Mobile TeleSystems PJSC (MBT) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Mobile TeleSystems third quarter 2011 financial and operating result conference. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

I will now hand the conference over to your host, to Mr. Joshua Tulgan. Please go ahead, sir.

Thank you. Welcome to MTS' conference call to discuss the Company's third quarter 2011 financial and operating results. Before beginning our discussion, I would like to remind everyone that except for historical information, comments made during this 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 subscriber growth; loan facilities and their usage; legal actions and proceedings directed against the Company, or its representatives; regulatory changes and their impact on the Company's operations, and the markets in which we operate; financial indicators such as operating income before depreciation and amortization; average revenue per user; cash flow projections and our return on invested capital; technical matters, as they pertain to our mobile and fixed unit telecommunications networks, including equipment licensing and network technologies; capital expenditures and operating expenses; and macroeconomic developments within our markets of operation.

A comprehensive overview of these issues is available on MTS' website and Annual Report and Form 20-F, which is available on our website, also the US Securities and Exchange Commission.

Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These statements may include Company press releases, earnings presentations, MTS' Form 20-F, as well as other public filings made by the Company with the US SEC, all of which are available on MTS' website, www.mtsgsm.com, or that of the US SEC.

MTS disavows any obligations to update any previously made forward-looking statements made on this conference call, or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentation and materials used and reference in this call are available on our Company website.

I will now turn the call over to Andrei Dubovskov, President and Chief Executive Officer of MTS.

Ladies and gentlemen, thank you for joining us on today's conference call to discuss the Company's financial and operating results of the third quarter 2011.

Joining me today is Alexey Kornya, Vice President, Chief Financial Officer; Vasyl Latsanych, Vice President, Chief Marketing Officer; and Michael Hecker, Vice President, Head of Strategy and Corporate Development.

I am pleased to announce that MTS has turned in a strong quarterly result. Group revenue for the quarter increased 13% year over year to reach over $3.27 billion. We delivered solid sequential and annual growth, and this year increased consumption in all of our markets of operation.

Total revenue in Russia, including mobile, fixed and equipment sales, increased year over year by 11% to RUB81.7 billion. In the Mobile segment, we witnessed 13% year-over-year growth, up to RUB69 billion due to higher voice usage and seasonally higher roaming; ongoing trends of higher data usage through modems and handsets; attracting higher-value subscribers; strong sales of handsets and accessories; strong sales of modems and data tariff plans, as demand continues to grow for data as we expand our 3G networks.

Our Fixed Line business revenue grew by 10% year over year to RUB14.7 billion. Key drivers included growth in subscriber base as a result of organic growth, and our continued M&A activity and network modernization and upselling across existing customers.

Talking about Russia, we are delivering on our promise to increase profitability in the business. While revenue grew 7% sequentially, OIBDA rose 14% Q on Q and we delivered a margin of 45.1%.

As we have discussed previously, we have optimized our dealer commissions, which have fallen considerably over the last two quarters. This has been achieved through the migrating dealers to purely revenue shared commission and greater operational control over regional sales.

In Ukraine, revenue increased by 8% year over year to UAH2.5 billion. The growth factors include the shared growth of our subscriber base and strong credit proposition for our tariff plans. And again, OIBDA continues to increase faster than revenue. Our Ukraine business continues to demonstrate the value of a stable market in which operators are focused on maximizing customer value.

In Uzbekistan revenue declined slightly by 2% year over year to $113 million. We continue to see more competition in the market, but our large market share and rising production of data services makes this an attractive market for us.

In Armenia, revenue declined by a narrow 1% year over year to AMD20.7 billion. Competition is strong in Armenia, but we have managed now two straight quarters of growth. OIBDA has improved faster and we delivered an attractive margin of 57.3% for the period.

Now Alexey Kornya will further discuss the Group's profitability and financial performance. Thank you.

