Mobile TeleSystems PJSC (MBT) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2005 financial operating results conference call on the 1st of June, 2005. Throughout today's presentation, all participations will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (OPERATOR INSTRUCTIONS).

I will now hand the conference over to Mr. Andrey Braginski. Please go ahead, sir.

Thank you and welcome to MTS first-quarter 2005 results announcement. Please note that statements made during this conference call reflect the opinion of management as of the date of this call. Future developments may render this statements outdated. However, we do not intend to update the guidance provided today prior to our next quarterly conference call. A reconciliation of our operating income come before depreciation and amortization to operating income can be found on the Company's website.

By now, you should have received a copy of our press release by email. If not, the press release as well as the management presentation could be found on our website at www.MTSGSM.com in the Investor Relations Financial Reports section.

Also for our presentation seen today consists of activities of MTS President and CEO and Nikolai Tsekhomsky, the Company's Chief Financial Officer.

Following the presentation, we will conclude with a question-and-answer session. Now, I'd like to hand over the call to Mr. Sidorov, Vassily.

Thank you, Andrey. Good evening ladies and gentlemen. Today, we are presenting MTS's first-quarter 2005 financial and operating results. Our Company added 18.1 million new subscribers year-to-date, of which 4.5 million were added during the first quarter. And we successfully retained our market leadership in each of the Company's national operating markets.

It should be noted however that a significant number of new subscriptions consist of customers buying their second or third SIM cards. And we now estimate that 20 to 30% of our subscribers use more than 1 SIM card. As a result, our subscriber base continues to be diluted by low usage customers and our ARPUs continue to fall. In this context, our strategy is aimed at balancing investments into new subscriber acquisitions, while strengthening our focus on customer loyalty and retention.

We have seen a certain degree of payor card stabilization on the Russian mobile markets since the beginning of the year and hope to be able to support this trend throughout the year. We also concentrating our efforts on the introduction of new services as a potential impetus for additional revenues. The launch of i-mode services in Moscow and St. Petersburg scheduled for September of this year as well as our plans to become the first operator in Russia to start operating BlackBerry-based services by the end of year -- are just a few examples of our value-added service usage enhancing projects planned for this year.

In February 2005 as a testimony to the Company's successful positioning in the market, MTS won the prestigious natural national award called Narodnaya Marka "People's Brand," as the most popular cellular operator in Russia.

We have continued to increase our presence in Russia's regions. In many, we launched our operations in two more regions, bringing the total number of MTS's operational regions to 79. And we are on schedule with our target of being operational in 87 Russian regionals (sic) for which we hold licenses by year-end.

The development of the mobile market in the Ukraine follows the same growth pattern as in Russia. At the same time, the Ukrainian market has become increasingly competitive with the launch of two new operators since the beginning of this year. Together with the aggressive pricing of our main competitors, this has led to a drop in our Ukrainian market share from 53 to 50%. Nevertheless, we remain the confident market leader, leveraging a strong brand positioning and avoiding involvement in mobile aggressive price competition.

Our position in Uzbekistan remains strong with our subsidiary growing hold, controlling around 58% of the market. Our growth plans for the business in Uzbekistan for 2005 includes a trubam (ph) in KMTS, a pre-paid tele launch by the end of the year, investments inter-network build out, migrating to a more functional billing platform, as well as enhancing the distribution channels. I'd also like to note that our operations in Uzbekistan were not adversely affected by the regional turbulence in this country.

Belarus continues to provide strong momentum for the continuous growth and demand for mobile services and rather resilient ARPU. During the first quarter, MTS's joint venture in Belarus further strengthens its market share to 50% from 49%, with the total number of subscribers reaching 1.4 million. There may be some pressure on our market share going forward, as there is a chance of a third national player emerging with strong government backing. Our discussions with the Belarusian government on consolidating control in the joint venture has so far not lead to any breakthroughs.

During the first quarter of 2005, we continue to demonstrate significant growth in revenues on a year-on-year basis. At the same time contrary to our expectations, our consolidated revenues declined by approximately 2% on a sequential basis. This drop in revenues was driven by negative seasonal factors -- such as fewer working days in January, February -- and lower subscriber activity during the winter months as well as the carryover effect of bonus minutes that subscribers received in the fourth quarter of 2004, which continued to be used during the beginning of the year. Roaming revenues are also seasonally lower during the first quarter of the year.

In addition, MTS's Ukrainian revenues were affected by growing price pressure from the second-largest operator and the retaliatory just friends and family promotion that UMC, our subsidiary there, offered at the end of 2004, which was valid through the end of February. This promotion, which was valid until the end of February as I said, offered customers free on-net calls to five pre-selected members.

Revenues were also affected by the decline in consumer spending at the beginning of the year on the back of political and social turbulence in the country at the end of '04.

During the first quarter, our average revenue per user and ARPU declined by approximately 18% to $9.1 in Russia and by 19% to $10 in Ukraine. Since the end of the quarter, we've recorded a pickup in revenues in both, Russia and Ukraine, and we expect to return to sequential topline growth during the second quarter of this year.

On a more positive note, MTS's OBITDA margin in Russia increased in the first quarter compared to last quarter of '04 from 46 to 52%. Among other factors, this margin recovery was due to the decrease in subscriber acquisition costs.

The Company's consolidated OIBDA margin however was slightly depressed by one-off expenses in Ukraine, leading to only modest margin recovery for our business in that country. Our expectations respect to OIBDA margins for the full year 2005 remain unchanged at the low '50s level.

With operating cash flow generation and low-relative leverage allow us to maintain our strategy of building long-term shareholder value, while providing significant cash returns to shareholders on an annual basis. As recently announced, the Company's Board of Directors recommended for the AGM that a dividend payment of $1.03 per ADR, which is equivalent to 41% of the Company's 2004 net earnings under U.S. GAAP get paid out in dividends. This payment totaling some $400 and some million would be the largest in the history of Russian telecoms and a significant increase to last year's payment of 220 million.

Recent months have been marked by various new regulatory initiatives in Russia. Perhaps the most important one was the announcement regarding the size of telecom companies' contribution to the Universal Service Fund, which was lower-than-expected at 1.2%. We expect to start paying this contribution during the second quarter.

Over the past month, there has been a lot of talk about the potential introduction of the "calling party pays" in Russia. I would like to point out that the launch of CPP in Ukraine in September 2003 was largely positive for our business there, resulting in increased mobile penetration, higher usage, and additional revenues. The key to the successful implementation of CPP lies in a logical basis for end user and interconnect tariffs. As yet, note that our proposals have been made by the regulator in Russia, nor have any discussions with market participants been started on this matter. There is however a chance that these changes may put additional pressure on our margins.

