question.

Nikolai Pryanishnikov

Just one addition on that, Svyazinvest company clearly have some big market share in the region and we believe that we can be very competitive competing with them because we will offer higher speeds; they are right now using DSL technology, and also in terms of customer service and bundle package with cellular services, it will be a very competitive strong package on the market.

Jean-Pierre Vandromme

Let’s not forget that once you are outside of Moscow and St. Petersburg that there are really only two companies that are today in the process of either building or offering broadband services; one is ourselves and the second one is Svyazinvest company. Other than that the only providers that you have are very, very small, as I said very, very small home networks. There is no nationwide player other than Beeline and if you consider Svyazinvest as one company, Svyazinvest.

Operator

Your next question comes from Kay Turner with Citigroup.

Kay Turner - Citigroup

There were reports from the market about MTS’ interest in Smart, and are you interested in this company?

Alexander Izosimov

We’ve been saying that strategically yes, that strategically consolidation of the Russian operations would make a lot of sense; however, in that particular circumstance, or in general when we talk about consolidation, it’s certainly not a must have asset, and therefore, it’s a matter of price, matter of ability, matter of structure of the transaction, and the risks associated with this. And in that sense, we’re interested but to some extent. If MTS is willing to pay what price has been reported in the press, I think they will be acquiring the asset. And frankly speaking, I don’t mind that at all because anybody of us three consolidating the market is a good news for the rest, because that would be just more disciplined behavior and less unpredictability in the regions where Smart operates.

Kay Turner - Citigroup

And the other question, if Svyazinvest at some point decides to spin off its mobile business, could that also represent an interest for you?

Alexander Izosimov

Absolutely. One has to understand that actually acquiring mobile asset, mobile business, where you already have your own operations, it means that you are acquiring revenue, and EBITDA at that point in time becomes less important because you almost overnight, figure of speech, transfer this from the old base into your own cost structure and therefore improve EBITDA and create scale. Hence, if it were to, for example, comes for sale, that’s a fantastic asset, and of course we would be interested in buying it.

Kay Turner - Citigroup

Last question; could you please comment on your other investments in Vietnam, just the size and timing.

Alexander Izosimov

The size, it’s easy to comment, it’s zero at the moment. Timing is more difficult because that was the only case when we broke our promise to ourselves never disclose unfinished transaction, but because it’s been politically driven, so we had to disclose it and hence now we have to update all the time. We do negotiate and the negotiation is progressing; so I believe that eventually we rather likely than less likely are going to end up with participating in a joint venture in Vietnam. However, the process turned out to be lengthy, as expected, and with multiple iterations which are explained by the absence of the regulatory framework. We are essentially being a guinea pig who creates a new way of setting up operating joint venture in that country. So, I cannot unfortunately tell you, I can tell you that it’s probably soon, but on the other hand they said soon probably when we were on the fourth quarter call. So, I am probably not a very good guesser in this particular case, but it is progressing and it’s rather likely than not that it will happen.

Kay Turner - Citigroup

Okay. And would you be looking to take a controlling stake in the venture?

Alexander Izosimov

If it would be possible; currently it’s not possible due to the legislation, hence we will be a minority, but the idea of the discussion and the idea of the principal agreement which was signed with the Vietnamese Government is that we run the operations and when the opportunity is there that we could find a path to control we should be granted that opportunity. That’s the idea of what we’re discussing there.

Kay Turner - Citigroup

I am sorry, but this is really the last question. [inaudible] just recently commented on their plans to go and expand in China in the mobile business. What’s your view on these? Can you comment about this being an opportunity for your company as well?