Thank you, Andrei. During the third quarter, we realized strong sequential growth OIBDA of 11% and year-over-year growth of 9%. For the period, we delivered a strong margin of 44%. Improvement in OIBDA was most reasonable in Russia, where OIBDA increased 10% year over year to RUB36.9 billion. This led to a sequential 2.4 percentage point improvement in OIBDA for a margin of 45.1%.

Seasonal factors such as increased business activity in roaming contributed to the growth, but we have also seen improvement in the underlying business stemming from higher usage of data in value added services, improvement in our Fixed Line business, namely through the ongoing of integration and acquisition of companies, a sequential reduction in dealers' commission, as we have reduced our SIM card sales, focused sales through our own stores and shift more commission to a revenue sharing structure.

Reduced G&A expenses by optimizing headcount and other costs, including one-offs from the release of salary-related reserves, following our integration with Comstar and the payment of severance packages in the second quarter reduced G&A expenses by optimizing other costs through our retail network.

During the second quarter, we began to see positive impact from rebalancing of the tariff structure that allows us to simulate on net calling and reduce interconnect expenses. Going forward, this will be one of the factors that can help drive improvement in the gross margin and OIBDA of our operations in Russia.

We are leveraging capacity of our retail network to deliver strong sales of smartphones and modems. During the quarter, we have shifted the focus to the sales of smartphones, the generic higher data traffic revenues. Our fastest growing segment is low-end smartphones, including Android-enabled MTS phones.

In second quarter 2011, we have also sold more than 1.5 million modems and data tariff plans. Average monthly data traffic per mobile Internet users on our network have increased 2.4 times compared to third quarter 2010. Active usage of mobile Internet enables us to improve margin in our Russian operations.

In Ukraine, we continue to see the benefits of a stable market; OIBDA [credit] 1.2 billion UAH and our OIBDA margin reached 48.9%.

Group net income for the quarter was stable quarter on quarter, at $362 million. Due to 13% depreciation in of the ruble over the period, we were forced to recognize a $190 million non-cash loss on the revaluation of our sovereign euro denominated debt. However, we realized an improvement in our G&A expense, which fell 7% quarter on quarter, due to the absence of any affiliated depreciation related to equipment swaps on our network.

Meanwhile, interest expenses declined slightly, as we continued to optimize our debt portfolio. Total debt decreased due to currency moves but overall net debt/OIBDA remains at a comfortable 1.5 multiple.

In Q3, our CapEx amounted to $700 million; most of the resources are invested in the build out of our 3G and backhaul networks. Free cash flow through the third quarter 2011 amounted to nearly $1.5 billion, on the back of health operating cash flows.

In summary, MTS continues to deliver on its goals. We delivered strong top line growth through sensible tariffs, higher handset sales and seasonal factors. We have improved the business' core profitability by significantly reducing commercial expenses by exerting strong control over our distribution channels, and moving from fixed fee to revenue-based dealer commission structures. And we have realized incremental savings in other areas of the business through our restructuring and continuous cost optimization.

And one of the main questions about competition; we continue to receive the sales of SIM-cards relative to the market. Judging from recent remarks of our competitors, there is a widespread understanding that excessive sales (inaudible) into [more revenue] (inaudible) operators for customers, but competition remains strong in this area.

Reduced sales may continue to impact our revenue growth in the short term. But we believe that the [fight] on OIBDA growth and cash flow generation should be the focus of each operator in the market. In the market, as a whole [route] follow suit, our 3Q results can be more than [normal].

Also, it's too early to discuss Q4 and 2012, because we are keeping our sales under control, which helps costs. We may see lower sales in the short and medium term. Nevertheless, we believe that our core markets in Russia, Ukraine and the CIS will remain very attractive markets.

Overall, we are only in the beginning of data growth in both fixed and mobile businesses, with penetration and usage rising every period. We are actively engaged with our regulators and we have a clear technological road map for future development. If sales competition stabilizes in Russia, we shall be very comfortable looking ahead to 2012.

And thank you for your time. Now I would like to open the call to questions.

Thank you sir.