Last month, our IDs were included in the MSCI Emerging Markets Index. This is certainly a milestone event for the Company, and we're very pleased with this development.

On a final note, I'd like to say that we remain optimistic about MTS's business prospects and believe that we are in a strong position to continue leveraging our lead in mobile key markets where we operate. In addition to generating organic growth within our existing territories, we will continue to aggressively pursue acquisition opportunities in new geographies with a view of acquiring leading players in markets with significant growth potential.

Next month, MTS will be celebrating the first anniversary of its listing on the New York Stock Exchange. The IPO was a launch pad for the development of our business. Since the placement, MTS's share price has increased by more than six times. And today, we're one of the largest companies in Russia by market capitalization. On behalf of the management team, I would like to thank you all for your continued support and trust and assure you of our dedication to further deliver on the commitment of being the best operator in the region.

With this, I would like to pass the call to Nikolai Tsekhomsky, our CFO, to discuss the Company's financial performance in more detail. Nikolai?

Thank you, Vassily. MTS revenues in the first quarter increased by 24% in Russia and 54% in the Ukraine compared with the first quarter of 2004. As a result of consolidated revenues were up by 32% to 1,057,000,000. Sequentially, revenues were down by 2% in Russia and 3% in Ukraine, resulting in a 2.1% decline in consolidated revenues quarter-on-quarter. Our consolidated OIBDA margin for the Company reached 50.8% for the past quarter compared to 46.1% in Q4 2004. The main F-ex on OIBDA came from a decrease in advertising and due commission expenses of 35 million or 22%.

Our consolidated pre-SAC or OIBDA margins for the quarter amounted to 664.3 million or 62.9%, remaining almost flat when compared to the previous quarter's 660.5 million or 61.2%. The OIBDA margin from our operations in Russia equals to 51.8% in quarter 1 compared to 45.6% in quarter 4 of last year. At the same time, our revenues in Russia remained almost flat when compared to previous quarters with a slight decrease of 0.7%.

Our general and administrative expenses followed the decline in revenues with 0.9% downward change. We're also seeing an increase in bad debt expense in Russia of approximately $4.9 million compared to quarter 4 2004. This increase is partially due to some fraudulent activities discovered by our Revenue Assurance Group early in the quarter. The issue was discovered in timely manner, and we took immediate actions to prohibit any future occurrence of this nature.

Our business in Ukraine has shown a lower-than-consolidated average OIBDA margin of 47.1% compared with 46.7% in quarter 4 2004. Increased competition and the number of one-off events negatively impacted operations in Ukraine and prevented our OIBDA margins from reverting back to the mid to low 50 levels, where we continuously seen the margins in the past.

As described in our press release, the one-off charges in quarter 1 to our Ukrainian operations came from following business issues -- the introduction of renewed relation that prevented the recover of value-added tax on the sales of goods at price below cost. This regulation increased the cost of our subsidized handsets and contributed an additional 3 million to our subscriber acquisition costs in Ukraine, resulting in 1.3% negative impact on our OIBDA margins. This regulation was subsequently modified, and this therefore has no impact on our margins going forward.

During the quarter, we established a reserve of 2.3 million to reflect another change in the Ukrainian budget law. This stated value-added tax should be applied to mobile operators' contribution to the pension fund. 6% of mobile service charges are added to subscriber bills as contribution to the Ukrainian State Pension Fund -- was introduced in 1999 as an additional tax related on the mobile services to be incurred by our subscribers. The VAT was not being applied to subscribers' contributions to the Ukrainian State Pension Fund since the establishment of the levy in '99. In a worst-case scenario, amount of additional taxes and penalties that may be required to pay could go up to $8.9 million. However, management believes that our legal positioning is strong and intends to vigorously defend this position in court.

The Company along with other participants in the market is contesting the applicability of the VAT on pension fund, and the matter is yet to be finally clarified.

Finally, we concluded the next -- we had a difficulties in the first quarter in collecting payments from some of our dealers in Ukraine, resulting in additional bad debt provision of 3.3 million for this period. This additional cost had a negative 1.4 impact on our margins in quarter 4. Having discussed our operations in Ukraine, I would like to move to some developments we had in Russia.

During quarter 1, MTS was subject to a routine tax audit for the year ended December 31, 2002. Based on the results of this audit, the Russian tax authorities assessed that an approximate amount of $13.4 million of additional taxes, penalties and fines are payable by the Company. We filed a petition with an arbitrary court of Moscow to recognize the tax authorities' resolution as partially invalid. With the amount disputed taxes and fines equaling approximately $10.1 million, we believe that this dispute will be resolved in a timely manner to our full satisfaction.

While on the subject of taxes, I can point out that our consolidated effective tax rate for the past quarter is at 26.1% in line with our expectations in 2004 in a unconsolidated tax rate of 25.8%. While we continue to expect some situations on the effective tax rate quarter-on-quarter, our overall full year 2004 and quarter 1 2005 effective tax rates are indicative for the full year 2005.

Now, I would like to provide some additional explanations to the statement of our quarter 4 numbers. This accounting change was a result of the letter published by U.S. Securities and Exchange Commission in February of this year -- similar changes being made by wireless operators worldwide. The changes primarily led to an acceleration of the depreciation period up to 1 year for certain of our previously capitalized leasehold improvements costs and relates to a faster depreciation of future leasehold improvements costs. Full components of the net charge, our loan cash and loans impact historical of future cash flow, our OIBDA margins or the timing of payments on the related operational leases. The effect of this change on our consolidated operations are fully disclosed in our consolidated financial statements of operations published this quarter.

Commenting on our quarter-end balance sheet position and cash flow dynamics, I would like to note that we have $790 million in available cash funds. This cash was accumulated as a result of our EUR400 million bond placement that took place in January this year and by cash flow generated by operations. We plan to use this free cash for acquisitions, capital expenditures, general corporate purposes and for pay out of our previously announced dividends for 2004. Our working capital demonstrates healthy dynamics. We are reporting working capital surplus of 232 million at the end of quarter 1 compared with working capital deficit of 189 million at the end of 2005.

During the past quarter, we have spent $431 million on acquisition of fixed assets and intangibles. After careful review of various capital programs, we currently have to -- for the Company, we would like to increase our CapEx guidance for the year by an additional $200 million to a total of $2 billion. Our leverage position remains strong with a net-debt-to-OBITDA ratio improved 2.7 from 0.76 at the end of 2004. Our average cost of borrowing also shows an overall positive annual dynamics decreasing from 9.5% in quarter 1 2004 to 7.4% in the fourth quarter and further down to 7.1% in the quarter 1 in 2005. These positive trends is in line with the Company's continuous effort to improve our credit ratings and corporate governance. Thank you.

