Mobile TeleSystems PJSC (MBT) 2003 Q3 法說會逐字稿

Welcome to the Mobile TeleSystems third quarter results 2003 conference call on the 2nd December 2003. Throughout today's recorded presentation all participants will be in a listen only mode. After the presentation there will be an opportunity to ask questions. If any participants [Operator Instructions]. I will now hand the conference to Mr. Andrey Braginski. Please go ahead, Sir.

Thank you and welcome to MTS third quarter 2003 announcements. By now, you should have received by mail a copy of our financial results press release. I encourage you to also download the management presentation which can be found on our website www.MTS [indiscernible].com in the investor relations financial report section. The forward looking statements made during this conference call will reflect the opinion of management as of the date of this call. Please be advised that developments subsequent to this call are likely to cause these statements to come outdated with the passage of time. We do not intend, however, to update the guidance provided today prior to our next quarterly conference call. Our presentation today consists of Vassily Sidorov, the President and CEO of MTS, Mikhail Susov, First Vice President, [indiscernible] Vice President of the Company and Nikolay Tsekhomsky, MTS Chief Financial Officer. Following the presentation we will turn to question and answer session in which you are welcome to put any questions you may have to the MTS presentation team. Now I would like to hand over to Vassily Sidorov, the President and CEO of MTS.

Thank you Andrey. Good morning and good afternoon, ladies and gentlemen. I would like to start off by giving you a rundown of what's been happening recently at MTS. As you know there has been management change with myself coming into the position of President and CEO and several appointments also having taken place recently -- the appointment of Mr. Nikolay Tsekhomsky as the Company CFO was fairly recent, although related to a period earlier than Q3.

We just had another appointment of a new CIO which we're going to be announcing in the next couple of days and there will be more people coming into -- joining the team and strengthening the team going forward which is in line with the strategy of the Company to remain our leadership position in Russia. And the CIS in particular the two biggest markets of (indiscernible) are Russia and the Ukraine. To further expand into the regions of Russia through both acquiring companies as well as rolling out greenfield operations of consolidating ownership in the [indiscernible] countries wherever we feel that this is necessary to enhance our -- the manageability of these companies and to increase the transparency of corporate governance at these companies. To integrate our regional acquisitions and our regional activities into a single set of corporate standards and single set of management mechanisms, all of which obviously will yield and is yielding or should yield a positive results for the Company and enable us to cope with the growth of the Company's business by being also internally prepared for this growth and from the point of view of the management control mechanisms and procedures set within the Company.

At the same time, obviously, this goal has always been combined by the Company with a focus on profitability levels and the soundness of our financials of the Company and orientation towards generating or being careful in terms of how much cash flow we generate for the shareholders and how we can combine ongoing returns for the shareholders with the [indiscernible] CapEx requirements and acquisition requirements.

In the third quarter of 2003, we continued to deliver on the strategy and performed in accordance with the strategy. We -- in this quarter, we grew our subscriber base by a record 2.5 million customers, which brought us to a total of 8.6 million in new subscribers year-to-date. Our market share in Russia is currently at 37 percent and 48 -- 45 percent in the Ukraine as of that's actually as of the end of the quarter -- the end of October 31st -- at the end of October. As far as the regional expansion we have during Q3 we launched two new regions [indiscernible].

We also managed to complete several acquisitions which were of significant importance. Of the new acquisitions they primarily related to the Volga, Siberia, and Far Eastern regions of Russia and the names of the Company you may have already heard the [indiscernible] telephone Astakhan Mobile [indiscernible] Mobile which significantly increased the MTS's licensed footprint in those key regions. Also we have in two cases decided to increase our majority stakes up to supermajority and up to 100 percent particularly by acquiring 47 percent 47.3 percent in Kuban GSM and 46.7 in Uraltel. And again, as I've said we think that it actually helped us enhance the manageability and transparency of these operations to MTS.

We also acquired an additional 16.3 and the last actually said 16.3 the remaining stake in IEMC (ph) hence consolidating 100 percent of UMC into the financials of our Company. As far as integration of subsidiaries and marketings integration of subsidiaries, as with all newly acquired companies we've started rebranding and started scaling the single branding platforms over to those new regions and in Q3, particularly, the rebranding of [indiscernible] was executed and the MTS brand was introduced to the local market.

As far as the -- some of the innovations or some of the new product offerings that we launched during Q3, obviously, the genes (ph) launch in the prepaid gene platform launched in the Ukraine was a big success and the Company's subscriber base on the genes platform has been growing dramatically. Also SMS exchange with other mobile operators across Russia has been opened and established.

We are, currently, as I said already said a market leader in Russia [indiscernible] with over a total of 15.24 million subscribers and out of which 12 roughly just under 12.5 are in Russia and 2.8 in the Ukraine. And additionally the 49 percent OJV in Belarus currently services around 405,000 customers. We have over the past months increased our licensed footprint as I've already said and the total territory that we currently -- the current -- the total population currently covered by our licenses exceeds 186 million including 127 in Russia, 49 in the Ukraine, and 10 million in Belarus. And of the 89 regions -- Russian regions -- we're currently we're covered in 76 and 60 we've already commercially launched and in the 16 remaining ones we are expecting to launch in the next several months. This year, we will see the launch of [indiscernible], another key region in -- a key part of the Volga region.