(Operator Instructions). Cesar Tiron, Morgan Stanley.

Congratulations on your stronger numbers; to questions from my side please.

Do you feel that you see yet the full impact of this tariff rebalancing on the Russian gross margin? Or do you think there's going to be more upside in the coming quarters?

And I also wanted to know on these renegotiations that you're having with the dealers, I would like to understand if you've completed all these renegotiations with all the dealers, including (inaudible) and Euroset.

Speaking about our negotiations with our dealers, I think that our results shows us that we are, so to say, back on the track because our dealers' commission, which we are going to pay to all our partners during this year and the near future, it will be less than in previous periods.

And you know that since October 2011, all of the [local] dealers have migrated from six bonuses to a new revenue sharing plan. And it means that approximately 20% to 25% of our expenses for dealers' commission will be decreased. And, of course, this (inaudible) includes our negotiations with [Federal] dealers. Thank you.

Thank you --

And to add to what was said is also that we'll see further on the realization of our plans on improvement on our inter-connect bonuses, which will result also in, effectively, better gross margins.

Thank you.

Alex Kazbegi, Renaissance Capital.

I was just wondering, you mentioned that you had the -- quite a large number of the revenues came from the bundled services.

So could you just give us the number how much of that was, again, attributable to the bundles with SMS and the data? And how quickly those bundles in your total revenues are generally growth, so to say; what is the percentage of the revenues now on the mobile, which does come from the bundles? Maybe if you can give us also the data on how much was attributable to roaming.

And the second thing, I was again looking at your disclosure and you have this content modem and data tariff sales. Is that all connected to, so to say, the widescreen, to the modems only? Or is it including the smartphones as well? And if not, could you maybe give us some details on how many modems you are selling now and how many smartphones, that again on Q3? And what do you see now in the market happening? Thank you.

I will try to answer that starting from the second point, which is that, yes, data modem tariff sales they do include the modems and smartphone sales as well.

But coming back to the question with the numbers, it is in our statement, we have sold more than 0.5 million of the data MTS connect modems, data tariff in the Q3, which is substantially more than we sold in Q3 last year. And we expect that market to grow for the future, as we see the general trends for the grow here.

At the same time, the smartphone sales, they accounted for about 25% of sales in our retail network, with smartphone penetration about 12.6%. We understand that the androids are driving the sales at RTK, but at the same time, we expect the growth coming from other devices, like newly launched Windows mobile and the future launch of iPhones in Russia as well.

That means that I will not tell you the exact number of the phones right now; it's not in my hands. But at the end of Q3 sales of Androids have increased more than 200%.

Okay.

This is Alexey Kornya speaking. Back to the question on bundled services. I think as soon as they become material, because we're working on -- we are well on the way on the realization of our strategy of introducing and promoting our bundled services. As soon as they become material, we will separately show you them in our financials and in our disclosures.

Can I just ask what do you call immaterial? Is it less than 5%?

We would not elaborate on the exact figures at this stage.

Okay and roaming, can you give us any numbers for that?

No, not at this stage.

All right, thank you.

Alexander Vengranovich, Otkritie Capital.

I just have a question regarding your current market share. So the question is are you really happy with the current market share in Russia?

And what further decline in market share could drive you back to increase the subscriber acquisitions here?

Please explain, what do you mean the market share in subscribers or revenue?

I mean the market share in subscribers. Or do you really care about that, or you are caring only your profitability figures and the revenue?

It's Andrei Dubovskov, and thank you for your question. So we have fully (inaudible) our subscribers' share in Russia, but we need to improve activity on our subscriber base. And I think the same situation in each of our competitors.

Speaking about our subscriber share, we estimate it's approximately 34%/35%. And so, I think it will be no less than this number, 'til the end of next year. Thank you.

Okay. Thank you.

Dalibor Vavruska, Citigroup.

