Mobile services

Russia's MTS Boosts Sales, Profits in 2017

MTS, Russia's biggest telco, ended 2017 on a high note, with impressive rates of growth in revenues and operating profits during the final quarter, thanks largely to rising usage of mobile data services in its domestic market.

The operator, which serves more than 106 million customers across Russia and other markets in eastern Europe and central Asia, said revenues climbed 4.7% in the October-to-December period, to 116.8 billion Russian rubles ($2.2 billion), compared with the year-earlier quarter.

Buoyed by sales, the company's operating profit grew 7.2%, to RUB23 billion ($400 million). And while profit attributable to company owners declined 12% in the quarter, it was up 15.6% for the full year, to RUB56 billion ($970 million).

Mobile TeleSystems OJSC (MTS) (NYSE: MBT) derives more than 90% of its sales from the Russian market, where it provides both fixed and mobile services to consumers and businesses. Although nearly all of its revenues come from traditional telecom services, MTS has been expanding into other industries, including software, financial services and event ticketing, and is increasingly focused on digitally transforming its mainstream business. (See Russia's MTS to 'Sacrifice' Connectivity in Software Rebirth and MTS Eyes 'Ticketmaster' Role in Russia After Latest M&A Moves.)

The operator is guiding for a slight increase in revenues this year and stable operating income, excluding the impact that new accounting measures will have. It has also said it will spend approximately RUB160 billion ($2.76 billion) over the two-year, 2018-19 period, exactly the same amount it spent in 2016-17, as it makes improvements to its 4G networks and continues to invest in digitalization.

In comments on the profitability forecast, MTS said it faced some uncertainty about the "potential optimization of retail distribution" as well as rising labor costs. Earlier this month, the operator told Light Reading that it planned to cut about 1,000 customer services jobs this year and that it was eager to close additional retail stores and expand digital channels. (See Russia's MTS to Cut 1,000 Jobs as AI, Chatbots Arrive.)

MTS had about 69,470 employees overall at the end of 2016 but has been cutting headcount to boost profitability. It had about 5,700 stores at the end of last year, down from nearly 6,200 a year earlier. The future pace of its digital transformation, including the rollout of a new "chatbot" at its customer services business, may determine the extent to which MTS can slash jobs and close stores.

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MTS also gave a nod to 5G in its latest earnings report, noting that some capital expenditure would go toward the "evolution of commercial 5G solutions" and their "introduction into the Russian market." The operator has previously played down its short-term interest in 5G, indicating that it sees little business case in the near future for any major investment in the next-generation mobile technology. (See Russia's MTS: There Is No 5G Business Case.)

Recent results have shown a slight decline in customer numbers across most geographic markets as MTS targets heavier-spending segments of the market with more interest in its data offerings.

Alexei Kornya, who replaced Andrei Duboskov as CEO earlier this month, said MTS had also benefited from a healthier pricing environment and better macroeconomic conditions in 2017.

"We witnessed increasing data adoption and a strong surge in data usage, which when examined in the context of a decline in subscribers showcases our focus on increasing customer engagement and rising ARPU [average revenue per user]," said Kornya in a company statement.

Investors will also take comfort from a reduction in net debt, which fell 2.1%, to RUB216.2 billion ($3.73 billion), in 2017.

The operator's net debt now equates to just 1.2 times its annual adjusted OIBDA (operating income before depreciation and amortization). Most former state-owned telcos in Europe report equivalent ratios of between two and three.

— Iain Morris, News Editor, Light Reading

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