Mobile TeleSystems PJSC (MBT) 2006 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the third-quarter 2006 financial results for Mobile Telesystems conference call on Wednesday, 29th of November, 2006. Throughout today's presentation, all participants 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. Andrei Terebenin. Please go ahead, sir.

Good day, ladies and gentlemen, and welcome to MTS' conference call to discuss the Company's third-quarter 2006 financial operating results. Before beginning our discussion, I would like to remind everyone that except for historical information, comments made during the call may constitute forward-looking statements, which may involve certain risks. These statements may relate to one of the following issues -- the strategic development of MTS' business activities, both in Russia and abroad; revenue and/or subscriber growth; syndicated loan facilities and their usage; legal actions or proceedings directed at the Company or its representatives; regulatory changes end the impact of Company's operations in the markets in which we operate; financial indicators such as operating income before depreciation and amortization; average revenue per user, cash flow projections and return invested capital; capital expenditures and operating expenses. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. The statements may include the Company press releases, earnings presentations, MTS' annual report on Form 20-F, as well as other public filings made by the Company with the United States Securities and Exchange Commission, all of which are available on the Company Web site at www1.mtsgsm.com, or [that on the] United States Securities and Exchange Commission at www.FCC.gov.

MTS [disavows] any obligations to update any previously made forward-looking statements other than the conference call or make any adjustments to the previous made statements to reflect changes in risks. Copies of the presentation materials used in reference in this conference call are available on our company Web site.

Participating on the call today are Leonid Melamed, President and Chief Executive Officer; Vsevolod Rozanov, Chief Financial Officer; Mikhail Shamolin, Vice President, Head of business unit MTS Russia; and Adam Wojacki, General Director of UMC. Now, Leonid will take you through the quarter.

Ladies and gentlemen, thank you for joining us on our third-quarter conference call. For the third quarter 2006, MTS has delivered its strongest quarter to date, a sign of our commitment and implementation of our 3+1 strategy -- that is, strengthening our leadership in Russia, growth and synergies in CIS, creating value in growth markets and adding value through additional business opportunities.

Revenues for the group reached nearly $1.8 billion, while our OIBDA margin came in at 53.6%, an improvement driven in part by topline growth and operational enhancements throughout the group.

In Russia, as a part of our goal of strengthening leadership, revenue grew to over $1.3 billion, a 30% year-on-year increase and 22% improvement from the second quarter.

Factors which contributed to our growth included -- one, revenue stimulation such as an increase in new subscribers and organic growth in usage, as we both introduced and transitioned to our new tariff structures; second, the rise in interconnected revenues; and the third reason, seasonal factors such as higher roaming revenues and greater voice usage among our subscribers.

In Ukraine, as a part of our goal to improve operational efficiency, UMC delivering an OIBDA margin of 56.4%, a 4.7-point improvement from Q2. As part of our goal and regaining our leadership position in the market, UMC accelerated its ongoing network rollout and increased its distribution in Ukraine to slow its declining market share. Now, UMC boasts postpaid leadership and the market's highest APPM.

Looking ahead, we expect market share to stabilize and our networks to increase capacity and quality, as well as broaden distribution, which will allow UMC to resume its growth and share of subscribers and revenues. We view it as an encouraging sign that UMC led the market in net adds for October 2006.

In Uzbekistan and Turkmenistan, our subsidiaries built upon their leadership positions in each of the respective markets during the quarter. We have introduced our new brand in both markets, and continue to expand our networks in each. In August, we were pleased to get our 1 millionth subscriber in Uzbekistan. As for Belarus, we improved our market share to 53%, reaching the third million subscriber in October, driven in part by our re-branding of the operation and broader network build.

As part of our strategy to create value in growth markets, we continue to pursue ways to increase our footprint, though we didn't make any significant acquisitions this quarter. Prices, in our view, were simply too high to justify, but we continue to look for opportunities and potential synergies with our existing and planned business activities.

Now, Vsevolod Rozanov will take you through the numbers.

Thank you, Leonid. Well, revenue growth in Russia certainly aided the business unit's margin improvement. Our 3+1 strategy aimed at cost efficiency and process excellence helped us to deliver a 52.4% OIBDA margin from MTS Russia. Examples of these efforts included a reduction in advertising expenses, a decrease of general and administrative expenses, greater financial control, which yielded a reduction in bad debt provision by 25%.

In Ukraine, revenues for the quarter were $414.6 million, a 24% rise over the year 2005 and a 16% improvement from Q2. Driving this revenue growth was seasonal increases in roaming, [control of] the traffic mix to improve APPM, plus completion of the main phase of the accelerated network rollout project, which improved network performance and facilitated increases in the volume of traffic handled.

Building on our momentum in Q2, we witnessed a rise of $49 million in OIBDA, which led to a further 4.7% OIBDA margin improvement through promoting [on-net] traffic, altering our subscriber acquisition policies to reduce handset subsidies, and additional cost control programs in line with our efforts to instill process excellence throughout the organization.

We're witnessing considerable growth throughout our operations in the CIS. In Uzbekistan, improving network coverage and quality also contributed to $9.3 million rise in revenue from Q2. OIBDA from Uzbekistan improved to $22 million, in the process delivering a healthy margin of 59.9%.

In Turkmenistan, revenue increased $9 million to nearly $53 million, though a onetime charge for license usage fees negatively impacted our OIBDA margin. Looking ahead, we expect our foreign subsidiaries -- in particular, Uzbekistan -- to constitute a more visible presence in our quarterly results.

For the group, we have seen a significant improvement in the bottom-line performance. Net income rose 40% year on year, and nearly 39% from 2Q to over $486 million, aided in part by slow appreciation of the ruble. Free cash flows reached $407 million for the first nine months of the year.

We continue to show strength in our balance sheet. As of September 30, our debt level remained stable at $2.7 billion, while net debt to OIBDA dipped below 1 times.

Regarding our share repurchase program, we didn't receive federal antimonopoly service approval until late October. Thus, we were not permitted to launch our program in Q3.

Now, I am passing the [word] back to Leonid.

Thank you, Vsevolod. Let me continue by following up our 3+1 strategy implementation. As a part of our goal of seeking additional opportunities to enhance our competitive position, we are continuing to leverage our position within the Sistema Telecom to test (indiscernible) projects in our home markets.

In Ukraine, we were recently awarded a CDMA 450 license, a platform that would allow us to introduce wireless broadband access in both major cities and in rural areas not served by wireline access. Success of this initiative may lead us to pursue similar projects in other markets.