Thank you, Nikolai. And now we're ready to take questions from the audience. Operator?

(OPERATOR INSTRUCTIONS). Rizwan Ali.

It's Bear Stearns. The question was regarding your statement that margins may come under pressure if you dump CPP. That's not been our experience elsewhere. Could you explain why the margins would be under pressure if CPP is adopted?

It is true that our experience in the Ukraine has proven that there was an almost neutral effect on margins and a certainly positive effect on the top line and the growth of the business. In Russia, the way it will turn out in terms of affecting the margins will depend on the function, on the economic arithmetic that gets imposed on us by the regulator. And since we're seeing some evidence of the fact that there is a propensity to a redistribution of profit from mobile to fixed and as a theme for the regulator, we would not exclude the possibility that this may translate into an economically detrimental formula for us in the CPP settlement scheme. And therefore, we are maybe somewhat conservatively assuming that it may have a negative effect on the margins, even though this will be only seen and calculable on the back of a concreased (sic) formula as and when it is worked out and proposed to us by the regulator.

And have you -- right now, you charge a very minimal amount for any incoming calls to the subscriber, 1 subscriber. You don't charge at all?

No, we do charge. But it's see truly -- it is obviously a smaller amount during than for outgoing.

Olga Zhilinskaya.

This is Olga Zhilinskaya from Renaissance. I have two questions if I may. The first one is -- could you please provide us with a number of incremental ARPU and MOU in Russia for the first quarter of 2005 and the fourth quarter of 2004? And the 11 mainly attributes to incremental MOU, as you didn't provide us with a number previously.

And my second question is of more the forward nature. Assuming strong dilution of subscriber base, which we sought in the first quarter and continued growth in competition, how do you see 2005 ARPU trends at the moment? Do you expect the same decline in ARPU as it was in 2004? Or it may be even higher? Thank you.

The current incremental ARPU in Russia is at around $6. We expect the ARPU for the year to average at around $8.5 for the whole year. It is somewhat higher in the Ukraine. Our incremental ARPUs there are around $8. An average ARPU for the year is expected to be at around $10. As far as giving backward dynamic, it is slightly difficult to go back with the statistics on incremental ARPU. That is the current dynamic, and I think that's probably more representative of the current situation.

As far as MOUs are concerned, we have seen -- as you may have noticed -- a seasonal weakness. We do expect it to normalize a bit. Though, that being said, there will be still a bit of a dilution factor on the back of lower usage of customers basically brand new to the subscriber mix and therefore putting pressure on the MOU numbers.

Thank you. And again, could you please once again repeat the Ukrainian numbers for ARPU?

Incremental number for ARPU is $8. The average effective for the year is $10.

In terms of MOU, it would be interesting to know what negative impact on MOU in the first quarter was due to the subscriber base dilution and what was the impact from these subscribers, which actually were signed in December but stayed more or less silent in the first quarter? I'm talking about the subscribers, which are going to be accounted as churn afterwards.

I think it is difficult to split the statistics exactly. Although, one should say that when you have somebody activating the account, that means that there is activity on the balance. And therefore, we have not seen in the first quarter that much of a drawing up of the subscriber mix or subscriber base that we added on the back of promotions in Q4 of last year. The statistics for Q1 does not fully represent the inactivity rate that we may have gotten on the back of the Q4 promotions. Because we will see this translating into Q2 of this year, Q2 and Q3 of this year, as people cease to be active -- if they decide to throw out their SIM cards.

So I would say that a bulk of that clearly comes from the factor of seasonality and the 20% less working days in Q1 of this year compared to Q4. And that was really a bulk of the smaller, lesser -- explanation for the lesser activity.

Taras Schimelda (ph).

This is Taras Schimelda from American Century. I have a request if you could repeat the incremental ARPU in Russia. I know you mentioned it. But for some reason, I missed it.

And my question outside of that is this -- are you seeing or are you doing or are your competitors doing any promotional campaigns whether in Ukraine or Russia that you feel might put your ARPU estimates for the full year at risk -- or perhaps that could cause a greater-than-expected rise in subscriber acquisition costs? And if so, what are those programs? Thank you.

Let me start with the figure on incremental ARPU. Our incremental ARPU in Russia is at $6. And we expect the average over the year to be around 8.5. Actually, we have with us today Adam Wojacki, who is the CMO for operation in the Ukraine, and he has some knowledge since he is based currently in Moscow temporarily on Russia. So I'll ask him to cover the second part of your question. Adam?

Good evening everybody. So the second question regarding our competitors here in Russia and the Ukraine -- here in Russia for the time being, we see the competitive pressure to stabilize in the current month, so we don't see competitors offering a promotion which will drop the -- drive the average price, bringing it down.

In Ukraine, the situation is somehow a little bit different -- in the view of the two new operators planning to be national one and the third operator trying to strengthen his position. There are some offerings which are driving the APPM down. However, our operation, MTS operation in Ukraine for the time being, we are resisting the pressure and to -- we are not driving -- we are not responding to it in such a fashion.

My I ask a follow-up question?

Sorry, the question was about the promotions are currently here in Russia. There are a couple of marketing initiatives. And I said none of them is driving the ARPU down. One, as you know, a special promotion focusing more on SOHO and small and medium enterprise business -- you know tailoring the better tariffs to suit their needs. And the other one is the promotion, which is aiming and increasing the loyalty retention of our mass-market customers.

This is the similar in Ukraine. Currently in Ukraine, we are not running any promotion which would drive the ARPU and the APPM down. We did review our tariff lines in Ukraine we implemented in April and in May. But it was at the basis of the stable APPM and ARPU. So currently, we are not running any promotion in those countries, which will drastically drive the ARPU and APPM down.

If I could jump in here -- one, what is APPM? And if you could talk a little bit in a similar fashion about subscriber acquisition costs, as to whether there are developments that might push them up?

APPM sorry apologies -- APPM is average price per minute. And you know, the average price per minute and the end of the day will drive the ARPU. It's average pricement (sic) in times. The average minutes will determine the average revenue per user.

Regarding the subscriber acquisition costs, would we see here in Russia that you know -- that there is a slight decrease in the subscriber acquisition costs. We are reviewing our policy and streamlining it regarding the dealer's commission. And on the advertising side, we keeping to the levels which were before.