Alexander Izosimov

When you talk about the market of China, clearly that’s a holy grail for any mobile operator, and to the best of my knowledge, there are no opportunities there. And I visited China, I discussed it with the regulator, I met with all the Chinese operators; now when they announced the structural changes in the industry, it became a little bit clearer what’s going to happen there, but I still don’t see what are the opportunities there unless there are some substantial changes or some things which we are not aware of. So from that perspective, if you look at the large market, yes it is attractive, and like in India, pricing in China is at a reasonably high level. India, I would find very difficult to succeed at this stage. Even if the penetration is low, pricing of 2 to 1 cent per minute makes it prohitably low cost, at least for our business model. So, it’ll be challenge actually for anybody who enters now. China would be a completely different story, but I don’t see how it is possible at the moment for us.

Operator

Your next question comes from William Kirby with Nevsky Capital.

William Kirby – Nevsky Capital

Thank you for breaking out SG&A into sales and marketing and G&A expenses. How should we be thinking about sales and marketing for the rest of the year, I mean, it was 9% of sales in Q1 ’08, should we be expecting sort of 10% or near 11% of sales in the future? And also, if possible, could you give the split of SG&A in 2007 between those two categories please.

[Unidentified Male Speaker]

To begin with, on the marketing piece, we said on previous calls that our overall target in a quarter for spending on marketing is between 4% and 5% of revenue, and when you include cost related to dealers, somewhat below 10% in Russia and around 10% in the CIS. We will continue to think that that’s the right range for us going forward. We’ll have to relook at that again as we fully absorb the consumer businesses of Golden and look at how that will affect our total, but from a mobile standpoint we would see it being the same and not really escalating from this point. I would just note that often in the first quarter because it’s a lower revenue quarter because of seasonality, the amount that’s spent on dealer commissions often will drive that to the upper end of the range, but that shouldn’t be indicative of what’s going to happen for the entire year.

William Kirby – Nevsky Capital

Okay. Thank you. And the 2007 split?

Elena A. Shmatova

If you will send this question by email, we will provide you with this.

Operator

Your next question comes from Olga Bystrova with Credit Suisse.

Olga Bystrova – Credit Suisse

Two questions from me; one is on the fixed line business, I am sorry if I missed it and you talked about it, but can you update on the progress of the residential broadband network rollout, what are your targets for household cost for this year because I think the progress here today is a little bit different from what you have been discussing or talking about potentially previously. And the second question on the fixed line business is given that you don’t provide any more breakdown or numbers for corporate contract, could you elaborate quantitatively or qualitatively where do you stand from this point of view in the first quarter. And the second question on the overall conversion business; last time you had been saying that you have identified certain revenue synergies, but you weren’t ready to elaborate more quantitatively on those; I was wondering if you could do this now; that would be very helpful.

Alexander Izosimov

As far as the rollout is concerned; one, you have to take into account that the Q1 is the bad quarter for building fibers; you cannot build fibers when the temperature drops below 10 degrees. So you always have a slowdown in the first quarter. What you then see is that in Q2 that usually picks up very fast which is what we see now, and in fact if we compare end of Q1 with where we are now, which is two-thirds into the second quarter, we have built in the second quarter to more buildings than we’ve done in Q4 and in Q2 together. So that probably gives you a bit of an idea. So in total we have done something like 680,000 flats in the second quarter until now. As far as targets for the end of the year are concerned, we have no particular targets for the end of the year; what we do have is potentially the expansion of what the original Triple 65 plan to go to more cities faster than we were originally planning to do. I am not in a position to disclose what we plan to do and to how many building and how many cities we plan to go in Russia and in Ukraine yet. As far as corporate customers is concerned, I am going through the data over here; if I look at the number of clients, I have them only broken out per category between more than 50,000; so they have apparently not been totaled up, but if you send me the question by email, I will send you the table over. And the third part of the question was on FMC, I believe, can you repeat that one?

Olga Bystrova – Credit Suisse

Thank you very much. I will send you the question first of all. And then the second question was on the potential quantification of the revenue synergies; if you are ready to talk about it now, because in the fourth quarter you’ve only made qualitative statements, so I was wondering if maybe you could talk a little bit more about it today.