We are also seeking to broaden our convergence work with Comstar. One project involves introducing WiFi access throughout Moscow to both MTS subscribers and roamers on our network. We are also pursuing fixed mobile convergence projects including services that allow MTS subscribers access to Comstar's network and vice versa for interoffice calling and VPN remote access through GPRS services. In addition, we will also explore ways to integrate our company-owned points of sale with other Sistema Telecom companies to increase distribution and achieve greater cost efficiency.

I firmly believe our customers in Moscow and [in the] regions will relish the opportunity to sign up for mobile phone, landline, broadband, Internet access, and even television subscriptions in one convenient location. This has the potential to create a great deal of additional value for our customers.

With strong performance, both in Q3 and Q2 throughout the organization, we feel comfortable raising our 2006 guidance for revenue to not less than 20% topline growth. Our target of 50% OIBDA margin remains unchanged, and we expect our group CapEx spending to remain roughly on $1.8 billion level.

Considering we are reporting Q3 numbers, it would be premature to comment on guidance for 2007. In January, after the winter holiday, we will be ready to give you an idea of our outlook for 2007. Certainly, the centerpiece of our efforts will be to encourage greater voice and data usage on our networks, but 2007 may offer MTS the possibility to reach our customers in even more compelling ways.

Now, I would like to open the call to questions.

(OPERATOR INSTRUCTIONS). Alex Kazbegi, Renaissance Capital.

First of all, congratulations on the great numbers. Several questions, but maybe I can lump them in one. If you could give us maybe split of the contribution of various factors to the ARPU strength, especially in Russia. That would be sort of the first question, and I will specify what I mean here. If we could discuss maybe a bit more on how much was from the interconnect, how much was from the introduction of the call setup charge, how much was the roaming and so on and so forth.

Second, maybe you could discuss a bit more in detail the effect of the calling party pace -- in particular, what happened with the traffic, how the traffic has been distributed, how was it prior to introduction of CPP, what happened in the Q3, and whether that trend you have seen in Q3 is actually still visible and continues into the Q4 as we speak now.

Well, I have a number of others, but let me restrict myself to the third one. Could you maybe comment on -- there has been a quite an increased discussion of the possibility of issuing 3G licenses from the very beginning of 2007. And I think unlike the previous talks, at this time, there is a talk about -- that the license should be sort of pan-Russian and come with certain obligations, which obviously could mean potentially much higher CapEx than anybody would have thought before. If you could comment, that would be great as well.

Let me give the floor to Vsevolod to answer about the ARPU. And thank you for the congratulations.

Thank you for the congratulations as well. Speaking about ARPU, we can say that contribution of different factors to ARPU increase was the following -- we approximately estimate the contribution of seasonal factors, including an increased roaming, as 50% of the increase. We believe that the introduction of interconnect, including the -- introduction of CPP, including the interconnect revenues and loss of a certain amount of revenue from incoming calls constitute approximately minus 10% of the Q2 results. And we attribute approximately 60% increase to our marketing efforts, which might be described further by Mikhail, which I am passing the words to discuss -- CPP effect.

Overall CPP effect, and absolute terms, was slightly negative on the revenue. We have successfully compensated most of it by introducing new several offers to the market and by implementing the segmented marketing strategy. The effect of CPP on traffic was neutral in July and August. There was no change in fixed to mobile incoming traffic. In September, we saw 64% growth in fixed to mobile traffic, although since the fixed to mobile has a fairly low share of total traffic of 6% to 8%, overall, the total traffic grew no more than by 2% to 3%.

And is that growth continuous into Q4 as well? (multiple speakers).

It is too early to tell. We're still watching it. We see a change, but we don't see a dramatic change.

Right. Can I ask also -- when you are saying marketing efforts, do you attribute, let's say, the conversion of the dollar tariffs into the ruble territory as a marketing effort? Is that part of it as well?

Yes, of course it is a part of it. We're moving towards introducing ruble tariffs in the market, and that will be part of our marketing efforts in 2007 as well.

How many subscribers are still on the dollar tariffs as of now?

On the old ones?

Well, overall, yes.

Well, as we were telling you in a conference call after the Q2, we have very successfully introduced the new tariff plan called Pervyi, or first. And this tariff plan had a high price for the first minute and a lower price of second (indiscernible) minutes, and stimulated our subscribers to talk more. The launch of this tariff plan was very successful.

In autumn, we launched another tariff plan called [Red], which was a tariff plan oriented towards use. And this tariff plan allowed very affordable price for calls inside this tariff among people who are on the same tariff plan. And that stimulated MTS subscribers, and also non-MTS subscribers to join this tariff plan and talk more, which increased MOU. And we had also positive effect on ARPU on this tariff plan. Both tariff plans have been advertised in both rubles and dollars in different regions. And this is basically a start of our ruble transition. But so far, majority of our customer base is still sitting on the dollar tariffs.

Let me answer the question about 3G. We would like to participate in the tender that we're waiting to happen either the end of this year until the middle of next year. We understand that we will anyway have to make a rollout of the network in the bigger cities of Russia, since it will be important marketing part of our activity. We are still investigating the business case to prove the size of our rollout of our network in 3G, and that is why I cannot comment now about the additional CapEx that this rollout would require from us.

But we also have to make a statement that could be a good reason for us to move a good portion of our 2G CapEx to 3G CapEx, an order to save our capital investments by using 3G UMTS technologies to increase the capacity of our network in a cheaper way -- like we understand we can actually achieve now by using the 3G technologies once the majority -- or let's say, we understand that to the end of 2008, more than 40% of our subscribers will have 3G adopted handsets.

Would you be prepared to the give us some guidance on the CapEx for 2007, and whether it will be excluding or including the 3G?

As I have said in my presentation, my speech, we would like to withdraw ourselves (indiscernible) to make any guidance for 2007 until the end of January.

Vladimir Postolovsky, UBS.

Once again, congratulations with fantastic results. Three questions from me, as well. The first one is on service costs, which did not go up as much as -- certainly, we expected them to on the back of the mobile termination charges introduction and seasonality. Is there anything -- were there any improvements on the service cost sides that you would attribute that to, or was it just -- if you look at growth quarter on quarter, it was exactly the same as last year, which would be explained by seasonality. But this year you had exceptional factors too. So any comments on that would be appreciated.

The second thing is, you mentioned in your presentation Federal Antimonopoly Service approving share repurchase program. Are you talking about the ADRs buyback that you previously highlighted, or is that something else?

And finally -- actually, can I go back to this ARPU question? Just to clarify, when you say that CPP plus interconnect is minus 10 and marketing is plus 60%, would you agree that -- well, do you include call setup charge and cumulative (indiscernible) CPP in the first category, and then -- if that is a ruble appreciation? And sorry, I would like to take it back. Negative (indiscernible) CPP and introduction of mobile-to-mobile interconnect in those minus 10, and ruble and call setup charge in plus 60%? Could you confirm that, please?