And to the similar situation is in Ukraine. However in the first quarter, the subscriber acquisition costs -- as it was already explained -- was determined and was affected by the one-off charges. And it was explained by Mr. Tsekhomsky. One-off charges related to the tax regime in Ukraine and also the tax was up because of the different mix of the subscribers in Ukraine. The mix of prospect contract subscriber was much higher in the first quarter comparing to the last quarter 2004. So those two effects will -- contributed to a slightly higher subscriber acquisition cost in Ukraine.

(OPERATOR INSTRUCTIONS). Vladimir Postolovsky.

It's Brunswick UBS. 2 questions if I maybe -- the first one is going to be strategy-wise, with regards to free minutes offerings. I was just wondering whether at this point, you still seeing it's a good idea to keep offering those typed plans. And if you could provide us some statistics whether there is a significant traffic and incremental rating is generated by these subscribers obviously on top of the free minutes that they are getting result.

And the reason for my question is obviously -- if you look at it from outside, it looks almost like a quasi -- not hantasabsadu (ph), quasi-subsidized to new subscribers. And one of the great things about the Russian market historically has been there have been very low subsidies here. And it looks like one of them. So if you could just go through that and through your strategy a little bit less strategized actually going forward.

And the second question is on your kind of financial outlook. And clearly, you're seeing yourself -- and correct me if I'm wrong -- but I think you were saying at the beginning of the year that you are rating yourself falling about and up to 10% below your own budget for this year. You said yourself at the beginning of the call, the June-leading traffic guidance. Obviously you cannot cop (ph) there. But are you planning to implement any cost-cutting this year to offset this negative trends? Or are you just will have to accept lower cash flows for this year and maybe for next year? Just comment on that as well please. Thanks.

Adam, do you want to comment on the--?

My comment on the free minutes offering -- so again currently, we are not offering any tariffs or any promotion with the free minutes included. Yes, that was true this offer was valid in December, and the subscribers were enjoying the offer in the first couple of months in January and February, which were -- obviously, this affected the ARPU you see in Russia. And you know, as I said for the time being, we are not offering, and we do not see the free minute offer as the top sidy (ph) for our offers.

That is Ukraine, you are looking about, right?

I am talking about Russia now. And in Ukraine, we were not offering -- well, free minutes -- in the Ukraine, in order to respond to our competitive pressure which were ongoing -- our competitors were offering free on-net calls -- free on-net calls. In order to protect the base, we were offered to our customers' free calls to five numbers from the family. But those promotions, both in our case, which we finished in February in Ukraine and in case of our main competitors in the end of March. Since then, we have not seen from the main competitors in Ukraine offers which included the free minutes. However, as I said that too, smaller competitors -- the new entrants, which are offering in order to increase its customer base at this stage.

Can I ask -- coming back to Russian -- obviously, you had those offers running from the end of last year through February that you yourself highlighted. It seems then just working down the Moscow free-by-see (ph) -- look to that as either saying if you connect to MTSB, you are getting $10 worth of free minutes. That is -- yes, I'll spread it over 6 months, but you are still getting them. And you can buy 20 SIM cards and have 200 minutes over 6 months, which some price conscious students might see there is a great value proposition--?

If I can comment on this, it may look like this. It may look like this to our customers. But this is mainly aimed at increasing the loyalty and retention to our customers. Because those $10 which you are talking about depending on the region, that's spread between 6 to 10 months. So basically what we're talking is the customer is active. And if we are charging the account for the next 10 months -- is receiving you know $1 per month for the 10 months. So this is as I said, aimed first of all yes, in keeping the customer base and increasing the retention loyalty of our customer base.

So you are still thinking then -- you still intend to keep this type of offering going forward, right?

That offer will finish on the 31st of May.

And after that?

That's finished already.

And after that, are you planning to re-introduce it in some shape or form? Or is there going to be--?

We don't have those funds at this station.

As far as the second part of your question -- our financial outlook is rather positive. We have seen some slight dynamic to slight negative dynamic in Q1 on the back of what we just explained. I feel for Q2 is a lot more positive. We are seeing this in numbers that are coming in -- in all respects, primarily on the top line, and that translates into the OIBDA and net income figures as well. We are positive overall for the year. We think that Q2 and Q3 as usual will contribute a very meaningful and significant part to the overall numbers for the year. We -- what you may have been referring is our somewhere internal forecasting -- obviously, September, when we are budgeting September for the last year -- some of that things that happened eventually in the -- with the run up of competitive pressures in Russia particularly as well as in the Ukraine to a certain extent -- have contributed somewhat to a slight change in the way we -- in our outlook for '05. That is not to say that we are not going to be going at a very healthy pace on the top line.

As far as the bottom line is concerned, obviously, whenever there is any hint of a deceleration in revenue, it is always a direct -- it directly translates into us shifting our cost items around and seeing where we can optimize them as much as possible. That has been with or without the revenue dynamic. The things that are scaleable that can be altered on the back load with regards to -- on the back of this top-down dynamic -- always get offered. And obviously, there is a clear target setting once we go through either monthly or more regularly quarterly numbers. That gets translated into basically target changes on the macro-regional and central levels and country levels as well.

So yes, we are obviously -- should there be any alterations -- and if any alterations happens where initial top line budget forecasts, there is always an alteration in tangent with the -- on the cost-cutting side to achieve the targets on OBIDA net income that we have mentioned before.

Eric Mueller (ph).

Arthur Capital. Vassily, I just wanted to confirm -- I think you said at the beginning of the call, average ARPU in Russia for $8.50 you are seeing in the rest of the year? It looks also like the MOUs are diluting quickly. Can you help me understand just a little bit more whether this is from the promotional activity carry over or really what is going on? If you can just confirm that?

Some of that is obviously based on the promotional activity of Q4. That lasted, as we had mentioned before, into Q1. Primarily, the effect -- the promotional effect took a toll on the revenues in some of the key markets -- in some of the more developed markets. As far as the regions are concerned -- and some of them are quite material -- there, the pricing levels are such that we are seeing fairly low incremental ARPUs. So their promotional campaigns do not really -- unless we are a new entrant and we price our services on a temporary promotion basis aggressively for a certain finite period of time. That is not the case. In which case, obviously, we may be pricing below our competition.

In other respects, it is just a matter of being in tandem with the market. We cannot say for a few regions, where our network qualities -- quite by significant margins superior to any other players. We cannot be charging a significant premium for our services. And therefore, we have to go with the market. And there, our incremental ARPUs get diluted. What you're seeing being set into the consolidated dynamic is just basically a different pricing level coming from those regions contributing more meaningful figures on the overall statistics but at lower margins and sometimes at -- or usually at significantly lower ARPUs.