Alexander Izosimov

Olga, I don’t think that it would be our practice to give kind of anticipated answers on the revenue. We described the nature where we’ll be looking at, but we certainly are not going to refer to guidance on that.

Olga Bystrova – Credit Suisse

Okay. Well, that’s fine. Thank you very much.

Operator

Your next question comes from Alex Kazbegi with Renaissance Capital.

Alex Kazbegi – Renaissance Capital

My first question would be on your Russian mobile subscribers. I think April was the last month we were told the subscriber numbers and clearly you have a very sort of warning trend probably over the subscriber outflows on a monthly basis which cannot be any more explained by the move to the 3-month disconnection policies. So, the question is, first of all, do you think that could explain one of the reasons why, for instance, MTS’s revenues in Q1 were strong in Russia while yours fell and theirs went up. And related to that question is that you said that you will obviously be switching on the marketing gear. Would you be addressing this issue specifically, if you will, again, any sort of direction here in terms of is it going to be more in terms of dealer subsidies, anything related to this will be very helpful.

And the second question, although this is sort of a sub-question is to Jean-Pierre, again, following up on the previous order question, wanted to know a bit more on the outlook for the business and the corporate services and also the operator’s business for Golden Telecom; the Q1 pretty much saw the continuation of the trends of 2007, i.e., the business seems to be going very strong, but we clearly see the competition sort of increasing in this space, you know, Comstar now got the long distance license and so on and so forth. So, basically, would you see this business growing in the same pace as it was until now or do you think these two business lines will flow down the growth going forward?

Also, related to the same thing, I was wondering if without giving specifics targets on the FTTB, but again, out of your 500,000 plus subscribers, less than 10% comes from the regions which we would expect to pick up at some stage; so where do you see this inflection point, where do you see these 500,000 subscribers are getting into really meaningful numbers; is it 2009, is it more towards 2010, what is your gut feel here? And the last one, I just wanted to find out what’s happening with the TV, mainly with the DVB-H license which I remember you were testing already 6 months ago, but we haven’t heard any update on that. So I was wondering whether this is all shelved or anything will be happening on this front as well. Thank you very much.

Jean-Pierre Vandromme

Let me start with the first one; on the Russian subscribers, yes we were on the level of 42 million active subscribers for some period of time and as we explained we were conservative in the beginning of the year and right now we want to step up marketing pressure. You need to understand that in general, markets are in situation phase. So, it will not be some really big growth opportunities; however, we would like to increase some pressure and win some parts of the remaining growth of active subscribers in Russia, and we have the plan for doing that, but mainly with programs of stimulating dealers and marketing action.

As far as the outlook of Golden is concerned, this is of VimpelCom today, I think on the previous conference call of Beeline we said that we would not give any forecast and that sounded like a little bit like what you did previously when I was still CEO of Golden, the same question and getting no for it and asking it again in another format. The answer is still no Alex. Overall, what we’ve seen is that the revenues of Golden in Russia have grown with 61%. I believe that that was the strongest quarter that we have ever had as far as topline growth is concerned. The B to B segments have grown with 45% and that is not withstanding the fact that we lost about $2 million in revenues which were in the [deferred] and which are now no longer being recognized. So we grow about two times the market rate. All say we’ve built 60% and average retention is 300%. If you back that up, it is highly unlikely that in the wholesale we’re going to be able to keep growing with 60% logically speaking with the market share that we have today, we should not be growing faster than the market, but on the contrary than the reservation market we’ve just seen that’s a B to B market, the B to C market is still highly underserved. So, I see no immediate reason why it would slow down, [that is in absolute] numbers over there.

As far as the B to B market is concerned, yes Comstar has its operator license; so they will undoubtedly recognize long distance revenues which in the past went to [MCP], so that should increase their revenues quite substantially because that certainly means that their market share increases if we see to where the biggest gains in market share in the B to B market that we have, that’s really twofold, that’s the large corporates that move into the region where Comstar is not present and the second one is the FME segment where Comstar is really the absolute incumbent, that’s still the segment where they have 70%-80% market share, and it’s only now with the FTTB network covering Moscow completely that we finally have access to these customers. Without answering your question, it gives you a bit of a flavor of where we are.