I will try to take all of them. First off, speaking about the service costs, we have definitely seen the increase of interconnect in our costs. But also we have seen the significant drop of cost of handsets and cost of other accessories, as we were both in Ukraine, where we significantly decreasing the cost of handset subsidies. And in Russia, we are trying to minimize the very low profit, very low margin sales of handsets. So that has partially helped to compensate the service costs.

Speaking about the share repurchase program, yes, I would like to confirm that we are speaking about the ADR repurchase. We do not call it buyback, but it is actually what you mean.

Speaking the ARPU reconciliation, I would like to say that we do not have a call setup charge. It was (multiple speakers) a tariff in August of this year. And we include this effect into the marketing effect of the increase of ARPU. And if you just --

And mobile-to-mobile interconnect into CPP and others, right?

This is minus 10.

And maybe give us a number of what was the total interconnect revenues from mobile operators in Q3?

It was approximately $120 million.

Alex Heznetzolz, Bear Stearns.

I would like to join after the greetings with your impressive results. I have a couple of questions. The (indiscernible), we have noticed a significant 9% increase in the effective tariff in Russia. Could you probably explain the reasons for such trend, especially since in the past, the trend was rather negative?

And second, could you outline the reasons for a 77% increase in accounts receivable in the third quarter, please?

Can you elaborate a little bit what do you mean under 9% increase in tariff plans?

Well, I mean increase in effective tariff. So you would take ARPU and divide it by minutes of use, we found out that actually effective tariff went up by 9%.

A couple of new tariff plans that we have introduced in the market, including the Pervyi tariff plans, had higher APPM, average price per minute, on it than the old tariff plans. And despite that fact, the sales of that tariff plan have been exceptionally successful, and that drove the overall level of APPM a little bit higher than it was in June. So that was a major effect.

And also, introduction of -- well, change in our existing tariffs, after the CPP introduction in particular, changing the structure of first-minute costs versus the other minutes also contributed to that.

So it does mean that some subscribers were not very rational by joining the [first] tariff plans instead of other options?

The plan was well-positioned in the market and well-advertised, and was quite popular because it stimulated the subscribers to actually talk more. And also, competition allowed us to do that.

Speaking about the second question, generally speaking, I think there are three major reasons behind that. First one -- first of all is the general growth of the business in Q3 comparing to Q2. Second is the seasonal increase in the trade receivables related to roaming. And the third, which is the most important, is actually trade receivables related to new interconnects due to the CPP regime specifically to interconnect, because what has happened is basically we started to negotiate and sign the majority of contracts in the course of July and August. And with the very many [operators], the bills were actually sent, they were invoice, but not all of them were paid. And we believe that we will get back to normal over the course of Q4.

Sergei Arsenyev, Goldman Sachs.

Can I just ask you two questions, please? Firstly, on the share repurchase program, when you first introduced the notion of the share repurchase program in the second-quarter results, the share price was obviously substantially lower than it is now. And when you talked about it, you are saying that this is -- it represents or represented a great investment opportunity, from your point of view. Obviously, now, with the share price at $47, do you still view MTS share price similarly attractive investment opportunity as when you first mentioned the program? That's the first question.

My second question is on Ukraine and on the advertising and marketing expenses, which dropped substantially. And you said that this reflects an increase in gross additions. But I'm just try to see how sustainable this number is going forward.

When we think about the potential price of our stocks, we observe the recommendations of the analyst to the customers. So we just looked for the numbers delivered by analysts, and also look into our own long-term business plans to understand how do we value our company, and what can we recommend to our investors. So from our viewpoint, and based on the valuations done by analysts with whom we -- with the consensus of the analysts we do agree, the promising market price of the stock of ADR for MTS is at the level of 52% to 55%, as it was until today -- $55, yes, as it was until today. That's why it looks like that $47 is still an attractive price to buy.

So let me pass the question about Ukraine to Mr. [Domayevsky].

As far as the question for Ukraine is concerned, one clarification -- advertising and marketing expenses were at the several level for the previous quarter. Explanation -- they dropped as an element in subscriber acquisition cost. We acquire more subscribers and with the same level of advertising and marketing expenses as [there was the] explanation. As an element, it was a visible drop.

Right, but do you see this as a sustainable trend, that it will cost you just as much to attract an ever-increasing number of subscribers?

Well, you know, when we talk about subscriber acquisition cost, there were a number of elements in our policy in the Q3, which held us to reduce the subscriber acquisition cost, and we see the continuation of this policy as the very feasible element and activity for the Q4. So yes, we plan to keep it at the similar level as the Q3.

Rhys Summerton, Citigroup.

I just had two questions. The one was -- I think you hinted at it earlier -- just on the change in the traffic mix. I was wondering if you could give us the change or the unmet, off-net component of traffic in Ukraine and in Russia.

And then the second question I had is -- obviously, when you look at your numbers on the EBITDA, excluding handsets, you're looking at an extremely high margin, back to where it was this time last year. Are there any obvious expense items which still stand out which, going forward, you could still address to keep this margin at a similar level or even improve on it?

On the traffic side, the [on-net] outgoing traffic remains stable. On-net incoming, a slight decrease; mobile incoming, a slight increase; mobile outgoing, slight decrease; and fixed incoming, significant increase -- 64%, as I said, in September.

Speaking about the EBITDA trends, we obviously did not give any guidance for the next year. What we can observe at this stage is that we definitely see significant margin pressure from both interconnect from our marketing and advertising costs, possibly dealer commissions. But generally speaking, I think we will get back to you, as Leonid said, [midterm] January to discuss our vision of developments of OIBDA and EBITDA margins for next year.

Alexei Yakovitsky, Deutsche Bank.

Congratulations on the exceptional numbers. To come back to the ARPU issue that Vladimir and Alex Kazbegi raised, can you maybe strip out new interconnect revenue that you received from fixed to mobile interconnect that did not exist in the second quarter, and tell us what ARPU was excluding this incrementally new revenue line for the quarter? This is my first question.

The second question is, I wonder if you can get some feel for the current trends in the fourth quarter? Are you seeing the same collapse, if you will, in ARPU that we did see in the previous few years in the fourth quarter? Or are you seeing some weakness, but it is nowhere is dramatic as it used to be?

And finally, a very final question, you raised your revenue guidance for the year, for 2006, but you left your EBITDA margin guidance unchanged. Would you say that your EBITDA margin guidance now is more conservative than it was three, four, five months ago?

Speaking about ARPU, the absolute increase, comparing to Q2, was approximately $50 million in terms of interconnect revenue. Does it answer your question, or --?

Well, it's sort of that. But that includes some increase in the mobile-to-mobile interconnect, which was probably seasonal, right?

Yes.