And as far as the -- my colleagues will go into more detail on the financials on some of the more market share and market dynamics related subjects, but one less thing that I guess I would like to mention is that, as you know, 17 percent of our shares are listed and are traded in the forms of ADRs and 5 percent in the form of GDRs. We've had numerous conversations with our shareholders as to the fungibility (ph) of the two instruments and we are preceding in line with the previously announced plans to ensure that the fungibility does indeed take place in Q1 of 2004 and we and hence, the ensuing potential inclusion or probably inclusion of the Mcf (indiscernible) index will also materialize within the timeframe that we previously announced.

At this juncture, I think I'll hand over to Mikhail Susov, the First Vice President of the country company.

(translator) Good evening, ladies and gentlemen. We intend to ensure that during the 2003 the Company has [indiscernible] its growth rates and has been quite successful in implementing business development strategy in Russia and neighboring (indiscernible) market.

The Russian telemarket is built at a rapid pace. The number of mobile users in Russia during the first nine months of the year grew by 14 million people to 32 million.

Due to the well-balanced marketing policy and strong [indiscernible] MTS maintains [indiscernible] position in the Russian telemarket with a market share of 37 percent.

The key factor of the leadership in Russia is the unified [indiscernible] policy, quality and large-scale of operations.

And, overall, during the third quarter, MTS subscriber base in Russia, excluding acquisition grew by a record figure.

By a record number of 1.07 million and at quarter end was 11.34 million.

2.81 million was subscribed to the genes (ph) prepaid tariff plan.

There will be primary source or subscriber growth comes from a mass-market.

However, we also pay greater attention to working with the corporate clients.

Both in the Moscow, where we are the leader in the segment and in the regions.

For the mass-market subscriber, MTS continues to develop the genes (ph) tariff plan line.

In September, incoming mobile calls from the super G (ph) tariff became cost free.

Just recently, we launched new tariff genes [indiscernible] with exceptional low-cost going into [indiscernible] calls.

For the contract subscriber, during December, we will offer our new exclusive unlimited tariff plan which also offers clearance (ph) payments.

I should put out that new tariff offerings always introduce something new to the market hence better segment to subscriber base while the decrease for the segment [indiscernible] is minimal.

[indiscernible] MTS [indiscernible] for Russia grew, from 18.7 in the second quarter to 18 and 8 [indiscernible] dollars (ph) in third quarter which reflects seasonal growth [indiscernible] guest roaming revenues.

Truly in Russia our [indiscernible] high. 12.03 (ph) for the third quarter.

High churn is quite in line with the general market trend and we do not expect decrease in the level this year.

In the Ukraine, MTS's subscriber base in the third quarter increased by 503 (ph) dozen (ph) people. to 1.55 million.

For the first time in several years, UNC (ph) became the market leader in the Ukraine with the market share up 48 percent. (indiscernible) And in Russia ARPU in the third quarter increased $17.8. Accordingly from 7.10 the second-quarter. And the churn rates in the Ukraine substantially lower than in Russia.

Apart from that, we have continued to experience further decrease in churn. From 5.5 to 4.6 percent.

And those are subscriber base groups with 339,000.

And MTS marketshares' substantially increased to 40 to 34 (ph) percent.

Our (indiscernible) dollar for the third quarter was $13.7. Amongst other positive trends of the last quarter I would like to point out the decrease in subscriber subscription costs both in Russia and Ukraine.

This is largely due to the decrease in [indiscernible] commission for the acquisition of the mass-market subscribers.

We at MTS are proud of the brand and the popularity it enjoys in the country's regions.

In line with the policy of transferring Companies to the unified MTS brand, we consistently transfer our brand name to companies of other service acknowledging customer care fully comply with MTS high standards.

Finally I'd like to highlight MTS remains fully committed to its strategy of (indiscernible) its leadership in the markets where we operate.

Please allow me to hand the phone to the CFO, Mr. Tsekhomsky.

Thank you, Mikhail. Dear ladies and gentlemen, thank you for your participation on our conference call today. I am very happy to brief you on nine months and third quarter 2003 financial performance of Mobile TeleSystems.

[indiscernible] revenues for the third quarter 2003 were $722 million US each a 6 percent increase in the same period 2002 and 19 percent increase on the previous quarter.

Revenues of MTS Russia in the second-quarter raised by 95 percent -- sorry 95 million or 19 percent from the second-quarter and were $601 million. The increase is mainly attributable to the growth in service revenues, by almost $127 million. Our Ukrainian franchise contribution to the consolidated revenues was $121 million versus approximately 100 million in the second-quarter of 2003.

Third quarter for IBD was 388 million. An 88 percent increase on the same quarter in 2002 and 19 percent increase on the previous quarter. EBITDA (ph) margin in the second-quarter was 54 percent which is as strong as in the previous quarter.