So it is both of these things. As I said, the pricing promotion is more affecting the more mature markets, more material markets -- and the second one coming from the regions and the additional basically territories that we are adding to the business.

So just to confirm that -- 8.5 is a 2005 Russian ARPU you would think?

That is our expectation for the year. That is the average for the year.

So that is significantly down from first quarter -- what we talked about 3 months ago.

That is down from first quarter; that is true. And that is we think is a more sober analysis. It's not, as Adam has mentioned, it's not based on us being -- or aggressively planning to put or to initiate additional pressure on APPM pressure. That's not in our interest. Our goal right now is to protect as much revenues as possible. We think it is in the interest of all the main players to protect these revenues on the back of price stabilization in the overall competitive landscape and not -- whereas a lot of the players becoming more reasonable -- and pay more attention to top line as well as the profitability.

So we certainly have those KPIs on top of our agenda. So to the extent that we can minimize or retaliatory steps -- and we're not forced into them -- we will certainly be paying a lot of attention to keeping ARPUs stable in as much as possible.

Michael O'Flynn.

I work for Deutsche UFG in the States. Just a very brief question with regard to seasonality -- it seems like average tariff per minute was a bit higher than expected in the first quarter. Yet, expected usage was a bit lower -- a lot lower than I had thought it would turn out to be. Does this have anything to do with the new holiday schedule? The fact that Russia basically took the first 10 days of the year off? And your expectations for that and in reality how things worked out? Thank you.

Adam Wojacki again.

So yes, that is true. We have seen especially here in Russia -- as it was already mentioned -- the extraordinary holiday numbers. Basically comparing apples to apples and oranges to oranges, when we compare it Q4 to Q1, we had 20% of the public holidays more. So basically in numbers, if you look at this in the Q4, we had 28 -- Q4, we had 28 free days. In Q1, we had 34 free days. And if you look at -- if you look at this on the public holiday, on the free days, the revenue significantly will go down and goes down. So this is the effect we could see in the Q1. And this is the major contributor we would say to the drop in revenue in Q1.

And you would expect that to bounce back in the second quarter on top of the other seasonal impacts that are already expected, correct?

Yes, we expect this to a larger extent -- that this will balance off in the following quarters.

Alex Kinitzall (ph).

I'm calling from Bear Stearns London office. As you pointed out, CapEx in 2005 may be slightly higher than had originally been expected. Could you clarify what are the reasons for an upward revision in CapEx? And also you pointed out that you are going to implement some steps to protect your revenue against the operating erosion. Could you highlight what steps you're talking about?

On CapEx yes, we did change our guidance for the year to around $2 billion. This increase compares on a higher level obviously to the 1.8 billion number that we have previously announced for two main reasons. One is -- we feel just on the back of the KPIs that we are seeing on the technological performance of our network that we have underinvested in capacity last year, and we need to pay back the debts to our, so to speak, to our networks and our customers -- to ensure that we have a technological and a quality proposition to our customers that make us a premium quality operator.

And that is very significant so that we would like to position ourselves in the market, in the regional markets, regardless of how significant we are for our business right now. We think it is an investment into the future that will certainly pay out. Not to mention that we always need to be at least from parity with the second or the first largest or strongest player in our respective markets, whoever this player may be.

Second reason is that we are bringing forward in fact to 2005 some of the value-added services and new technology-related projects that we had originally planned for '06. We think -- it also works towards the same objective of us enabling though the companies that provide the full range of services that are becoming more and more in demand in the regions and are becoming kind of part of the gentleman's kind of packet, if you will, of services that we just need to deliver.

And we thought it would be more gradual in the role example of GPRS -- you know, we are doing it faster. We hope we would we would do a more gradual roll out of selling these other service platforms across the country. We are going to be doing it this year.

So those are the two main contributors to the high CapEx guidance. Not to mention the third factor, which we had mentioned all along that there are some one-offs in the CapEx program for this year, such as the migration-to-billing system defining platforms and a few other platform-related projects that are really -- could have been made 4 years go, could have been done 4 years ago. They haven't, and we are doing them this year. There's a bit of catch-up element in them. In any way, they are one-offs. So they would not to translate into permanent upping of the CapEx per sales guidance in going forward.

The second question -- as far as protecting of the ARPU and price per minute. It really relates to how we structure our carrier phones. It relates to how we -- how balanced we are in the propositions we bring to the market. Some of them may be priced targeted. Some of them may be just re-shuffling the structure of the tariffs. And in any way, we will be balancing between the acquisition priority, which still on -- we would still like to be obviously a strong representative of new editions that the markets gets in the coming months -- but balancing them with more retention-oriented programs and I think that Adam mentioned -- with the $10 promotion looking like it is, it is a giveaway really being a retention-oriented program.

As Vassily said, our main underlying rule that whatever we do, whatever tariff plans we put forward or proposition to our subscriber, it should be APPM, average price per minute neutral. So basically this is the first checking point we would do, which will ensure us that we will not go unless we very strongly pressured by competitors -- that we should not go, and we should not do in our proposal and to further reduce the tariff component as far as the price per minute is concerned.

(OPERATOR INSTRUCTIONS). Sergei Arsenyev.

It's Sergei Arsenyev from Goldman Sachs. Can I just you on dividends -- the tariff payout ratio of 40% that you are recommending -- and it's actually the second one in a row. And can we take that as an indication of your dividending (sic) distribution in the future? And does this tally with the increase in CapEx guidance?

And my second question is on the market share developments. You've obviously exit tariffs quite a lot in April as far as the incremental market share in Russia is concerned. I'm just wondering whether this was -- whether you shifted your focus maybe more towards gaining market share, especially as your competitors are going for a bit of a shareholder concept and may have taken the value of the bulled (ph). Would you say that your aggressiveness is explained by that in one shape or form or the other? Thanks.

On dividends, there is no formal dividend policy -- forward-looking dividend policy that has been formally agreed to at the Board level. The overall feeling at the Board level is that the payout ratio at percentage of U.S. GAAP net income may in fact go down as long as the absolute amount of dividends that gets paid out to shareholders is on the increasing side going forward -- looking out for the next 2, 3 years at least.

And how exactly that will translate into exact percentages is probably difficult to tell right now. But again as I said, absolute numbers being similar or higher -- relative figures, percentages of net income, may go down somewhat.

As far as the market share is concerned, I think there's largely the dynamic in April both due to the fact while we were promoting heavily certain tariff plans, certain promotions, our main competitor in Russia shifted to an image-oriented campaign on the back of the rebounding that was launched in the beginning of April. And that might have translated into -- contributed to the change in dynamic or our strengthening of our additions. Plus, there were some dealer loyalty programs that were implemented actually in March of this year that translated into kind of additional optimism, more positive outlook of the U.S. towards MTS in selling you more MTS. That also contributed to the April sales activity and momentum for us.