So you can't really strip out or break this down into the actual old interconnect, which was mobile to mobile, and the new fixed mobile interconnect.

Well, as Mikhail said, we have still yet to draw conclusions on the trends here, because we definitely didn't see any effect on traffic in July and August. So (multiple speakers). Yes. And I'm passing over to Leonid now.

Regarding the question of the focus for ARPU for the fourth quarter, I can say that we don't plan any aggressive dumping marketing strategy for December, as we have not started any of the strategies in November of this year. That is why if everything would be in accordance with our plan, we can forecast the ARPU for the first quarter at the level of about $8.

If -- now, to say about OIBDA margin whether the 50% annual forecast is conservative, I would say that it is realistic, since we would definitely have some reduction in revenues in the fourth quarter, at least for the seasonal reasons. And as long as we don't have tremendous advertisements and SAC costs, still the pressure of cost would be quite heavy on us. That is why we would say the 50% annual margin that we have been fighting through the last six months so heavily is still a realistic focus.

Olga Bystrova, Credit Suisse.

Several questions from me. First of all, what would be your policy for the fixed exchange rate? Because it is currently in $28.70. Are you planning to revise it to reflect, let's say, averages in the past six months or year going forward?

The second question is, CapEx in Russia in the third quarter was about slightly more than 17% of sales. Can we, for example, assume that with you having undergone some of the efficiency analysis, do you think this is -- this could be a longer-term CapEx guidance for you in Russia?

And the third question is, maybe you can help may reconcile the ARPU figures in Russia for contracts prepaid and blended, because what I am seeing here is that, for example, contract ARPU has grown 2% quarter on quarter, prepaid ARPU grew 11% quarter on quarter, but blended ARPU grew 15% quarter on quarter. So am I doing something wrong, but it doesn't add up for me.

To answer your first question about the exchange rate policy, I would say that in December, we don't forecast any change. And in the beginning of the next year, we plan to pass to ruble clarification, and this question would be, by definition, not efficient from that time and onwards.

Until now, understand that the exchange rate is a marketing element for us, and we have to balance the price for tariff plans. And as long as the competition -- from one hand in attractiveness in general terms of our plans allow us to keep the rates high. Whether we achieve it by the exchange rate or by just different prices for different minutes, we keep the prices on the level that we have now.

So about CapEx and revenue per CapEx (indiscernible) indications and guidance, as I said, we withdraw ourselves of any guidance for 2007. What we can prove now -- what we can prove now is that except of the UMTS introduction, and maybe some severe -- and some big potential M&A deals that are not in the pipeline now, but can happen, we forecast the reduction of CapEx in absolute numbers in the next year, compared with the year 2006.

Regarding ARPU, I would pass the floor to Vsevolod.

Well, speaking about ARPU, we usually do not disclose a detailed breakdown of the ARPU according to our customer segments, I'm afraid.

Well, first of all, thank you very much for the first two answers. But the third one -- in your presentation, you have contract ARPU of $29.60 and prepaid ARPU of $5, which according to the same numbers in the presentation have grown 2% and 11%, respectively. But the blended ARPU grew 15%. And if you do a sort of weighted average calculation, then it doesn't add up. That is why am asking. So it is all in the presentation.

So just to answer your question, the postpaid ARPU and prepaid ARPU numbers which are in the presentation, they are excluding the interconnect charges. So basically, all together and including interconnect, they add up to the average ARPU numbers which are in the presentation as well.

Okay, but for the second quarter, were contract and prepaid ARPUs -- did they include interconnect or not?

No. So it is consistent numbers.

Okay. And if I may, maybe a follow-up question. In terms of competitive dynamics that you are mentioning several times that it seems to be quite favorable, and it has been for the past quarter, do you see any indication of the potential change of the dynamics in the market from your competitors?

We hope that the environment would stay in the area that it is right now. It means that we hope that the pricing discipline would be followed up by both of our main competitors in the territory of Russia, if you talk about Russia.

Nadejda Golubeva, Aton.

Congratulations on great numbers. I have several questions, if possible. So first of all, when you are asking about your revenue growth guidance of 20% year on year -- so if we add together three quarters and like multiple 2005 revenue by 20% -- you have [account for] that in the fourth quarter, the revenue should go down by 20% quarter on quarter. So could you comment on this please? Are you just -- do you prefer to be extremely conservative, or why such a sharp drop is expected in the fourth quarter? This is the first question.

And second question is about interconnect. So when analyzing your interconnect cost, could you tell us please whether you had interconnect agreements with just MegaFon and VimpelCom, or so -- what I am looking for, how many contracts -- or what percentage of potential contracts with all other non (indiscernible) operators did you have in the third quarter and what can we expect going forward?

Finally, I have a question about CapEx. So I understand that it's premature to give any guidance, but still, it would be very helpful if you could break down the third-quarter CapEx in Russia for coverage, maintenance and upgrades, for example, if possible -- so that it would really help us.

And finally, if I may, could you give us the latest traffic profile, like how much traffic of total is on that, and could you split into incoming and outgoing? Sorry, here it is not [relevant], but also, could you give us the (indiscernible) traffic, MTS traffic and other mobiles traffic that should be [submitted], I guess?

Thank you very much for the question. To answer your first one, I would like to turn your attention that in my speech, I mentioned the phrase that we plan -- we increase our forecast on revenues until the end of this year compared with 2005 not less than 20%. It means that 20% is a conservative forecast.

Okay, just -- it looks very, very conservative.

For the second question, I pass the floor to Vsevolod.

Speaking about interconnect agreements, I wouldn't be able to give you exact number of agreements, but I can tell that with the existing agreements, we cover approximately 98% of the potential revenue.

Speaking about CapEx, as we said, we will be able to provide guidance for next year during January, and I think Leonid already mentioned that we are likely to see that the CapEx is not going to be higher than guidance for this year (multiple speakers).

But basically, I am not asking for any forecast. I'm just asking whether it is possible to breakdown the already reported CapEx, for the third quarter, say, for coverage, maintenance and upgrades -- just very roughly, because it would really help us.

Well, as we said that quarter to quarter we see increase in CapEx spend on capacity rather than coverage. And again, we saw this trend to increase. And basically, as we see that the CapEx is approximately 40% to 45%, and this remains the case for Q3.

And for the traffic profile, I'm passing over to Mikhail.

In terms of traffic profile, about 50% of total traffic in September was on-net traffic. (multiple speakers) About 50% was mobile incoming and mobile outgoing. And 20% was fixed incoming and fixed outgoing.

And what about fixed to mobile and mobile to fixed? Is it like same? I mean, is it symmetrical or not?

Fixed to mobile and mobile to fixed was very similar in June and July and August. And in September fixed to mobile increased over the mobile to fixed.