Second-quarter net income was 156 million, an 84 percent increase in the same quarter in 2002 and 21 percent increase compared to the first quarter. Net income from MTS operations in Russia during the third quarter of 2003 were $129 million compared to $112 million in the second-quarter 2003.

Operations in the Ukraine contributed 27 million to the net income. Net income margin grew from 21 percent in the first quarter -- during the second-quarter to 22 percent in the third.

MTS capital expense share from property, plant and equipment during the second-quarter 2003 totaled $235 million, of which 6 million was spent on the Ukraine. We took total capital expenditure for nine months to 561 million. In addition, MTS spent approximately 17 million on purchasing intangible (ph) assets during the third quarter and 8 million was spent in the Ukraine. The total intangible assets expenditure in -- during the nine months was 75 million.

MTS total debt at the end of the third quarter is equal to $1,390,000,000 while net debt debt is at 800 -- approximately 800 million.

The result of various acquisitions, which you're aware in the second-quarter and in the second and the third quarter, we are booking we're showing right now working capital deficits of 498 million -- the difference from 188 million in the second-quarter. This working capital debt is mainly attributable to two short-term loans which were received by the Company in the end of the third quarter and also to the 300 million forwarded (ph) rate notes issued in August 2003. These [indiscernible] are obviously they are short-term and therefore are increasing total deficit.

I am going to mention, too, that subsequent to the end of the third quarter the Company should (indiscernible) trench of 7 year [indiscernible] of -- totaling $400 million so obviously this deficit was almost completely eliminated.

Thank you and I think we can move to [indiscernible].

Thank you, Nicolay, and now we would like to take questions from the audience.

[Operator Instructions]. Alex Caspagi (ph).

Renaissance Capital. Couple of questions if I can -- clarifying questions actually. First question is that, could you give us the details of your bad debt for this quarter and also the nature of the other expense which you have on the P&L?

The bad debt expense in the third quarter is lower than the bad debt expense in the second-quarter actually. It's around $6 million.

What was the nature of the other expenses which came out of the EBIT line? About 11 million.

That's right. The other expenses mainly contributed by several -- several issues. First of all, there's a nonrecurring expenses. This is -- it becomes several expenses related to M&A particularly [indiscernible] [indiscernible] M&A $2 million. Also there were options, certain options were replaced with cash bonuses, also equal to 2 millions so this is -- two one offs $4 million. In addition to that, the others were also showing Belarus business loss for nine months. This is $2 million write-off. And also telecom, certain other costs related to basically classified as other. (MULTIPLE SPEAKERS)

So some of them will remain recurring in the future?

Very small part -- less than 30 percent.

Next question. Am I correct to understand that since you completed acquisition of UMC (ph) already in the very beginning of the third quarter, your minority interest is mostly other rather than UMC subsidiaries? The UMC would have been just probably maybe one month of impact on the minority interest. Is that correct?

Well, there -- sorry, what was your questions. So your question is whether something else is included in other -- sorry (MULTIPLE SPEAKERS) minority interest.

(indiscernible) about 23 million and presumably the UNC (ph) contribution only eased forward one month of July and the rest is probably the remaining subsidiaries you have.

Substantial -- there is a substantial impact of [indiscernible] in this minority interest because of the [indiscernible]? But still obviously is a piece of UNC which is in this [indiscernible]. This is the biggest part I think is Kuban.

Finally, if you could give us the breakdown of EBITDA margins between the Ukraine and Russia?

Alex, are you asking for forecast?

No I am asking what is the third quarter nine-month breakdown between UMC (ph) and Russia. I believe you haven't disclosed that number. I think you spoke of revenue and net income.

EBITDA margin, yes, of course EBITDA in Russia in third quarter is 327 and it should [indiscernible] in Russia is 328 million and (indiscernible) Ukraine is 61 million.

John Shalimar (ph).

J.P. Morgan. The question I have really for your traffic patterns, and traffic trends, I'd like to know today what your -- what is your proportion of mobile to mobile traffic? How much of that is on net? And can you differentiate between Moscow in the regions and tell us how this is trending and what the implications are, looking forward for your gross margins and [indiscernible] CapEx?

Traditionally the proportion of Internet and local traffic -- 60 percent is Internet traffic.

And this is quite similar for Moscow in the regions.

Okay and this is not [indiscernible] changes recently?

(translator) We tried to (indiscernible) traffic since the Internet traffic has lowered costs for us so then this really -- this part of the traffic is growing.

Just a follow-up -- can you give us what is -- what share of your CapEx this year is related to capacity increases as opposed to coverage and how do you see that evolving for next year?

Well, we cannot generalize, unfortunately, here. It very much depends on the region. The regions we're just entering, it's obviously mainly coverage, the regions where we have [indiscernible] that's only mainly for example is mainly capacity as opposed to like almost 100 percent capacity.

You don't have a rough breakdown for this year?

Unfortunately, this is not a ratio we're using because we manage region by region rather than general network in total. It's generalizing, overall, it will not help.

Alexei Yasavitsky.