As far as the B to B customers in the regions is concerned, if we look today at how many buildings are covered in Moscow and how many are covered in the regions including St. Petersburg at that moment, the total amount of buildings, not flats, you have to multiply that by 105, what I cover today is about 22,000 buildings in Moscow. If I take St. Petersburg and the other regions together, that’s about 16,000 or 17,000, and the uptake in Moscow is today about 8 times larger than it is in the regions and that simply has to do with timing. We’ve seen that in Moscow also, we’ve seen that in districts in Moscow; you set up a building, the first 3 to 6 months penetration is about 3% to 4%. In the next 6 to 12 months, penetration goes up from that original minus 5% to the 15% and 20% range. So, I would expect as buildings come online outside of Moscow that in the next 12 months that we should start to see some meaningful numbers from the region. As far as the DVB-H license is concerned, I will leave that to Alexander.

Alexander V. Izosimov

We actually have now, when we acquired Golden, we now have three sets of TV licenses. We have DVB-H license for Moscow and Moscow Oblast, we have national DVB-T license, and we have IPTV license. So, we will be becoming undoubtedly a major distribution platform actually in those technologies. The technological solution is there and DVB-H is actually broadcasting now in the test regime, I even have a phone which shows TV of pretty good quality on digital picture, and the key issue for both DVB-H and DVB-T is that regulatory framework on how the broadcasting license should interact with the operator license is unclear. The regulatory framework is still in the realm of analogue broadcasting where one broadcaster, one frequency, one channel, and when we’re moving to multichannel broadcasting, that’s a completely different story. So we’re waiting actually for that clarity coming from the regulator, and then we will step up the rollout and we’ll start pushing the product actually to the consumers.

As far as IPTV is concerned, we have announced last week that we’ve signed a major contract with Microsoft and we will be pushing it quite actively for all the customers of Corbina and Golden who subscribe to fiber.

Jean-Pierre Vandromme

And that product is no longer in test mode, there are 5000 active customers on it, so the testing is done, the product works, the processes work, the pricing works; the only thing that was missing to start actively selling was the contractor and the license. So, that’s one that happened a couple of weeks back.

Alex Kazbegi – Renaissance Capital

Could you share with us of the 5000 active subscribers, what is roughly the pricing and the RPU you are getting out?

Jean-Pierre Vandromme

I will send that by mail, I will get that back to you by mail Alex.

Operator

Your next question comes from Yevgeny Golosnoy with Troika Dialog.

Yevgeny Golosnoy – Troika Dialog

I’ve got a couple of questions regarding your broadband plans in the regions. Basically you mentioned that at the present you see main competitor as Svyazinvest, but for example the second largest in this country provider of long distance channels Trans Telecom has recently discussed its new retail strategy, and they are saying that they are planning to go very heavily into the last mile regions where they already operate. They say, we’ve got the channels all over the country, so basically that no one can beat us on tariffs on broadband because we have channels, so our prices in the last mile can be sort of very, very competitive, and they outlined the amount of investment at roughly $1.5 billion over the next 3 years. So my questions really are, how much for example, are you planning to invest into the broadband segment in the regions over the 3-year horizon, and do you an advantage in having or not having all long distance channels. And the followup question, roughly what’s the percentage of channels you own and the percentage of channels you rent from third parties, because presumably in the past this has been a problem when Golden Telecom went into the regions and you saw the traffic rising, you had to rent channels from other parties and your margin dropped, so what’s the situation here?

