Golden Plans Further Buildout

Russian competitive carrier Golden Telecom Inc. (Nasdaq: GLDN) is planning further network construction in a bid to reduce its reliance on incumbent operators, CFO David Stewart told an earnings conference call yesterday (see Golden Telecom Reports Q1).

The operator's revenues continue to blossom -- the first quarter's revenues of $133.2 million are a 70 percent year-over-year improvement. Management believes the best way to boost its margins in an increasingly competitive market is to deploy more of its own infrastructure and cut back on payments to other infrastructure owners.

"We're looking to reduce payments to incumbent operators for things such as numbering capacity, intercity network, and the termination of intercity and international calls. That's how we can boost our margins. Building a fiber link [from Moscow] to Nizhny Novgorod is an example of how we can do this," said Stewart (see Golden Telecom's Fiber Handshake).

Golden already has its own link between Moscow and St. Petersburg, and has built metro Ethernet rings in those cities, as well as fixed and wireless broadband access infrastructure (see Russia's Golden Opportunity).

Network construction requires capital expenditure, however, and at present the operator is not planning to spend any more than its current guidance for the full year of $85 million to $95 million, based on its revenue guidance of between $510 million and $530 million. However, Stewart admitted that following the first quarter's "very pleasing" figures, that guidance "looks a little conservative." Capex would rise with revenues, he added.

Much of the first quarter's capex of $25.9 million was spent on network upgrades related to increasing customer numbers, especially in Golden's core market of business users, which accounted for $72.9 million of first-quarter revenues, and wholesale operations, which brought in $45.7 million. It's also been splashing out on some vital software (see Golden Expands its MIND and Intec Wins Golden Deal).

But while Stewart is pleased with the current figures, investors are not as happy, as the share price fell yesterday from $29.20 to $25.48 (12.74%). Revenues may be up, but net income, at $14.7 million, is down from the previous quarter's $18.2 million (from revenues of $111.3 million).

The drop in profits is mainly due to an increase in costs associated with recent acquisitions; and with less cash to hand, Golden didn't follow last quarter's special dividend with another investor windfall (see Golden Telecom to Buy Comincom and Golden Telecom Buys Sibchallenge).

— Ray Le Maistre, International Editor, Boardwatch