I am an analyst, I am from the [indiscernible] and I have two questions if I may. What was your roaming revenue in the quarter and can you provide us ARPU and [indiscernible] your gene subscribers for the second and third quarters of this year? Thank you.

Roaming revenues in Russia are equal to $34 million. Compared to 28 million in the -- it was -- sorry to third quarter roaming revenue 34 million compared to 28 million in the second-quarter. And in Ukraine, it's 16 compared to 10. Mr. Susov will take the second part.

(translator) All the (indiscernible) subscriber for the third quarter in Russia is $8.50 and in the year -- 81 million (ph).

And previous quarter. The second-quarter? [indiscernible]

Previous quarter is slightly higher -- 8.7 [indiscernible] and then we hear (ph) almost 100.

[indiscernible]

Good afternoon, this is [indiscernible] from HSBC. Two questions, your churn was up in third quarter. Can you explain why? And my second question is about your subscriber acquisition cost which was down quite significantly during the third quarter, I guess quite a big part of it is coming from your higher additions of prepaid or [indiscernible] customers. Was wondering if you can give us a feeling on how low you think subscriber acquisition costs can go and if you have a subscriber activity acquisition cost breakdown between gene subscribers and postpaid subscribers? Thanks.

The heart (ph) was the true characteristic of the Russian markets, overall. However (indiscernible) primarily due to the segmentation of subscriber growth. We also include the subscribers migrating from contract to prepaid [indiscernible]. Also we determine the positive [indiscernible] will continue to experience a decrease in the SEC.

This primarily will be attributable to a decrease in [indiscernible] commissions. The dealer of components will see a decrease and the other type in component notices [indiscernible] increase. Due to a large (indiscernible) operations.

Can you give us a breakdown maybe of subscriber [indiscernible] cost between contract and gene?

We need time to [indiscernible] the question -- In breakdown.

[indiscernible] commission [indiscernible] prepaid customers like 5 6 [indiscernible] for the [indiscernible] country subscriber. For example the [indiscernible] subscriber Moscow lower than $20. (indiscernible) And the commission for the contract subscriber may be as high as $82.

Thank you.

Vladimir Borganof (ph) .

The first one is on updated guidance on for this year and maybe if you have an idea as to how much you're gong to spend in (indiscernible) '04 and then I'd like to follow up on a couple of questions that have already been asked but (indiscernible).

Vladimir, could you repeat please the second part of your question?

I will ask the other question later, if you could answer this first one please.

Thank you for your question -- we believe that the total capital expense for this year will not exceed $1 billion. That is total including tangibles and intangibles.

That would include any requisitions?

No, it's pure [indiscernible].

And next year?

Just (indiscernible). That's right... it is PP and intangible assets.

I think you mentioned that so far, in nine months you spend about 600 million so we can expect another 400 in Q4?

We spent a little bit above -- in total if you add together intangibles and tangible CapEx we spend more than 600 million. It's actually 600, almost $650 million. We said certain guideline which we believe will not be we will not be over this limit, that is the sudden capital expenditure for instance in UMC (ph) is started a bit later than we were planning originally and, obviously, the growth of subscribers as you know now is much higher than it was expected by analysts and ourselves, even.

And for next year, could you provide any guidance?

Yes. I think, for next year, the only thing we can say at this stage is that we expect that the total CapEx for both PPN tangibles will not exceed 30 percent of the Company sales for next year.

Thanks very much and now okay if we return to the question about churn. Can I just put it to you quite differently? Can you explain why the churn rate keeps going up and in [indiscernible] problem? Are you planning to do anything about it, going forward?

As I said earlier (ph) we include our subscribers migrating from contract [indiscernible] genes into churn.

And we expect that the trend will remain for the following two quarters.

Afterwards, this component of the churn will start to decline. And apart from that, we are concentrating on -- we are working with a churn that we can manage.

We are introducing a multi stage [indiscernible] for various segments of the subscriber base.

(indiscernible) the reason why the churn is going up is that the internal churn is increasing right?

Yes. The internal churn is increasing.

As far as the segment churn in the quarter and so-called [indiscernible] -- It's 1 to 1 1/2 percent a month for the prepaid subscribers meaning the deal subscribers.

It is 9 to 9 1/2 percent. That's lower than the market trend. And the main churn comes from the live contract subscribers who migrate to genes.

And the last question if I may -- I just would like to go back to this other operating expenses meaning financial items. What I want to understand is any of this items would be recurring or not? You mentioned that [indiscernible] share options will not recurring -- that is a total of 4 million. Other operating expenditures this quarter were 11 million. So of the remaining 7 million, how much is recurring? You mentioned [indiscernible] but I don't think it was specific Q3 whereas the 11 million seems to be the Q3 charge specifically.

Well, one of the items which is sitting there is Belarus for instance. And this side depends very much on the performance of the Company. We see the potential growth of the Company in Belarus, so we believe we can consider this side also is non recurring. However, obviously, we will see it for a certain period of time [indiscernible]. I think -- most of it as I said most of the expenses [indiscernible] is nonrecurring.