Just a quick question about mobile data, because it seems the trend appears to be quite healthy on the data traffic revenue, growing roughly 50% for a couple of quarters. And it's now accounting, I think, around 10% of the total Mobile revenue, if I'm not mistaken. Now, with these growth rates, it's going to be adding high single digits to your growth next year, your top line growth in Mobile.

Now, I remember that you were giving some guidance about medium-term growth in the Russian mobile market. And I'm just wondering whether this guidance may not be too conservative now, when you look at next year, and you can see the mobile data contributing maybe high single-digit. And assuming, if the voice market stabilizes, it's never declined, even in the crisis before.

So I'm just trying to understand either the guidance is not too conservative, or whether, perhaps, you think that the data trends may not accelerate, or whether you're cautious here about voice and the potential slowdown in voice. Thank you.

Thank you for the question. This is Vasyl, and I'll try to answer that. If you take a look at the data growth in Russia, for sure, it's significant; 50% year over year. But nevertheless, let's take a look at the Ukrainian result, it's even more; it's 67%, though we don't operate a full blown 3G UMTS network in the Ukraine.

It gives us the understanding the potential of data is still under exploited, and we believe that we can grow it for the next year, even at a higher pace. But the guidance that we have been giving in the past we'll, probably, be right to revise not sooner than April next year, where we do believe we will stabilize the chance of growth of all small screen and big screen sales for data, in all countries we operate.

Okay. Thank you.

Anna Kurbatova, Gazprombank.

My first question is about your OIBDA margin guidance for the full year. So can you reiterate the guidance that was given two months ago?

Yes. We are within the guidance, and we confirm the guidance which we have given earlier.

Thank you. And my second question is about your mobile TV offer, which, if I'm not mistaken, you launched in July. So very interested in how many subscribers did you get to this service? What was the initial impact on your ARPUs, and so on? Thank you.

Well, the only thing I can say it actually is above our expectations, because we were pretty conservative, as there was no experience in this market for such services. But at the same time, it is definitely too early to speak about the specific numbers, as they grow month by month, and even week by week, at a very high speed. Let's talk about it next year. I think we will give you some very good results in [this one]. Thank you.

Thank you. May I also ask a follow-up question about your MGTS stake schedules, due on the MGTS stake? Do you still planning to close that deal before the end of this year?

Yes, this is Michael Hecker, Vice President for Strategy and M&A. Yes, we're going to close the deal in December.

Thank you very much.

Sorry, just to re-cover your question. You're talking about the current stake of 29%, or the remaining outstanding 6%? Well, just to clarify, we're going to close the deal on the remaining 29% in December. The outstanding share is 5.9% of the chartered capital, there is no decision on the point of time when we will advance on that yet, for the moment.

That's very clear. Thank you.

Igor Semenov, Deutsche Bank.

So I just wanted to follow up on your -- on the previous questions, on the negotiations with the federal dealers. I didn't quite understand where you stand with the talks with Euroset, whether you're planning to extend your marketing agreement with them? And, given all the articles recently in the press about the potential that Vimpelcom is exploring whether to increase its stakes, what are your thoughts on that? How would it change your relationships with this dealer?

The second question that I have is, can you explain, a little bit more, on the improvement in the operating cash flow margin in Q3, relative to the couple of previous quarters? So -- and yes, this is the questions. Thank you.

It's Andrei Dubovskov. And thank you for the questions. Speaking about your first question, we are not going to explain our plans, because right now, we are under negotiations, and you know it's not a good situation for us.

But I'm going to remind you that all our negotiations with Euroset, with (inaudible), with (inaudible) will be based on the revenue share; no less, no more. And I'm going to add some information and remind you that, right now, we have the biggest own retail network, and we are going to achieve the share of sales in the near future through this network to 50%, approximately.

And about operating cash flow, Alexey Kornya will answer to you. Thank you.

Yes, this is Alexey Kornya. On operational cash flow, we saw some improvements in our conversion ratio from OIBDA to operational cash flow. And a big effect on that, we had some improvement of our working capital, specifically the reduction in our prepaid expenses, which were converted in real expenses. So yes, it's working capital changes, as well as strong financial results; including growth in OIBDA and (inaudible).