Jean-Pierre Vandromme

Let me start with Trans Telecom. I’ve also read what Trans Telecom has announced. If someone is prepared to invest $1.5 billion, that’s certainly a major player, but then on the other hand in the past Trans Telecom has also announced that they would invest in a federal transit network in the long distance license which I believe they got something like a year and a half ago, a little bit later than Golden. Today, Golden has about 30% of the long distance traffic, and I am not sure how much Trans Telecom has today of long distance traffic, but it is definitely less than 3%. So, yes, if someone is prepared to invest that amount of money, then I assume that he wants to have some returns on it, but if you look at the amount of investment, you have to take into account that Golden and Beeline have been operating in the regions for a very, very long time. We have last miles in practically every city of the Russian Federation. We have either cable or microwave to a total of 50,000 or 100,000 different points of presence. We have a commercial presence, a sales presence in all of these regions; building an organization like that, building a network like that comes to you not with a 1- or 2-year effort; that’s a network that has been by both companies going on for more than 15 years. Can you catch up on that even with investments of $1.5 billion? Maybe, only the future will tell us. With that being said, we’re also investing, we believe that we’re probably 2 or 3 years ahead of any competitor and I see no reason why we would not keep that advantage in the future.

As far as the long distance channels are concerned, both Golden and Beeline in the past had already being constructing long distance fibers jointly. We’re now stepping up that effort of course. We now already have fibers that go from Frankfurt in Germany all the way to Yekaterinburg, we have a ring in Siberia, and linking Yekaterinburg with that ring in Siberia. So for all practical purposes, you will be able to go from [inaudible] to Frankfurt on our own cable. There is a spur that goes all the way to Beijing across Kazakhstan. There is another line that goes from the north from Stockholm all the way to the south to Krasnodar and Sochi. So is the network of Trans Telecom more than ours? Yes, but is it more than to the cities that you want to be; today, maybe yes; in 6 months or in 12 months down the road, probably not.

What the amount of channels is that we rent today, that we have ourselves, and that we rent, I cannot tell you that out of heart, but it’s definitely an incremental order of magnitude, 75%-25%, 75% own and 25% rented; so the rented capacity is not that significant. And in many cases, the rented capacity is being used for backup purposes, not as the main link. Simply if you look at the map of Russia and I give you the pins, we have a cable from north to south with every major city on it, and we have another cable all the way through Ukraine to [inaudible], then you will pretty fast come to the conclusion that somewhere between two-thirds and 80% of all the large Russian cities that sit on that cable. So, we have overall long distance cables.

Alexander V. Izosimov

I just want to make one comment. Clearly, the competition will come. We’re not fooling ourselves that we will have this market to our own; however, what matters here is speed; and that dictated the acquisition of Golden Telecom as the answer to do it fast, and actually before that, for Golden Telecom, it dictated acquisition of Corbina because doing it fast provides you with enormous first move advantage. It is a much, much stickier product than let’s say mobile. Hence, having the underlying infrastructure is only half the equation and having the organization and the city rings and so on, that’s another half which I guess many people so far are missing. They will be building it, but it will take them time, and meanwhile we will try to take this time advantage and run as fast as we can.

Operator

Your next question comes from Tibor Bokor with Renaissance Capital.

Tibor Bokor – Renaissance Capital

I have one question regarding Kazakhstan again. Despite the economic weakness, is it correct to see a lot of opportunities in Kazakhstan in fixed line business and perhaps in the corporate business and are you going to tackle these, could you give us some guidance where you are in terms of market share right now in these two segments and how fast you will be growing there, in let’s say 1 year and 3 years.

Jean-Pierre Vandromme

The complication in Kazakhstan is that the law prohibits for an ownership of long distance operations. Hence, it is trickier to operate in there. However, together with our partners with whom we operate in KarTel, we are developing quite extensive transport network infrastructure in Kazakhstan, and that will help us to capitalize on whatever offers we have in Russia, or in Ukraine for that matter, to transfer them to Kazakhstan. This is a bit lengthy a process given that we are in different stages of development; in Ukraine for example, we have every elaborate transport network and a very strong already Golden organization. Golden organization in Kazakhstan is more about its initial phase of development and therefore positioned probably not as strong that we could really compete with KazTelecom there, but certainly, we will be advancing on both FMC propositions, and certainly we will be developing broadband, but I guess it will come slightly at a later stage, and we are not prepared yet to guide you more specifically what impact will it have.