Nick Barnes.

Company name is Thames River (ph) Capital. Two questions -- the first one is minority interest. Going back to the question that was asked earlier. Of the 22.7 million for minority interest in the third quarter, how much of that was tangible [indiscernible]? And then I will ask my second question. Thank you.

It was approximately around 20.

20 of the 22.7.

That's right and UMC was a small piece of it.

So that means presumably -- could you, then, what would we be looking for next year in terms of minority [indiscernible]? What (indiscernible) buying minorities what -- is there anything big outstanding we should be looking for next year?

That's a good question. The thing is that, obviously, very much depends also on performance of our companies where we have not 100 percent although obviously the biggest one which is combined is now 100 percent of so. We can expect substantial reduction and also UMC [indiscernible] 100 percent owned by us so we believe there would be a reduction in minority interest. We can say probably will be around less than $10 million going forward.

Right and my second question was relating to your operating expenses line. Last year in the fourth-quarter, there was a significant increase in SG&A expenses quarter-over-quarter. Can we expect a similar increase this year? And in relation to that, are you currently -- so you feel you're currently already accruing for stock buying (indiscernible) at the end of the year ?

We still believe it will substantially grow in the fourth-quarter. However, a lot of measures remain not to such substantial growth. But we still believe that there will be a certain -- certain one in the fourth quarter.

But in terms of the percentage change quarter on quarter -- would you expect that [indiscernible] to be slightly less than last year given that last year was disappointing in that regard?

Right. (indiscernible) could be if not always SG&A it also will be potential substantial increase in marketing expenses and [indiscernible] commission in particular. We do not expect as that trended last year, however, as we were reporting earlier there will be a [indiscernible] overall to the overall trend.

Vladimir Borganof.

Hi, this is Vladimir Borganof. Could you please tell us will there be maintenance to the Ukrainian law on communications, have any negative influence on your operations there? Thank you.

I think so far we've seen the [indiscernible] party pays effecting positively the business part of the company for company from the statistics that we get both from the point of view of the usage pattern as well as from the point of view of the bottom-line results of the Company -- what we, the information we're getting from the management of the Company is that, actually, we are on the upward trend. And it has actually helped although it does imply certain [indiscernible] tariff offerings have to be changed in accordance with the new environment and the new pricing environment.

So we could expect the trend to continue, right?

I -- yes. I think we expect that the positive effect should [indiscernible] sometime down simply the sort of abnormality of certain trends we will straighten out and we will be in-line with -- with what will soon become business as usual.

Stephen Pettifer (ph).

Merrill Lynch. First in terms of the accounting treatment of pre telephone and [indiscernible]. Will that be the result of those two or three small companies and be included also in your other financial expense line? And second question relates to your strategy in Moscow. You mentioned -- I think -- in your presentation your desire to maintain leadership in the market. In Moscow, it's notable that your market share is steadily declining. I just wondered if you would comment on that trend, please? Thanks.

Nicolay Tsekhomsky will take the first question. Nicolay.

[indiscernible] one of the several new acquisitions where we acquired 50 percent and those companies we do not consolidate right now. So, obviously, it's an equity investment and will be accounted for as an equity investment. We will be [indiscernible] this investment, we will be reporting -- be recording the loss of these companies in the other expense going forward.

So just to be clear. Was there a contribution in the third quarter there in that one as well?

It's so small it's irrelevant, actually -- yes.

Sorry, gentlemen. May I verify one question? I think there was a question -- two questions before -- that related to the minority interest. I think we -- a little bit misguide you. $20 million actually for the nine months and by nine-month -- not one quarter. The effect of one quarter is approximately $8 million of Kuban. There are also telecom (ph) 900 companies which will contribute approximately 8. Also certain (ph) [indiscernible] which is another group which 100 percent so as I said that we still deliver to these minority interest will go down - and will be around $10 million, going forward.

As far as the second question goes, I think when we refer to leadership we imply not only subscriber numbers, but also revenue figures and the dollar market share of the overall market. Obviously, we had a footprint in some of the markets. We had a -- we're running a bit ahead of the rest of the competition and [indiscernible] marketshares and certain markets, the core markets where we used to be the only one available [indiscernible] we're well ahead of the rest of the competition. In those markets our relative market share has been or all marketshares has been affected by the presence or the emergence, rather, of the other two main competitors. That being said, we think that we are well ahead in terms of the segments of the clients that account for a significant -- extremely significant part of our top line and contribute a significant part certainly to the bottom-line and this, certainly, is something that the combination of the dollar share market share together will be subscriber marketshares something I think we will try to balance and while being aggressive to the subscriber growth in the mass market segment, we will always be careful in terms of combining it with the actual financial stability of the Company on the actual financial results of the Company.

Steve Frank.

Steve Frank from Morgan Stanley Credit Research. You paid about a $97 million dividend in that quarter and that is not a surprise -- you told us that was coming. Could you just remind us, is this a quarterly or a half-year quarterly yearly dividend -- Should we look for the next dividend a year from now or will you be paying dividends again? Thanks.