That, as we said, we are for us additions or gaining market share are one of the KPIs, certainly not the KPI. It is one of the top-level KPIs, together with revenues and market share in dollar terms, are profitability and other monetary KPIs. Certainly, it is one of the priorities. Not to say if it were at the expense of significant revenue loss and the price permanent dilution.

Maria Tenito (ph).

This is Maria from Citigroup Asset Management. I was wondering if you could help me reconcile the different trends on the up going forward. You reported 9.1 for this quarter. And your average for the year is 8.5. So the questions are on your -- there are different trends, I believe. One is the elimination of the promotion that is the showing negative. So we should see an improvement going forward, I hope.

And there is the CPP, and I wonder what is your view about it. I know you mentioned it, but I didn't quite get what your expectations are. Whether there is just a interconnection, whether it's going to be higher on a per minute basis than what you are currently charging, or whether you think it is going to be lower and that is the reason why your average ARPU will decline going forward? So if we can have also the percentage of the Russian revenues that come from income and fixed line minutes, that will be helpful.

Adam Wojacki again answering the first question on ARPU. It is what we see in ARPU in Russia here, $9.10. And then later, the outlook for the year, which we are saying today at 8.5. This is mainly due to the dilution of our customer base. As you know (multiple speakers)

What is your expectation for net addition?

And our customer base is growing very quickly. Each incremental customer is bringing $6 ARPU. So those are simple mathematics. The more customers we get -- and this is the fact that the ARPU will go down and is going down. At the same time, we can only reiterate it one more time. This is not at the expense of the average price per minute. So this is a simple mathematics type of extending the customer base and incremental customers bringing less and less ARPU. At this stage, we see the incremental ARPU at $6 for customer.

Now what are your expectations about net additions for the year in Russia?

We are not usually providing specific guidance on exact discover numbers. What our expectation for penetration by year-end in Russia is around 80%. And we expect to more or less be stable in our market share for Russia. So that may directly give you a figure of our net additions.

11.5 million. The question is -- what you're saying is that the dilution is not going to be offset by the recovery on the ARPU coming from the bonus minutes that you get for free in the fourth and the first quarter? The recovery on the ARPU of the promotion is not going to outset offset the dilution from the new customers on the dial-in card?

There will be a slight element of that. But since we're talking about within $10 for example offering -- so deferred scheme, right? We are talking about a 10-month scheme basically. The effect of the discontinuation of promotions is still not going to offset what Adam has mentioned, which is the overall dilution of lower ARPU customers joining the network.

Now on the CPP, can you provide that number -- what percentage?

In the numbers that we are giving you, CPP has not been incorporated, okay? As I mentioned, we thought we have seen some positive trends on the back of the CPP introduction in the Ukraine. At the same time, the interesting thing for example, which indirectly feeds into our business as well and I don't know if we mentioned that before -- we've seen a significant reduction in the amount of traffic that we terminate from the PSTM (ph) operators in Q1 particularly, which affects our revenue as well because there are less settlements coming and less payments coming from those operators. There is a general shift towards traffic -- towards mobile-to-mobile traffic from fixed to mobile, as one of the tendencies under the mobile or fixed-to-mobile transition. And that to some extent is positive.

On the other hand, you could say that a lot of it is migrating from a paid fixed-to-mobile traffic to a free on-net traffic offering by one of the operators. But we are seeing some of that. And it kind of -- it implies that we get a bigger share of the traffic -- of the industry. But at the same time, it's yielding less revenue on a per minute basis.

Is it fair to assume that about 10%, 15% of your revenues are incoming fixed minutes?

No, in Russia, there is no fixed-to-mobile interconnect.

No, I understand that. But you still charge your customers for incoming from fixed lines. You don't receive it from the fixed line, but you still charge them in minute of usage.

That is correct. Yes, I think it's really -- the number -- the percentage that you have given is accurate. Yes, that's right. 10 to 15%, that is with OE effort.

Alexei Yakovitsky.

It is Alexei Yakovitsky from UFG. I'd like to go back to the ARPU issue if possible. If I assume that long holidays in Russia in the beginning of January was the primary reason for the quarter-on-quarter decrease in MOU, then the usage in the second quarter should go back at least to the levels of the fourth quarter of 2004, which is 164 minutes if I am not mistaken. And unless your pricing collapses in the second quarter, which I think is unlikely, we should expect a sequential increase in ARPU in the second quarter relative to the first quarter of this year. Would you say this is a correct assessment of the ARPU trend that you have seen in the first 2 months of the second quarter? Thank you.

Well, (technical difficulty) I am assuming that for a certain part of the customer base rate, we are not talking about 50% of the customers, right? We are only talking about the ones that have made use of those promotions, yes. But this segment offer should go up as these promotions die off. At the same time, this does not -- from the materiality standpoint -- fully offset the dynamics Vassily mentioned on lower ARPU customer journeying network in lower use, lower ARPU. But yes, you are right in stating that there would be a positive trend. We would like to see it offsetting. We are just maybe being somewhat conservative, but we are not sure how exactly numerically it will work out on the back end -- on the reversal to positive territory.

Maybe you didn't hear my -- I didn't phrase my question correctly. I was referring to the holidays in Russia rather than the free minute promotion as one of the primary reasons for this -- was it a 16% decrease in MOU?

Yes, of course, I am sorry I misunderstood it. Obviously, there will be -- there should be a normalization of the usage pattern since Q2 and Q3 are going to be just regular quarters comparable to the previous years for sure.

Basically do you expect 8.5 ARPU for the average 2005, you should be expecting ARPU to go up the second quarter, right? Otherwise, you don't get to this figure if you should take a decline in the fourth quarter. Okay, thanks, I guess you are not going to answer.

We are talking about a blended figure, right? Even if Q2 and Q3 are going to contribute a larger I'm talking higher revenue -- I'm sorry, ARPU dynamic, Q4 is likely to be weaker still. So for the blended figure, we would still assume that that is an accurate assumption of what we're going to get.

Would you say this is the conservative one, or--?

Somewhat conservative.

8.5.

Francis Qwetter (ph).

This is Francis Qwetter from Brookside Capital. A quick question on the CapEx. You said that you pulled forward 200 million that you had originally planned to invest in '06. Can we infer from that that you expect CapEx for '06 to be lower?

And then secondly, you said the increased CapEx would also provide a boost in your ability to provide value-added services. How long before we see a traction in ARPU and revenues from those value-added services that you are investing in now with the extra 200 million?