[Andrei Bourlinov], Troika Dialog.

Just have a question on Ukraine. As you know, Ukrtelekom is going to introduce their 3G network, as they say, somewhere in the first half of next year, probably as soon as the end of March. I understand the 3G is too early stage to say what the implications would be for -- even for Russia, not mention Ukraine. But nevertheless, I am sure that given the lobbying power they probably have within the government companies, do you think there is a danger that a lot of corporate customers, especially the government-based companies, could be switched to Ukrtelekom from all the mobile operators, including yourself? Just looking [by] to your numbers, you have almost a quarter of your revenues in EBITDA or OIBDA coming from Ukraine. So do you think there's any kind of danger from that initiative from the local incumbent on your business?

Adam, please?

Thank you for the question. Yes, definitely long-awaited -- Ukrtelekom launch of 3G services has been postponed a few times. Now, the date which we here is May, end of first half of the year.

As far as our customer base, it was mentioned during Leonid's speech that we have been awarded a CDMA license, which can provide a similar level of services. And we plan to develop the technology in Ukraine and offer it to our business customers. We already working with our business clients offering them the convergence services on the bundled side. And yet, the future remains to be seen. But we are ready for Ukrtelekom launch of the 3G services in Ukraine.

I guess my question was not really that your technology would be inferior to Ukrtelekom technology, but probably what kind of level of lobbying power do you think they might have, basically to switch away -- churn away the customers from yourself, especially given that UMC is basically a still the core operator in terms of providing the services to business customers? I am sure that your technology will be not worse than Ukrtelekom, but if somebody will have order from somebody to switch, probably they should follow. Do you think there is a real danger, or do you think it will take such a long time that you can restructure the business in a proper way to avoid taking any kind of dilution of your business?

Let me answer this question myself. The internal communication policy of the Company doesn't allow us to comment the activities of competitors. That is why I believe the answer of Adam is the most that we can give to you in the situation.

Ben Joseph, Thames River Capital.

Just two questions -- can you just comment a little bit more on the tax and the bad debt expense, please? Just a little bit more color as to why the tax rate was low and the bad debt expense you mentioned -- better control there; if you can just outline the outlook going forward, and whether you expect bad debts to be so well-contained in the future quarters?

The second question, please -- can you just confirm the dividend policy? And just with regard to the dividend policy, how it might be affected by future acquisitions and M&A activity?

I'll start with the first question. Speaking about tax, we have seen that due to the less magnitude of the ForEx fluctuations, we have seen that the effective tax rate for this quarter was significantly lower.

And speaking about bad debt expense, we believe that we're not going to see a significant drop in this item, but we are constantly working on decreasing it, and we are likely to see further improvements on this item going until the end of next year, as we plan now.

And for the dividend policy, I'm passing over to Leonid.

First of all, I have to also admit that we don't comment -- not only the activities of our competitors, but also the activity of our shareholders, and the dividend policy is mostly the question of their agenda. We just witnessed the situation when last year, the shareholders decided to increase the dividends paid portion of our net income. And we understand that we have a good chance to offer them bigger net income this year to decide how it should be divided. We have not yet finalized our portfolio for M&A for the next year, and that is why to give any concrete indications for what is going to be the recommendation of the management in this area would be premature.

Alex Kazbegi, Renaissance Capital.

A couple more, please. I think you mentioned on Turkmenistan that the reductions on the EBITDA margin was due to the one-off license effect. If you could just comment on that, whether the EBITDA margin is going to shoot up back to, whatever, 60s or 70s, whenever it was -- I think one quarter ago.

Secondly, Leonid discussed the possibility of rolling out the WiFi network together with Comstar in Moscow. How tangible those plans are, first of all? Secondly, I guess when is that going to happen, and do you know how you plan to split the revenues and who is going to be actually the leader, if you wish, in this project?

And lastly, I noticed that your depreciation has been growing quite much slower in the last two quarters, compared to the previous years, despite fairly high capital expenditure. Any reasons for that, or anything you can sort of answer? That would be great.

I will start with the first question. Speaking about Turkmenistan, we believe that your assumption might be reasonable, and we also planned that after a certain one-off charges we incurred in Q3, the OIBDA margin will be back to higher numbers. We obviously wouldn't be able to comment on the exact numbers, but I think that there is obviously adverse trends in that market situation we are currently in.

And I'll also answer the third question before passing over to Leonid. Speaking about depreciation, we have seen lower CapEx numbers during the last three or four quarters. So basically that was the key reason for our lower depreciation number that you see in our financials.

There wasn't any policy change or any write-offs? It's just purely because of that?

Yes.

About our business plan on WiFi, (indiscernible) with Comstar, in general terms, we're not in a position to invest into this activity together with Comstar. We understand that our business task, from a marketing viewpoint, is to deliver to the majority of our customers and those of us who are on roaming with UMTS the ability to have an easy access and easy pay solution once they communicate with WiFi hotspots. Second task is to create more of those hotspots for the convenience of our customers. That is why we're prepared to cooperate with different providers in order to create this way of easy payments and easy access to our customers.

Of course, in Moscow, we will mostly cooperate with Comstar. Once they are going to invest it and use it, and we understand they probably will see it like their business, and for us it will be mostly the vehicle to service our customers better.

So mostly (indiscernible) you're charging and collecting revenues, rather than yourself? Or that is not decided yet?

It is under discussion now, but the fee process in the end will come to the providers, means to Comstar -- some commission for us.

[Barry Shoemaker], [Alpha Bank].

Congratulations again on your great results. Most of my questions have been answered. I just have two quick questions, the first one on Ukraine -- great results; 56% OIBDA margin. And Andrei mentioned before the increased competition with a UTEL and 3G, and we know VimpelCom has entered the market. Do you think this type of margin is sustainable going forward?

The second question is in regards to the ADR repurchase. A couple of questions -- maybe you can elaborate -- why ADRs and not the locals, which trade at almost a 10% discount in buying back shares? And also, was there change in the year that elapsed from when Deutsche Telekom placed its 10% of MTS shares on the local exchange versus when you decided to buy back pretty much that 10%? If you could elaborate on that, that would be great.

Answering the question on Ukraine, on the high EBITDA margins, again, as it was said before, it was a deliberate set of activities which we undertook at the end of Q2 and throughout the Q3, promoting on-net traffic and with a subscriber base above 70 million. That is the one contributing factor to keep the EBITDA margin in the high levels. Altering subscriber acquisition costs and subscriber policies, in the market, these are the natural things to do. And also, you know, the additional cost control programs, like building of our own transmission network. So that is why not having a need to lease lines from other operators and keeping the operation maintenance under control.

So those were the activities which held us to contribute to higher OIBDA margins. And we hope that this is not only one-off activities, but that the activities and the result will help us to keep the EBITDA margin above 50% for the quarters to come.