Officially, it's an annual dividend for the [indiscernible] 2002, the next dividend is likely to be the [indiscernible] [indiscernible] annual general shareholders meeting sometime in May or June of 2004. And subsequently issued let's say in the fall of 2004.

Okay, so about a year from now. The second question is could you just remind us your -- what kind of credit facilities you have now? You've got lots of cash and you're underlevered for the Company but what kind of credit facilities do you have access to at the moment? Thank you.

Well we have several as you know. We have several instruments outstanding currently in the market. We have a year bond a 300 million year bond -- year bond maturing in December 2004. We have a 300 million 40 rate note maturing in August 2004. We have a -- we just placed a $400 million 2010 year bond. We also have a number of bank loans and I think that that accounts for the most part of what we -- the [indiscernible].

I guess if you -- if you have any undrawn credit facilities you could draw on if you needed the money? I don't think you do but I am just curious how much access to capital you would need without going back to the capital partners to raise or [indiscernible] ? Do you understand my question?

No. I think that other than the public instruments and other than certain bank lines of credit what where we have and what we will have increasingly in our sort of [indiscernible] is ECA sponsored financings for further CapEx side or vendor financing in a form of the ECA (ph) sponsored loans -- we will see more of that probably in 2004. Otherwise, we should be --- we should in terms of the overall debt to EBITDA (ph) ratio we should be in-line with the ratio that you'll see that we will see at the end of this year. 2004.

Okay and how much more leverage would you put up would you be comfortable putting on the Company you're in 1.1 times now. Again, it's low -- relatively low compared to other companies, but ...

We think staying at 1.4, 1.5 is should be still conservative in terms of cash flow, an ability to service the ongoing interest payments, we should feel comfortable to gear up to 1.5 times EBITDA (ph) and, again, we think it is still conservative though a lot will depend on how -- what kind of opportunities come up next year in terms of acquisitions. Again, that being said, we will be extremely careful in terms of -- in terms of the financial [indiscernible] in terms of the monetary institution of the Company so whatever acquisition we make not only has to be value accretive but also we will be very debt sensitive to any acquisition.

Sorry. One last quick question. Could you just remind us on Russian third generation. What is this status of the government's view on 3G there?

There has been an announcement that by the minister of that in Q1 of next year the rules of the game will be set out. We are (indiscernible) the working groups you can possibly imagine working on the development of the standards and on the actual -- the ideology of how it's going to be introduced in Russia but obviously the commercial terms are we're not privy to so we do not know exactly is it likely to be along the lines of a beauty contest rather than a kind of cash tender for the license . That being said we will probably have to wait and see what gets announced in Q1 and, then, depending on that see whether what the secrets the events are going to be? Obviously, we will participate and we expect to be fully qualified for the beauty contest terms that are going to be announced.

And if it's a Beauty Contest, that implies it will not be an auction of some kind, I guess?

We do not know for sure, obviously, but that is the understanding currently. There may be some -- there may be some monetary component we don't know what format will take.

Olga Velinska.

This is Olga Velinska from Renaissance Capital. I have two questions -- the first one, please provide us with the details of the loans which were raised during the third quarter and the second question is that if I'm not mistaken you said that GDRs will be fully convertible -- fully fungible (ph) in December this year. Could you please confirm your guidance? And do you still think that the timing will not be postponed for example 1Q 2004?

Can you repeat please your first question. We can't hear you very well, unfortunately.

First question is could you please provide us with the deep with the details of the loans which were raised in third-quarter 2003?

Okay, thank you. So we will start with the second question. Vassily will take it.

As far as the GDR, ADR fungibility as we have already announced we have obtained the B listing on MICEX (ph) and we are -- in December from December and through to the end of Q1 2004 we're going to be doing several things, changing into the [indiscernible] agreement. We will have to apply and obtain approvals from the Russian [indiscernible] ministry as well as the Russian SEC. We will have to file with the SEC and we hope that by April 2004 we will have completed all these procedures . [indiscernible] the full fungibility of [indiscernible] local shows where actually occur by our being conservative May 2004. I am sorry just to clarify we're -- I may have mispronounced. We're close to getting the the B listing on MICEX. We have not quite completed that.

Second question?

The loans -- there were two loans issued by the bridges actually CS and BFG (ph) who are also underwriters in relationship [indiscernible] the end of the third-quarter the $400 million bond. The terms on these two loans were the same, the LIBOR plus 2.5 percent. There were also -- there were also as we discussed forging rate notes issued in August totaling $300 million with LIBOR plus 4. Coupon. These are the major instruments [indiscernible] [inaudible].

Nadia Golbova.

From Eton (ph) Capital. Would you please explain the 42 percent increase in operating expenses quarter on quarter in third-quarter so is there any one off item there?

Well, generally, I think it's very difficult to say that there are lots of one offs there. I think it's general [indiscernible] business gives you this level of increase in operating expenses.

Well that's a role in head of range growth which is 19 percent. So could it be the increase?

Are you applying quarter to quarter, right?

Yes, I am doing operating expenses.