Can we assume that this conversion ratio is going to stay, or improve further?

Yes, it will stay around the figure where it is right now.

Thank you very much.

[Rodney Thomas], Citigroup.

I have a couple of questions. My first one is on smartphone penetration. I think you said that the smartphone penetration in your market is about -- in the Russia market is about 12.6%, and that low penetration is what is driving smartphone sales. I was wondering, in the near term, where do you think that penetration rate could get to?

Again, thank you for your question. It's Andrei Dubovskov. Speaking about your number, 12.6%, it's not correct information. Right now, we have a much better penetration, approximately 20%/21% of sales in the retail network and the same situation around the old CIS market. And every month we can add approximately 1% growth to these numbers. And I think in the end of this year it will be 24%, 25%.

Speaking about the next year -- 'til the end of next year, in my estimation, it will be approximately 35%. But we are not talking about only smartphones. We are going to talk about smartphones and data modems also, because all this will generating the (technical difficulty) network. Thank you.

My other question is on the repayment of debt in 2012, and any plans for new issuance?

Yes, this is Alexey Kornya. We will repay the debt in accordance with the schedule which we have, which is from $500 million to $1 billion, depending on our put options which we have on our ruble bonds.

As for any accelerated repayment of our debt, we do not have any plans as of current moment. And, as for new issuance on our debts or raising new debt, it will depend on a number of factors. There is some probability that will be raising some debt, but not really significant amounts.

Okay, thank you.

Victor Klimovich, VTB Capital.

I have a question. Can I refer you to one of the questions we had this evening. Are you happy with your current revenue market share? And do you think that probably increase of your sales activity will be necessary in the beginning of the next year, or in the middle of the next year? Thank you.

Victor, thank you for the question. We are happy with current sales in the market share. But I think we can improve it in the next year. And we have a good possibility to do it based on our strong sales results, our strong results in cost cutting, etc.

So am I correct that you don't want to intend any aggressiveness in sales which you had, for example, in the end of the last year, or something like that?

Victor, I think it is dependent on the market condition. We do not have visibility right now as of the beginning of next year. Until the end of the year we will probably -- we do not feel need to accelerate. And we would rather looking what would be the competitive behavior, and whether the competition will follow this suit.

Okay, thank you very much for your answers. That's clear thank you.

Anna Lepetukhina, Troika Dialog.

I have just one question remaining. Can you please elaborate on the breakdown of SIM card sales and payment, between national retailers, regional retailers and your own retail network, and where it stood last year? Thank you.

Thank you, Anna, for the question. It's Vasyl Latsanych and I will try to [answer] that. So first of all we have our own stores, franchised stores and international, which account for the huge portion of our total sales, about 40%.

Then, for sure, there are national dealers. But I would not over-estimate their share because, at this moment, it is close to 25%. And we do believe that it will not increase in the nearest terms, because we are investing heavily into development of our own and franchised branded network. Nevertheless, there is another portion of the sales going to the local dealers, which account for approximately 19% to 20%. And that share may also grow, because we understand that there is a potential.

There is still some 50-plus-% left, but this is a very low street level, less controlled channel. And I believe that that channel will have potential to decrease in the future given up to local dealers, and to our controlled high-quality channels. And controlled channels are, for sure, very important for us, because we can increase the quality of the subscribers. And we do believe that we can account for about a half of total sales through our own high-quality channels in the near [station].

Okay, thank you. And can I ask one more question?

Of course, Anna.

Thank you. And just on the 3G network roll-out just how many base stations has been installed already; and whether you're half way through to covering the whole of Russia. Or what percentage of Russia has been covered already?

It's Andrei Dubovskov and speaking about the numbers of our 3G installed base stations. It's approximately 19,000, and it's not the end of the story. And we are going to increase these numbers in next year. But it will be not our main target to reach, for example, 25,000 or 30,000 base stations, because we trust that we can achieve for a good financial and operating results using our current network. All cities across Russia right now are covered by our 3G networks.