Speaking about the second question, I would like to mention that the decision to repurchase ADRs was made as we discussed during the Q2 results conference call, on the basis of several reasons. And the few reason were mentioned, and among them were the reasons of using the repurchase ADRs as financing. And there were certain potential mechanisms were announced, such as the potential convertibles, convertible bonds to be issued in relation to these ADRs, also using it as a currency for potential deals makes the ADRs more flexible instruments. But we are also sort of currently looking at what is going on in the local share market.

Can you please repeat the second part of the question? I just missed (multiple speakers).

Sure. The second part was related to Deutsche Telekom's placement of approximately a year before your announcement of the repurchase. I'm just curious to know, did something strategically change in your minds during that your?

I would say that the total (indiscernible) endorsement, [yes]. But I think it is just a question again to our Board, to our shareholders. And we cannot comment on that.

Stephen Pettyfer, Merrill Lynch.

I had to questions, both on cost. Firstly, in Russia, I noticed that within SAC, your dealer commissions have stepped up notably quarter on quarter. Is that a sustainable new level we're at, in terms of commissions, or is there something else behind that move?

And then secondly, just more generally, my impression three months ago or four months ago was that you had a lot of plans afoot in terms of cost reduction. And given the good results today, have you seen just the execution on that program be brought forward, or do you still feel you have more to go?

On the dealer commission, starting January 2006, we have introduced a new dealer commissions payment scheme, which is based on the revenue-sharing principle, which means that we share the revenue we get from the subscribers with the dealer for a fixed period of time, and we top it at a certain level. And of course, while we were enjoying high ARPU on our new subscribers, we also have to share more with the dealers, so you saw an increase in the dealer commission.

We are undertaking steps to review our dealer commission for 2007. We will be regulating the maximum level of payments we are making to dealers, as well as our pricing policy, which will allow us to share some of the revenue we get from actually selling the contract to our subscribers through the dealers. So I would not expect the dealer commission to grow significantly in 2007.

Answering the second question, I would say that and stress that we place extremely great importance for the cost reduction program, which we are implementing at MTS. As we mentioned before, we see the growing margin pressure specifically in Russia. And we believe that the implementation of the cost reduction program, which we announced for next two years at least, is a more or less ongoing effort, which will not be diminished by the positive trends in revenue growth.

Vladimir Postolovsky.

Ukraine -- if there was anything which didn't look great in Q3, it was churn rate in the Ukraine was quite high. Could you tell us what is happening in Q4? And obviously, you removed some subsidies. You increased pricing at the same time VimpelCom was coming in. Do you see that as a serious pressure, or was it just a one-off quarter? That is one.

The second question -- you mentioned those receivables are already [waiting] to be new interconnect arrangements. My question is, how confident you are -- 100% confident or less -- in a recovery of those receivables? Some of the operators might argue that they didn't want to pay it prospectively. And if you could also break down those receivables between the receivables from fixed-line operators and from the new mobile operators that signed those agreements with you in Q3?

Then, you mentioned $8 ARPU that you are seeing as achievable in Q4. It still sounds a bit conservative to me, to be honest. Because I understand seasonality, but the same time, you have ruble still working for you -- nominal appreciation of ruble. You also will have carryover effect from all those marketing initiatives like -- call setup charge or high first minute or whatever you want to call it. Do you think that it might allow you to have a high ARPU and didn't have a significant drop in quarter-on-quarter at all?

Maybe kind of related to that question, what do you see -- how strong is the underlying usage growth? If you take an existing subscriber and try to forget about the historic subscriber [meets] dilution [on] negative impact, for the existing customer -- and maybe even try to think of this side also, multiple SIM card usage -- for the existing physical customer, what do you think the usage growth is, annual usage growth at the moment?

And I'm terribly sorry; the final question is on CapEx. I appreciate that you are not giving any guidance for '07. But maybe qualitatively rather than quantitatively, you kind of mentioned that you expected to be not higher than in '06, but I think most people expect that should come down quite significantly. Can you say that at least directionally, this is the right assumption -- will come down as opposed to be not higher?

Adam, please?

(indiscernible) Answering the question on the churn in the Ukraine in the third quarter, yes, the churn in the third quarter in the Ukraine was higher than the previous quarters. Two major contributing factors -- the first was the -- according to our churn methodology, we were churning over the clients, which were required in the new year promotion half a year before, and that is the main contributing factor; the other, the entrance of the third and the fourth operators.

Regarding Q3 to Q4, we have seen that the main wave of the new year customers -- acquired in new year promotion has passed, and we have seen the reduction in churn, so we expected the churn to be reduced in Q4 this year.

Thank you, Adam. Vsevolod, please?

Well, speaking about receivables, obviously, one cannot be 100% sure. But I would say that I am 99.5% sure that these receivables are only delayed in time, because there is basically a limited number of counterparts. We were in discussions with them, and I think that the delay in receivables is 100% of technical nature, rather than of other nature, because of the complexity of the processes that we first signed the general agreements and the sort of corporate level, on the Russian level, and then have to sign the contracts with each particular subsidiary for each particular region we operate in. So it's just a process which takes time.

(multiple speakers) but generally, everybody's happy to pay to from 1st of July?

Well, it is a two-way process. It is actually us also paying our counterparts, so basically, there are no [end-year] discussions or issues that certain revenues will not be incurred starting July 1st. It's actually -- will be starting July 1st in most case.

Regarding the ARPU forecast for Q4, we still would like to be realistic in our prognosis, and recall the prognosis or the forecast of ARPU around $8 as a realistic prognosis. Due to the seasonal factor, due to the competition factor, we understand that it is already far higher than what we anticipated in the beginning of the year. And we think it is a realistic prognosis.

I will pass it over to Mikhail.

MOU growth is at the very foundation of our marketing policy this year. We have introduced a number of tariff options like unlimited weekends and unlimited nights, for instance, which our subscribers can purchase for a very low fixed fee and talk for the free for two days or for a night. And all that contributes to increase in usage.

So we do see the actual usage increased on top of pure seasonality factors, and we hope that we will see this increase in the future. You know that in Russia, the usage of both voice and data services is much lower than in Eastern and Western Europe, for instance. And while you see the income per capita increase in Russia, you would also expect to see the MOU to go up. And this is what we see besides (multiple speakers).

You're not happy to get a rough estimate, right, as to what you think the underlying average usage growth is at the moment?

Can you repeat the question please?

Would you be happy to give a rough estimate of what the underlying average usage growth per physical subscriber is today?

I don't think we're ready to reveal this information. I can only say that it is growing. And one more thing I wanted to add -- the real penetration in Russia is still low enough to allow some room for growth, which also will have its impact on MOU.