That's right. Understand. The margins also grew. If you see that the overall margins stay at the same level -- obviously, the business is growing so we add a lot of new businesses to our portfolio. And as a result of this operating expenses in newly acquired -- effectually in the newly acquired business impacting overall results. You obviously see certain increase but there are no real significant one offs in this [indiscernible] .

Charlie Newington-Bridges.

Charlie [indiscernible]. Got a question on NA strategy which actually is probably a follow-up from other previous questions. Are there any gaps (ph) in your portfolio where you will be looking to acquire [indiscernible] in the Russian regions and sorry just to confirm your answer to other previous questions, are you planning to further consolidate some of your minority holdings?

Yes, to clarify the previous one, we are planning to consolidate the minority interests that currently exists in some of the companies that we own controlling (indiscernible) not controlling not controlling stakes so that is certainly part of the plan for next year. As far as where we -- where we're not present yet [indiscernible] may have mentioned, out of the 89 regions in Russia, we are already we have licenses for 76 and are operational in 60. I think with differing levels of presence we would like to be in all of Russia, basically, but as I said with differing levels of presence and there are some regions of great importance, such as Volga region for example, the South -- some of the remaining Siberian regions. But I would think with 88 percent of our population covered, we are going to be very sensitive to obviously pricing, the pricing of these acquisitions. And although we will be opportunistic and if a chance comes up to acquire in some cases even in regions where we already operate but some [indiscernible] different level of market share and overall business to business profitability in the given region I think we will look into those opportunities as well.

Okay, thanks. Just one other quick question. I assume it's coming down but can you give us a feel for what you think your cost of debt is now?

I think it will be fair to say that our blended cost of debt is around 9 (ph) percent.

Olga Beschov.

Credit Suisse First Boston. I have two questions and one follow-up question. The first question is regarding our pool (ph) guidance and the overall margin guidance for 2004, 2005. If you could provide perhaps either dynamics or better levels -- target levels that you received for Russia and Ukraine? The second question is regarding equipment sales which saw a decline quarter on quarter in the third-quarter 2003. If you could explain that? And I will ask the follow-up question later.

Mikhail Susov will take your first question, Olga.

We expect that our (indiscernible) ... We said our proof for 2003 will be slightly over $18 and up to the end of 2004 not less than 12.5 at first quarter ...

For the fourth quarter only or by the end of the year like for the year for the year average ?

No, this is only for Q4.

And this is for Russian business only, right?

Yes this for Russian business only.

And Ukraine? Do you have any guidance on that?

The Ukrainian market. We expect that after that there will not be less than 15 for 2003. And then Q4 next year around 11.

As far as our EBITDA margins go, I think it will be fair to say that we should expect high 40s as a fair guidance for next year, gradually moving down a few percentage points in the subsequent year. I think that's the overall explanation. At the risk of sounding a bit too vague but I think that's as good as we can do for the time being. As far as equipment sales we are -- Nikolay, you want to take that?

Yes to get equipment sales you're correct to mention there's a reduction in equipment sales. This is actually the one off adjustment related to the interCompany revenues which we recorded previously in nine months so, basically, if we take out this adjustment the Q2 equipment sales would be at 19 [indiscernible] and Q3 equipment sales will be 21 [indiscernible].

Okay and then the follow-up question is regarding churn again. Obviously you recognize that the churn rate is high for the month as a whole and MTS in general. Or in particular -- sorry, so you have any strategy besides [indiscernible] programs how you're going to decrease going forward and do you think it will have any impact on any costs?

I think the measures that we expect to undertake span different areas and customer royalties certainly one of them and everything that goes with it but also enhancing the way we interact with the distribution channels primarily with the dealer network increasing their loyalty and the way -- you know, enhancing the formulas based on which we work with them and making them more change in the commission structure in such a way that they're more revenue sharing oriented and gears use them towards greater closer monitoring of the customer loyalty and of the real customers being switched onto the network rather than the ones that churn after talking through the $5 bonus they get from the dealers. But also some of the technical -- not only that but also some of the technical enhancements on the network and into through the billing system that we're planning for for next year that we think will enable us to better monitor the (indiscernible) on an ongoing basis and thereby reduce churn or at least certainly control it and create greater transparency for other dynamic for us.

Okay, but do you think we will potential increase talk in the next couple of years?

No, we don't think so. We think that, in general, the dynamic of decreasing SEC (ph) will continue. Again, that being said, in the relative -- in relative terms and percentage terms, we will see the similar trend but the same thing will be bouncing it off with the right loyalty we will have to implement.

Miss Anna Botham.

Hi, Anna Botham from CRB(ph). I have a couple of questions. Before I start though, can I just check something from a previous question. The ARPU numbers you gave referring to quarter 4, for was that quarter 4 2004 or quarter 4, 2003 ?

We refer to the 2003 forecast. Just over. (MULTIPLE SPEAKERS) Average for the year over $18. Q4 2004 we expect it not to be lower than [indiscernible].

Okay and for 2004 as a whole, do you have an estimate?