Of course, you could assume that easily that the price we are bringing forward to '05. And I didn't say that they all accounted for the difference. Part of that was just an increased capacity related CapEx part of it was bringing forward certain projects from '06. There is certainly -- the bring forward projects would be less than 200 million.

As far as ARPU -- value-added services ARPU contributions -- they usually happen immediately basically. Once you want GPRS, you have customers joining you -- obviously, when we are entering later in sort of lower usage environments, lower usage, lower ARPU environments, it's a forward sell. If the region we are positioned on parry terms more less in a given region than that the pickup and value-added services usage on the backup platform introduction is faster. So there really the payback dynamic differ from one region to another. But as I said that is becoming -- or has become already a standard part of the offering.

So if you refer to the GPRS-enabled services, they just have to be there in most of the significant oboe (ph) centers. There is just little room around it unfortunately.

Overall, it is certainly a MP positive project. In some regions, it is more difficult. We treat them as macro-regional or countrywide projects. Look at their MPVs at this level -- somewhat magnified level. Because we think in many ways that is an investment into the future because at some point, if you don't have GPRS -- if you don't have a certain range of value-added services, you'll simply not be considered a meaningful alternative of an operator. And yes, there is an element of not getting an immediate payback. Not that year-long payments -- or your short payments that we used to have in the more developed markets. But we are still going to be in positive territory for -- if we consolidate them on a macro-regional to countrywide levels.

(OPERATOR INSTRUCTIONS). Stephen Pettyfer.

It's Merrill Lynch. 2 questions please. First of all, looking at your expenses, I was wondering if you could give us a little bit more color on what is going on in your G&A line particularly. It looks like it is gradually increasing as a percentage of sales. I'm wondering if this is a more reasonable level going forward.

And the second question refers to your numbers you released on your presentation on Ukraine. It looks like May was a much stronger month. Is that a more normal trend for you? Do you think in terms of the growth after a somewhat weaker competitive first quarter? Thank you.

If we can start with the second question. I think you're referring to customer growth in Ukraine. Because that is what we are revealing today. Yes, definitely, we'll see also this is an alternate year. And when you look in the year prospective, that two main seasons -- one is the Christmas and the New Year's season. The other line is pre-summer and early summer season, May including. So that's why you know -- May was very active in Ukraine on all fronts. Our competitors were active, and we also were active.

As I said, we just did the review of our major comparative lines in Ukraine in April and the beginning of May. And that had a definitely a very positive contribution to our growth in this market.

When you are looking at their -- as far as I understand you are comparing the first quarter 2004 with the first quarter 2005 -- you are absolutely right that there's a potential of sales. Our general and administrative expenses went up from 14.6% to approximately 16%. Comparing with the fourth quarter, you obviously see -- you certainly see a certain decrease as a percentage of sales. So we see a more stable dynamic.

Obviously, the main reason for that is the growth in the business overall. It's basically what we see is the business becoming more mature. We added a number of new regions; we started a number of new operations. Therefore, obviously, our cost structure is changing over this period of time.

If I can just ask a follow-up to that -- I believe you have been working on extracting cost benefits out of your large number of acquisitions. Is this sort of line we should see or expect to see some efficiencies coming through in on a 12-month view?

Let me say that those cost benefits have already accrued to some of those operations obviously on the back of -- just to give you one of the examples -- of for example satirized advertising -- on the back of the politic agreements on leasing transport capacity from some of the federal operators that we have -- where we have borrowed discounts on those lease payments. So a lot of them -- from a managerial overhead that we are scaling to a bigger business. Not all of them have fully materialized.

Just to give you another example, we are in the process of consolidating from 50 call centers to just over 10. This should be completed by the end of the year. And this will yield efficiencies. This will not yield cost savings immediately because from the short-term, there will be severance payments that we will have to let go. But over a longer run -- let's look at it here in the 18 to 24 month horizon, this will translate into higher margins and basically capping OpEx on this particular front.

So sounding (ph) comings have already materialized. And some are yet to materialize. We expect the full effect of the change program and the integration of acquired entities that has been happening -- that is still ongoing to a certain extent, or to a large extent -- will really transpire beginning from '06 -- to the extent that they have not yet materialized on advertising side, which I think has more or less fully been extracted.

Michel Shamiro (ph).

This is Michel H. Shamiro from Kyros in London. Just to follow-up on the CapEx, if you could give some indications of what you expect for 2006, if you can. And then basically just a clarification on the expiry of the lock up on these 10% stake in FDS. I wonder if you could comment on the feasibility of eventually buying back the stake -- MTS buying back the stake itself as a solution to this overhang. Thank you.

As far as CapEx for '06, we are expecting to be in the 30 to 35% category to sales. As far as buying back DT stage, we are in fact considering the option of the Company buying the stake onto the balance sheet. Our decision and the Board's decision will largely depend on the offering price that will be agreed with the seller, as well as the cost associated with the transaction and the cost of funding that will be required to finance it.

And in terms of timing -- when is the lockup due to expire just to understand the potential framework?

The lockup expires in mid-August. We believe that does not mean that the transaction has to be completed by mid-August. But we certainly will one way or the other dig into greater detail on these conversations in June and July and probably immediately after the new Board gets elected or -- after the AGM's meeting, which is scheduled for the 21st of June.

So basically as far as you know, there aren't any particular obstacles from a technical point of view of this eventually happening if you decide--?

It is easily structured in as long as the terms are right and as long as the Board supports it and as long as the shareholders as well as the constituency thinks it's the right thing to do, we will be able to go ahead with it.

Jean-Charles Lemardeley.

(technical difficulty)

I'm sorry. We cannot hear you.

You mentioned 20, 30% of your subscribers have got multiple SIMs, presumably that is in Russia. Can you give us the estimate for the Ukraine?

On the revenue guidance for the year, you recently were guiding towards $5 billion I guess consolidated for the year. That doesn't appear to square really now with your ARPU guidance. Is there a new guidance now in for revenues for the year?

You mentioned briefly in passing the potential for new geographies for acquisitions. Can you restage again your philosophy for potential acquisitions? And then particularly just give us an update on your view on India?

Adam Wojacki again answering the first question on double SIM cards in Ukraine. Ukraine being as far as the market development and the somehow later stage than Russia. We do experience a number of customers having double SIM cards. However, the percentage is not as high as here in Russia. We assume that about -- we estimated it about 15 to 20% of the customers having double SIM cards.

As far as revenue outlook for this year. Even though we usually do not give forward-looking statements for revenues, we are certainly planning to be over supplied for this year. That is our internal target and hopefully we will be able to meet it. It's not an easy target. It is a stretch target. But still we will be working towards it.