Operator

Our next question will come from Vladimir Postolovsky with UBS.

Vladimir Postolovsky – UBS

I’m sorry to go back to the revenue and market share question, but an important one I think for us because we definitely would want to see your beating your competition in all the markets, and I guess that’s one of the reasons why the market always rated you as the premium telecom operator, so from this point of view to see you losing market share in Russia and Kazakhstan is a little bit worrisome, I mean, I would like you to go with it further to explain a bit more as to why do you think it’s happening, and you sounded a bit surprised that MTS did so well in Q1, why do you think that happened and what can you do, and in particular, do you think that clear predisposition towards MTS is a factor here and likely to be a factor going forward.

Alexander V. Izosimov

That’s a very sharp question and not an easy one to answer in this format. Let me try to give you our current thinking. Essentially we believe what happened, that MTS invested quite heavily in acquiring market share in the dealership chains, and we’ve been reluctant to commit the same amount of money in doing that, and you can clearly see this translating into EBITDA. Would it entirely explain the increase? I don’t think so, but we’ve run our model, and it explains quite a bit but not entirely. So, probably there’s something else in there because dealership network is not going to explain the drop in gross margin for example, and we don’t quite understand what influence that has. To some extent there is price erosion which we were reluctant to exercise, and again, as we vowed two years ago, I still repeat, that we will be to some extent a custodian of that behavior, and we are not going into a knee-jerk reaction. If we continue to bleed market share, of course we will start protecting it. Actually, let me put it differently. We will protect market share, depending on how aggressive our protection measures should be, that aggressiveness will depend on the strength of the attack and the behavior in the market. Currently we hope that it wouldn’t be necessary to revert to more aggressive moves like it happened in Ukraine and we can come to an equilibrium which is not far off, the pricing levels which we are currently having on the market.

Coming back to the original question, what caused that and what surprised us, the surprise clearly came that the translation of the subscriber numbers into revenues were so close. We expected it actually to be a little bit different, a little bit more diluted, and therefore we thought that actually our reserved behavior would yield a bit less of a loss in the market share. However, what it proves is there are no new subscribes on the market, but subscribers still come into the retail and subscribers still can be converted, so at some point in time, we will have a sliver of our subscribe base which will be migrating from operator to operator, and operators will increasingly compete for that subscriber market share shifting element, and that’s where I also believe we need to validate that it is a profitable business at competing in that, otherwise we can be in a vicious circle here competing for the same subscribers and cannibalizing our healthy business and our healthy subscriber business and eroding each other margins, and basically not creating anything. To me this is clearly sort of another illustration of pessimist dilemma and I know I’m sounding like a broken record with this pessimist dilemma, but I think exactly what it is with retail question that whether we should or we should not go there.

Until now I think it was an excellent situation for the operators. We were not investing in the lower margin, high logistic, high complexity business, and we were maintaining our presence towards the market at the adequate share. Lately, the shares started shifting and the retailers started manipulating the shares in a much more efficient way and therefore charging us quite a bit of money for that. If the next step of that evolution will happen and the retail will be absorbed by one of the operators, clearly it will require retaliation, because we cannot imagine that we will be continuing operating in the market where 10% to 15% of the retail outlets actually will be mono-brand while we have to compete in the rest. So, acquisition or real tender process would signify the end of the multi-brand retail as we know it and it will be consolidation in the market.