And the last question related to CapEx. I think it was very closely connected with what just Mikhail said, that we still see certain room for MOU growth in Russia. Thus, we believe that it is too early to expect significant drop in capital expenditures in the coming year. What we can say at this stage is that again, just to reaffirm that the CapEx for the group for next year is unlikely to exceed the CapEx of this year. We are also likely to see the redistribution of CapEx between the countries, because there are certain businesses such as Uzbekistan, for example -- Ukraine definitely will require more CapEx as there is more opportunity for further growth. I think basically, this is the outline for the next year. The CapEx to sales ratio is likely to drop over the course of this next few years. And more details will be revealed during the January call on guidance.

Anna Bossong, CA IB.

My first question concerns the rise in fixed to mobile traffic in September. I wondered if you can give us an idea if that was carried over before third quarter, how much of an impact it might have had on ARPU? Should we say because there was only a 2 percentage point increase in fixed to mobile traffic that it only affects ARPU by that sort of quantity, or it is a more significant factor?

Secondly, do you think it will put pressure on your mobile-to-mobile tariffs as you try and draw that traffic back into your network? Or how do you see it impacting your fourth-quarter ARPUs?

My second question is on the Turkmenistan one-time charge, if you could perhaps tell us how much that was?

And my third question was, just on the general cost-cutting, you did a great job in the third quarter of cutting costs. Is there more cost-cutting in the fourth quarter to come in terms of G&A and that sort of thing?

The increase in fixed to mobile traffic in September, as I said, was 64%. But the share of this traffic in total traffic has been around 6% to 8%, so the impact on total traffic was not significant. And therefore, if we take September statistics as a trend, the impact would not be significant. But again, as we said, it is too early to tell at this point if the impact of the CPP and the change in fixed to mobile, so we will see the remaining -- in the next few months how will that develop.

On the pressure on the mobile-to-mobile traffic, again, we did not see a significant pressure. And we, as I said, continue to have 50% of our traffic as on-net traffic. And that so far did not change our marketing policy.

The third question was -- correct me if I am wrong -- related to one-time charge in Turkmenistan. Right?

Yes, that was the second question. The third one was about your cost-cutting in the fourth quarter, what you can do versus the third?

Yes. So speaking about one-time charges, that was approximately $5 million, just a little bit above $5 million.

Speaking about the Q4 efforts on cutting costs, we continue to find ways and change the business processes in order to extract more values for our shareholders. We definitely are not going to see any one-time decreases, but we will significantly -- there's definitely room for further decreases in areas such as working with our vendors. And we expect the results to actually materialize in Q4 and Q1, as we have only started our new approach in the mid this year.

We are also going to see certain decrease in the cost related to [personnel], as we are working on the optimization of a number of employees. And we also can expect certain positive signs from optimizing our marketing and advertising costs as well. So that is basically key areas for cost optimization. (multiple speakers).

And what I want to add to this is that the [business] set up of one-time measures that deliberated in spring of this year, and they're going to be finalized in the end of this year. And until that time and onwards, we will pass to what is called business as normal or business as usual, by putting top-down attractive challenges for our business units in [macroregions] regarding the top line and bottom line, and creating in the group center guidance of expenses -- parameters that we consider to be (indiscernible) on the regional level. But then we have a bottom-up proposals and dialogues. This is what we call business as usual for MTS. No more one-time cutoffs.

Can I just follow up with you on the advertising cost side? Usually in the fourth quarter, there is rather more attempt to gain subscribers and to boost marketing and advertising. Is it the case that now the market is quite mature in Russia, and therefore that is why you are not looking to increase spending, but rather cut it in the fourth quarter? Or is it something else?

As we have said on the conference call after the -- on the results of the Q2, we have changed the way we estimate our advertising expenses. And by that, we have realized certain cost reduction opportunities for us. And we would proceed the new methodology and we have liberated, and we have chosen actually to keep on for us in the year 2007. So in general terms, we understand we have good potential of future reductions in media buying, etc., but from the other hand, we have big pressure on [media] inflation. They say that is going to be quite sufficient in the next year, due to several factors -- [effects] on the media market. That is why it would be premature to say whether in general terms our budget would next year be significantly lower, or just lower than in this year. But we believe it definitely wouldn't be higher, especially because we will not have rebranding onetime effects that we had this year.

Evgeny Golossnoy, Troika.

I got just some sort of clarification on your traffic structure in September. So as you mentioned, 50% is on-net traffic, both incoming and outgoing. Then another 20% is the fixed to mobile, both incoming and outgoing, of which you mentioned a couple of months ago 6% is fixed to mobile incoming, right? Which means that 14% really is outgoing from the mobile to fixed. And then that makes it a full 50% mobile-to-mobile. Is this correct?

Let us come back to you with the more detailed answer to this question with the numbers.

Alex Heznetzolz, Bear Stearns.

I have a couple of follow-up questions. First of all, have you done some estimates of elasticity, and have you estimated the increase in tariff may reduce minutes of use or your customers are quite inelastic on the tariff?

Secondly, given the strong revenue expansion in the third quarter, do you expect that your revenue-based market share in Russia rose in the third quarter?

On the second one, we will know tomorrow, I guess.

On the first one, I would say that there are two interesting trends. On one side, there is a fairly high elasticity for lowering the price. So market offers would be lower price points, usually taking very good by the mass market. And we typically see a very quick and high sales pick up on the other side.

Price increase to the existing customers does not change their behavior much. So elasticity there is quite low. And we're trying to sort of balance between the two to have a consistent marketing policy.

May I ask you one more clarification on Turkmenistan? As you pointed out, you had to pay significant fee for license. Is it included in subscriber acquisition cost? Because I have noticed quite a significant SAC expansion. And also, I was under the impression that this special agreement with the Turkmen government was enacted last year, so I am quite curious why there's such a dramatic change this quarter.

To tackle the question on Turkmenistan, first of all, license fee was not included into our subscriber acquisition costs. And the dramatic -- or as you call dramatic -- increase in SAC for Turkmenistan this quarter was justified by the rebranding which was done there in Q3. We rebranded three countries out of five that we were in in Q2. There was a rebranding in Turkmenistan in -- sorry; in Q2 -- first three countries, then in Turkmenistan, and the UMC agreement is scheduled for next year.

As for the special agreement with the Turkmen government, that is basically -- yes, that was signed when the company was acquired. And it is still in play, so basically it is more or less business as usual for us.

So it does mean that you paid approximately the same, but maybe $4 million in the previous quarter?

Sorry, that --

You highlighted that this quarter, last quarter you paid approximately $5 million as ongoing license fee. That means that you paid approximately the same amount in the second quarter?

No, that means that it was approximately same amount last year.