As far as new geographies are concerned, we have -- actually, we are raising the last round of financing through the Eurobond. We were cooking several transactions that were on the verge of completion. Some of them have gotten delayed due to the negotiation dynamic. We are still -- all of them relate to the CIS territories. We hope to be able to complete at least some of them in the very, very near-term.

India has not been put on the table in a fully-cooked session. Currently, Sistema is more involved in dealing with the transaction. As you know, there are some government-related and debt-related assets of it that need to be worked through. We believe that Sistema is in better position to handle these aspects than we are. And there is -- we always have an option. If we think that it is synergetic and this investment provides us with additional growth momentum, we always have this defect * option with Sistema. The terms of which will have to be worked out when and if this transaction ever happens.

But certainly our priorities remain in what we have identified as core markets, which are countries immediately neighboring Russia and the Ukraine.

Anna Bossong.

Anna Bossong from CA-IB. I've got a couple of questions. One is on your regional launches. You launched two operations in May. Can you perhaps give us an idea of how many you are planning for this quarter and whether next quarter will be of a similar line?

And secondly on your loyalty program with the dealers -- you mentioned in March that you made it more attractive for them to sign up customers to MTS. Can you give us an idea if that will impact on SACs in the second quarter?

As far as the regions are concerned we have, as I said, we have added two more regions. The second one we added on the 31st of May. We have eight more to go. They are spread out over the period of the next basically 2 quarters largely, most of them -- with two remaining for -- or being postponed until Q4 of this year. And as I said by the end of the year, we should be fully launched in all 87 regions for which we have licenses.

And the loyalty program?

The loyalty programs vary from one dealer to another. I probably would want to go into detail on a dealer-by-dealer basis. But basically, we're talking about a certain percent -- performance bonuses for certain dealers for execution of higher-than-expected -- achieving higher-than-expected targets.

But you don't see that having a significant impact on SACs?

No, we believe that on an overall blended scale sheet, it would be immaterial. And actually, our overall propensity and overall target is to keep commissions in check at worst and at best to bring them down.

Evgeny Golossnoy.

Evgeny Golossnoy From Troika. I just wanted to clarify a couple of numbers for you already mentioned. I'm sorry but again -- what is roughly the share of fixed-to-mobile cost in total traffic?

And then second one -- you mentioned about this $10 offering will probably end and you probably said it is end of May? Then the multiple SIM card percentage is roughly 25/30 in Russia and 15% and 20 in Ukraine? And what is the share of CapEx going forward as percentage of sales, just briefly. Thank you.

Adam will handle the promotion aspect. We mentioned before that 10 to 15% of traffic is fixed to mobile. We mentioned that multiple SIM cards are 20 to 30% in Russia and 15 to 20 in the Ukraine. We mentioned that the CapEx-to-sales ratio for next year is likely to be 30 to 35%.

And my last question probably is -- I understand that you will be looking into this acquisition of DT at a later stage. But is there a chance that you will recheck this offer that you will buy? I guess sort of (multiple speakers)

As I said that is not a decision that has been made.

(OPERATOR INSTRUCTIONS). Taras Schimelda.

If we were to return for a minute to Ukrainian subscriber acquisition costs, perhaps I did not understand you correctly. But I got an impression you said they would be flat to slightly up. With they be flat to slightly up versus what we saw in the first quarter of this year or versus what it was the average for 2004? Thank you.

Well, looking at the first quarter, definitely what we've seen the trend is now actually quarter-to-quarter going slightly down. So we'll be flat and slight up go comparing to the last year. That is what we seeing and what we're saying here.

Flat to slightly down, not slightly up?

Yes, sorry, flat to slightly down comparing to the last year.

Ladies and gentlemen, can we please have the last two questions?

Rizwan Ali.

I just wanted to follow up the guidance for 2006, or for CapEx, you are saying 30, 35% of revenues. I just wanted to clarify that it's service revenues? Or is it total revenues?

And second thing is -- sort of end of being clositive (sic) about 40% of this year, if you end up having $5 billion in revenues -- why should the CapEx next year be so much higher as a percentage of revenues given that the subscriber accrual I think you are forecasting to slow down quite significantly next year?

The percentage that we gave was on total revenues. We will see a reduction in CapEx in '06. As you are also seeing there, we will be adding less customers and we will have to invest less money into additional network -- into the network basically. And we -- I mentioned that the overall number is likely to be in the vicinity of 30 to 35 -- less than 30 to 35% of total sales.

Given that subscriber growth ought to slow down significantly, why shouldn't it be lower than this? Because on a long-term basis, most companies do about 15 to 17% of revenues going into CapEx?

Right and the data we think is going to be the prevalent dynamic for us as well -- how fast we will go down to maintenance levels. And again, these levels in Russia may be somewhat higher than they are in other countries on the back of traffic driving CapEx and maintenance CapEx on the one hand and the other hand price permits as being lower than in some of the other markets. So you will see a slightly higher maintenance CapEx figure.

Now to tell you the truth, at this stage, we are a little bit playing with abstract figures here. I would not be able to tell you that we have a project load equivalent to 35 to 30% of our projected revenues for next year. So it's truly a guesstimate right now to the extent we will bring it down more than that we will be doing this. For across, our return on invested capital is one of the main KPIs. It is in the management team's direct interest to do that. I may be trying to stay a little bit on the conservative side, not to give you figures that we will not be able to meet afterwards.

Olga Zhilinskaya.

One follow-up question, if I may. Do you plan to follow up Vumpaconfuten to a known sector of subscriber base sometime in the future and how it might potentially decrease your actual subscriber base? Is it going to be those 20 to 30% of total subscribers which have double SIM cards? Or the change might be higher than that? Thank you.

We are not planning to introduce this additional recording line. We believe that our current reporting practices are representative enough to give a full and objective figure of our customer base. For us, a main concern is continuity and comparability of current figures for previous periods. Therefore, we don't see a particular benefit in getting this additional statistic in or getting this additional reporting line into our analysis to the outside world. At the same time, if we were to do that, we would probably get figures that are comparable to what Vimpelcom has posted. But no, we are not planning to introduce that anytime soon.

Ladies and gentlemen, let me conclude this conference call. Thank you very much for your time. A replay of this call will be available for the next 10 days. Should you have any further questions, please do not hesitate to contact our Investor Relations department. Thank you.

This concludes today's first-quarter 2005 financial operating results presentation. As advised, there will be a replay available for 10 days after this conference. This will be available from 18:00 hours UK time, 1 PM Eastern Standard Time. Thank you very much. You may now disconnect.