I think it on one hand will bring again sort of another low margin element to the business, but on the other hand it can protect the margin in the longer run because it will force a different nature of competition which is closer to our current status, the way we compete by brand by product rather than by heavy discounts in the retail outlets. It will be a different challenge to build the traffic through your outlet and so on and make it so visible; it’s a completely different business element, but we might see that evolution going forward. As far as what will happen in the near future with or without Euroset being sold, I believe that we will see us still focussing on integrated business rather than mobile business, and for us it is more important to continue to grow on the top-line as an integrated business and driving as we use among ourselves when we discuss our business. So, to win that discipline you don’t need to be a champion in each and every discipline but you need to collect most points and that’s exactly what we’ll try to do. And, I personally believe that there is much more value creation for the shareholders than competing very heavily for the yellow jersey of the leader in the mobile environment. Settle this, we will be monitoring it very, very carefully because currently I believe the industry is at some sort of a pivotal point. It might develop one way or the other way. It might be more healthy or less healthy or it might require from us different steps, and therefore I would be very careful at how I project the future developments based on just this quarter. I would look much more deeper in the underlying logic of the business.

Vladimir Postolovsky – UBS

Just one followup. I don’t even try to look so far strategically down the road. I don’t believe that MTS will ever buy your asset completely or consolidate it, but clearly there is some sort of a relationship being built there, maybe there are only the liquidity programs in one way or the other, but it looks like if you go into your retailer at the moment, you will find that all the MTS products are upfront, and Megafone and VimpelCom may be a little bit behind on the shelf. So, in this particular situation, does it worry you as one of the leading distributors in Russia? Is that the case or is it just my unpleasant experience in a couple of outlets?

Alexander V. Izosimov

Your experience certainly was unfortunate, but unfortunately it is very representative and it’s true, and Euroset proving to be quite efficient at managing the market share of those who pay for that market share, and they increased prices for that type of management dramatically during last 12 months, and therefore, we basically decided not to engage with them at that level of pricing. MTS does and as a result Euroset delivers on that sales, and they, in a very focused fashion manage this. If there is no vertical integration of the retail into the operators, then the strategy would be actually to focus much more on creating additional channels. Yes, of course, we will compete in [Euroset, Svyaznoy, and Dixis] and all those elements, but we also will be developing and we put quite a bit of effort thinking it through and preparing alternative channels which would allow us to increase our presence and be less dependent on big chains like this.

Operator

Our final question will come from Anna Kurbatova with UniCredit.

Anna Kurbatova – UniCredit

You mentioned that VimpleCom could refuse some CapEx projects in regions where Golden Telecom already has network capacity; could you please update us with 2008 CapEx projection.

Elena Shmatova

For 2008 in Russia we assume that together with Golden Telecom we will invest $1.9 billion.

Alexander V. Izosimov

I would add to this that our intention is where we have the application of CapEx and so on. We will not necessarily reduce the pace as I said the speed of the roll-out in broadband is absolutely essential factor now, but we rather redirect this resource into doing for the same money but much more.

Anna Kurbatova – UniCredit

Recently you mentioned that the total CapEx budget for this year is $2.7 billion; could you reiterate this?

Elena Shmatova

Yes, $2.7 billion including CIS and Russia, and in Russia specifically $1.9 billion.

Anna Kurbatova – UniCredit

And two small questions to Jean-Pierre probably; how many IPTV subscribers you currently have with Corbina and Golden Telecom.

Jean-Pierre Vandromme

Exactly 5000, not 4999 and not 5001, but exactly absolutely 5000 because that was test license that we had from Microsoft; so we could only sell 5000, so it’s with the contract at this time last week and that is being implemented and we can go over it, but today it’s probably the only moment in the lifetime of the IPTV project that any moment of the day I will be able to tell you exactly how much it is, 5000.

Operator

And at this time I would like to hand the conference back to Mr. Alexander Izosimov for closing comments.

Alexander Izosimov

As usual thank you very much for your attention and your questions. If you have more questions, please do not hesitate to contact us and we will be happy to give you all the necessary clarifications and explanations. So with this, have a nice day and good bye.

Operator

And that does conclude our conference again. Thank you all for your participation. Please enjoy the rest of your day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: VimpelCom Q1 2008 (Qtr End 03/31/08) Earnings Call Transcript
This Transcript
All Transcripts