Not less than 13.5.

Thanks. Can I ask what's happening in Moscow and then the Volga and Central Regions looks like the competition from Simplcom (ph) has strengthened a little bit and I am just wondering if it is a product problem in particular the prepaid product of Simplcom seems to be perhaps friendlier for customers because they can tell what their balances are more quickly? I may be wrong here so I'd be interested in your opinion but it does seem that this could be an issue and I am wondering if you see it the same way and if you have any planned improvements or product innovations that might help this problem?

Can you repeat the question because we can't hear you very well so we didn't quite get it?

I'm sorry -- maybe that's better. My question -- (MULTIPLE SPEAKERS) the number subscriber growth in Moscow in the third-quarter was (indiscernible) dropped quite sharply and the [indiscernible] seemed to pick up quite a share of that and I noted in the Volga and the Central regions that they gained on you a little bit in the third-quarter. And I was wondering if this is a product problem that the prepaid product that you have, it takes a little bit longer for people's balances to come through and, therefore, this is encouraging them perhaps more towards Simplcom's product and if that is the case, if you plan any product improvements that might solve this issue?

Okay, thank you -- Mikhail Susov will take this question.

As the president pointed out we will (indiscernible) in the balance between the market share and the revenue in Central and other developing regions. [indiscernible] product, it's similar to the competition product and sometimes exceeds the competition's products.

And the market trends and the [indiscernible] customers [indiscernible] existing customers work good for us.

Okay, thanks very much.

[Operator Instructions]. Nick Barnes.

Yeah, hi, I've just got a question on your effective tax rate which fell in the third-quarter. Wondered what you're expecting for the year and also what you're expecting into 2004 [indiscernible] factor you got the Ukraine now and probably a slightly different tax regime there?

Thank you for the question. As you see the income tax rate is generally between the statutory rate of 24 percent and 30 percent. Obviously there were certain additional provisions and additional adjustments related to acquisitions and deferred taxation. Generally, from that rating perspective we believe that overall tax and also the question of the stability (ph) of certain expenses will be around -- around 27 percent blended.

The issues will be lower than generally for this year is that the corporate tax rate is going to be reduced in Ukraine from 1st of January and will be at 25 percent. So they're taking that tax quota which is coming in line with Russian [inaudible].

Okay, whereabouts is the Ukraine tax rate at the moment, you said it's going to 25.

It's 30 plus.

30 plus. Okay, that's great. Thanks.

Vladimir Postalovsky.

My question has been answered, but can I ask another one -- could you just confirm the EBITDA margin or the margin for next year to come down by about 3, 4 percentage points because you will introduce new world [indiscernible] do I understand this correctly?

[indiscernible].

You said you expect EBITDA margin next year to be in high 40s which implies that it will come down by about 3 to 4 percentage points. And it's a bit counterintuitive because you're gaining [indiscernible] of scale gross addition [indiscernible] coming down as well so there has to be either [indiscernible] introduced or there should be significant [indiscernible] in royalty (indiscernible) so why do you think that EBITDA margins will come down by so much?

Nikolay will take the question.

First of all let me remind, last year -- the last year's seasonality, we also had a very similar result at the end of the 9 months with a quite high margins. There's definitely fourth-quarter coming which will show much substantially worse (ph) results in the fourth-quarter . We have to understand that so basically if we take this overall trend this year and compare it to last year we can say that this is a very singular margin so we by saying that the 49 30, 40 high 40s high 40s -- was [indiscernible] margin implies means that we will study with close to the current trend. It does really may not be that substantial a reduction in terms of percentage point.

Okay, so you actually don't expect [indiscernible]

We do expect it to decline going forward in -- subsequent to 2004 as the President mentioned.

Stephen Pettifer.

Just wondering if you could give us the percentage of your revenue coming from [indiscernible], please? And second question? Could you just confirm you said that your presentation was on your web site because I can't find it? Thanks.

All performed variant services in the third-quarter was $1.32, which is about over 7 percent from the overall

prefer Russian. And (indiscernible) Ukraine around $1. In Moscow, it's quite higher. $1.86.

I am sorry, what was that number again? Moscow number?

$1.86.

Alexei (indiscernible).

Can we go back to your ARPU guidance for this year? Did I hear correctly that you -- when you said your ARPU blended for this year will be over $18 which means you don't expect any reduction in the fourth quarter or I just didn't hear correctly? Can you (indiscernible) guidance for this year or for the fourth quarter for ARPU? Thank you.

The (indiscernible) seasonal trend we expect a decline in ARPU in fourth quarter, but overall, we don't expect that the ARPU (indiscernible) for the year will not be less than $18.

Thank you, sir. There are no further questions at this time. Please continue.

If there are no further questions, let me conclude this conference call. Ladies and gentlemen, thank you for taking the time to join MTS third quarter 2003 financial results conference call today. A replay of the call will be available for the next 10 days. If you have any further questions, please do not hesitate to contact the Investor Relations department of the Company. Thank you again.

This concludes the Mobile Telesystems third quarter results 2003 conference call. Thank you for participating.