Russia's VimpelCom Doubles Q1 Profits

Russian operator reports 117% jump in profit following acquisition of Golden Telecom, and buys remaining 49% stake in Corbina Telecom

June 4, 2008

3 Min Read
Russia's VimpelCom Doubles Q1 Profits

Vimpel-Communications (NYSE: VIP), Russia’s second largest operator, more than doubled its net profit in the first quarter, during which it completed the acquisition of fixed-line service provider Golden Telecom. (See VimpelCom Reports 1Q08.)

In its quest to become a converged service provider, the mobile operator is also buying out the remaining 49 percent stake in Golden subsidiary Corbina Telecom it doesn’t already own. (See VimpelCom Buys Rest of Corbina.)

VimpelCom chalked up a forecast-beating 117 percent year-on-year increase in net income to $601 million, on a 47 percent growth in revenues to $2.11 billion. Analysts had forecast net income of $426.9 million on revenues of $2.13 billion, according to Reuters.

The operator, one of the top carriers in emerging markets by revenues, ended the quarter with 52.3 million subscribers in Russia, Kazakhstan, Ukraine, Armenia, Tajikistan, Uzbekistan, and Georgia. (See Top Ten: Emerging Markets Carriers.)

Its mobile operations in Russia saw increased pressure from larger rival Mobile TeleSystems OJSC (MTS) (NYSE: MBT), and subscribers dipped slightly from 42.2 million in the fourth quarter to 42.1 million. Mobile revenues were down $27 million from the previous quarter, but the addition of Golden Telecom’s fixed-line revenues in March brought in an additional $132 million.

VimpelCom had completed the $4.3 billion acquisition of the carrier at the end of February. (See Vimpelcom, Golden Complete Merger and Russia's Golden Goes Out With a Bang.)

Golden Telecom's revenues in Russia during the full quarter were 61.37 percent higher than a year ago, at $376 million, of which $24 million came from its 530,000 broadband subscribers.

Golden Telecom and Corbina Telecom, which will be brought under VimpelCom’s “Beeline” brand, are rolling out a DSL and fiber-to-the building (FTTB) network in 65 cities in Russia and the Ukraine. (See Golden Boasts Broadband Success.)

VimpelCom, through Corbina, is also preparing to offer IPTV services in Russia and the Commonwealth of Independent States based onMicrosoft Corp. (Nasdaq: MSFT)'s Mediaroom. (See Microsoft Powers VimpelCom.) Corbina has been running a limited service with a capacity of 5,000 users on a test license from Microsoft, Nikolay Pryanishnikov, VimpelCom’s executive vice president and general director for Russia, told analysts on a conference call.

With the Russian mobile market still growing but close to saturation, VimpelCom is not only moving into fixed-line services, but it’s also looking to expand abroad. (See Top 10 Emerging Mobile Markets 2007.)

It’s currently exploring a GSM joint venture with the Vietnamese government, although CEO Alexander Izosimov said on the call it’s slow-going with that country’s lack of a regulatory framework. (See VimpelCom Forms Vietnam JV.)

“We’re essentially being a guinea pig who create a new way of setting up an operating joint venture in that country,” he said.

Russian conglomerate Sistema JSFC (London: SSA), the parent of MTS, has already expanded into India and is talking about its desire to enter China, but Izosimov was cautious about opportunities in both markets.

On the Chinese market, which is about to undergo a full restructuring, he said: “Clearly that’s the Holy Grail for any mobile operator,” but although he’s visited the Chinese operators and spoken to government officials, “to the best of my knowledge there are no opportunities there… unless there are some substantial changes or something which we are not aware of.

“India I would find very difficult to succeed at this stage," he continued. "The pricing of 2 to 1 cents per minute makes it prohibitively low cost, at least for our business model -- it will be a challenge for anyone who enters now.”

— Nicole Willing, Reporter, Light Reading

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