Olga Bystrova.

Several follow-up questions, if I may. First one on the -- I want to come back on the cost items again, specifically general and administrative expenses, which basically were flat quarter on quarter in the third quarter, and declined about more than 2 percentage points as a percent of revenues. Could you elaborate on where did the savings come from, and has it all been done, or we can expect a continuation of those savings in the fourth quarter?

Second question -- in terms of your marketing policy in Russia, are you planning to consider migration of subscribers from prepaid to postpaid base, as your marketing policy?

And final question, on the Ukraine, what in general do you expect in the fourth quarter this year? Is it currently a very aggressive market environment? What kind of promotions have started already? And also, do you see a migration of subscribers from your network to, for example, VimpelCom and Turkcell currently?

I will start with the first question. The G&A cost reduction were -- actually, we already discussed that there is a further potential to decrease G&A cost, but they are not likely to be that dramatic a drop Q-on-Q as we go forward. And we will not be able to disclose the details of the specific cuts.

And I am passing the word now to Mikhail to answer the second question.

On postpaid and prepaid, in fact, the way it is classified, in most cases so-called postpaid customers are very much similar in the way they pay for mobile communications as prepaid, because actually on their contracts, they keep money in the accounts. So when we say postpaid, we really should mean the credit customers, which take credit and then pay after they use the services. So, of course, the share of these subscribers we're planning to grow. But this is not mechanically reflected in the reports, because the reports are classified based on the contracts, and not all the contracts are credit contracts. But yes, in our marketing policy, we're planning to expand the share of credit subscribers.

And on the Ukraine, please?

On the question of the Ukraine, the Q4 prospects, a few qualifying comments before I answer your question. This year, we focused in Ukraine on building the strong base for the future profitable growth. We focused on building the good network coverage and the good quality network. We were finalizing the accelerated network buildup into Q3. The same thing was with our distribution network. We have got now very good, and the distribution network which give us a competitive advantage over our competitors.

Those two factors plus some branding fine-tuning, allowed us to stabilize the situation in the Ukraine. And in the last couple of months on the subscriber side, we have seen the majority of net adds coming to our network. So yes, in the Q4, the activities for the new year and Christmas promotion has already started, but the first special October factor is very encouraging. UMC is leading in the net subscriber adds, and we will see the result in October and December.

Answering your question what is the migration between UMC and the newcomers of course it is. There is -- you know, and going back from the new entrants to UMC and to (indiscernible) this is natural [fact] of life. But the main question is for us that we will get the majority of the net adds. So that is how we see Q4 now.

Vladimir Postolovsky.

Last one, I promise. Going back to the traffic patterns, do I understand you correctly that the increase in fixed to mobile traffic that you have seen, you have seen more than incremental traffic, and you don't believe that there is a negative impact on that usage?

And that 64% growth in September, how much -- I presume some of that should be seasonal, right, because people are coming from holidays and start calling more fixed to mobile? You must have seen something like that in the past. So how much of that is seasonal, and how much of it is genuine new traffic?

The increase that you saw in September in the fixed to mobile has not led to the decrease in on-net or mobile-to-mobile traffic. And there has been a slight decrease of mobile to fixed, but not as dramatic as the increase in fixed to mobile. In terms of seasonality, I would say that you would actually see more seasonality on fixed to mobile in the first quarter, while the day actually becomes shorter, so people come to home earlier from work and prefer talking on the fixed, not on the mobile. So we have not seen the growth of it yet, but so far it has not impacted the revenue negatively. Of course, we have much more dramatic impact from CPP, because we stopped getting revenue from these calls.

So you haven't seen anything like that in September in previous years, and you think the whole 65%, 64% is genuine impact of CPP?

I cannot give you a specific number, but I would say a majority of it is because of CPP.

(OPERATOR INSTRUCTIONS). [Lyudmilla Kom], HSBC.

Let me congratulate you as well. And I would like to ask a couple of credit-related questions, please. You mentioned that you might be issuing convertible bonds. Could you please tell a little bit more about this? And does this mean that you are thinking of increasing leveraged generally, to maybe optimize the capital structure? Or more in the sense that if you're trying to -- if you plan to pursue some acquisition opportunities?

Well, convertible bonds were mentioned as one of the potential instruments, so nothing in the pipeline or nothing that is practical -- no practical steps about it were taken. So generally speaking, we're not sort of intending to increase our leverage for the sake of increasing our leverage. But obviously, we are pursuing different opportunities. I know as Leonid mentioned, in the certain discussions for potential acquisitions in various countries. So depending on the outcome of these discussions, we definitely might see a certain increase in our [loans].

Do you plan to have a formal debt leverage target?

We are now discussing, actually, the overall financial strategy for the group. And we are very likely to have formal guidance on that in the first half of the next year.

And just last question -- if there are not any suitable acquisition opportunities or expansion opportunities, would you consider buying back your bonds?

Well, again, we're not going into detail, due to our lawyers' advice, into a discussion of our share repurchase program. Speaking about buyback of the bonds, that again is -- it's a little bit premature to discuss this again. As I said, we are thinking about financial strategy. And again, there are a multiple of options. So basically, I can't answer your question at this stage.

Jivko Moutafov, Standard Pacific.

A quick question on your joint venture in Belarus -- do you see any opportunity to potentially increase your stake and start consolidating that operation in the near future?

Of course, we're looking for this opportunity for some time already. And our partners there have always a proposal on the table. So it mostly depends on the policy of the Belarussian government. And we would be happy to buy the control for MTS.

Felix Fischer, HVB.

Congratulations for the super results for this quarter. My question relates to potential acquisition opportunities. You mentioned that at the moment, valuation seems to be too high, and that nothing very concrete -- let's put it that way -- is in the pipeline. Could you sort of share with us what kind of coming down of valuation in the general market would you think is necessary to make or to give you more interest opportunities?

We understand that the latest [use] that we witnessed has been done at very high multiples, to look at this part of the valuation, like multiples to revenue to either time EBITDA, and multiples to amount of subscribers. We understand that when we look at the deal, that the multiples should be closer to what our shareholders and what [analysts] think to be reasonable multiples for MTS Group. And from another hand, we would like to see the potential synergy with the group of MTS that would allow us to increase the effectiveness of the operations of the potential target, in order to prove that purchasing a company at a much higher multiple that MTS has priced itself is reasonable for our stakeholders.

(OPERATOR INSTRUCTIONS). We have no further questions at this time.

Thank you, ladies and gentlemen. We welcome you at any time to contact our Investor Relations department for further questions. And a webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate your interest and wish you a pleasant day. Thank you again, and goodbye.

This concludes the third-quarter 2006 financial results for Mobile Telesystems conference call. Thank you for participating. You may now disconnect.