Thank you.

Anton Rozanov, Credit Suisse.

Congratulations with the results and I have just two questions. One is, at the beginning of the call you mentioned some one-offs, stock-based compensation impact on your OIBDA and profitability as far as I understood. Could you please elaborate a little bit on that? What was the impact?

And the second question is the churn rates in Russia, because they went up a bit this quarter again. What can you say about this? Where do you see the churn rates going, down the road? Thank you.

I will take the first one, this is Alexey Kornya. On the first one, this one-off effect is related to some release of reserves related to salaries and compensation, such as vacation reserves, option program reserves, and so on and so forth. The impact is within 1 percentage point.

And on the second question I will pass over to my colleagues.

This is Vasyl, I will handle the second question and the answer's pretty simple. Take a look at the past year; we are going continuously down and total number and in the percentage number of churn, this is the clear reflection of our strategy. We are not hunting for the empty customers' numbers in Russia. And, therefore, we do not have to churn those empty numbers out after six months.

We do see the decrease in churns and the total customer quality increase which will definitely continue in the near future. And that's how we explain our sales strategy and our retention strategy. Thank you.

Thanks.

[Miguel Gaugin], VTB Capital. I have three quick questions please. One is the MGTS transaction, the closing of it by the year end. Does that mean all RUB20 million will be paid to Sistema before the end of December?

And the second question is on CapEx 2012 update, the CapEx revenue ratio where is that going to be? Your 3G base stations comments suggesting you'll be less aggressive next year, in the roll-out.

And finally, the MobTel '12 Eurobond redemption, did you -- has -- have your crystallized the way you're going to deal with this redemption yet, and do you expect any rating agency comments on the matter? Thank you.

This is Michael Hecker. On the first question, yes, we are going to pay out all the RUB21 billion in -- until the end of this year, in December; acquisition price plus debt included.

I'll hand over to the -- to my colleagues for the rest of the questions.

And thinking about the second question, about the CapEx -- it's Andrei Dubovskov. Right now we have no accurate information about our CapEx next year, but in my opinion, it will be approximately the same situation, because we need to finalize our building of our 3G network in next year, number one issue.

And number two issue, you know that we have very ambitious project named, [Dippon] on our MGTS networks and it will be big CapEx for this project.

Speaking about CapEx for sales next year, again, it will be ultimately the same like this year. Thank you.

And for the last question on Eurobond 2012, we are planning to repay it in accordance with the schedule as well, which we did with the previous coupon payment. We are looking at different options, so just no comment any further.

Thank you.

[Mark Lozina], Goldman Sachs.

I had a question on your dealer's compensation. Did your margin benefited from the fact that you are not paying for a couple of months [to] dealers. So is it reasonable to expect that your OIBDA margin going forward, and in particularly in the fourth quarter this year, will be impacted down, as you will start sharing revenues with dealers at some point? Thanks.

Thanks for the question, this is Vasyl. But it's really got us puzzled, because we do not have any payment that would be delayed for the future period to the dealers. In fact, what we are paying to the dealers now is that portion of revenue sharing that we have pronounced as our -- in our strategy and will continue in the same pace. So there is no projected increase for the same number of connections for the future and the out-payments to dealers. Thank you.

Okay, thanks.

Vyacheslav Shilin, Deutsche Bank.

Could I just please clarify your comment about the potential issuance next year. You said it's going to be in small amounts. But just wanted to get some ideas whether this the local currency you're talking about, foreign currency, whether this is a bond or a loan. What shall we expect? Thank you.

Well, the amount will depend, of course, now in the [near] activity and some other factors, which are not defined as yet, such as dividends and put options, which are -- or call options on the side of investors on that. So there is not yet clearly visibility on the exact amount for the next year.

However, how we will raise financing will depend on the market conditions. But it whether it will be rubles or hard currency, what will be the instruments for raising the debt as any further details. Other equals, we are procuring long-term ruble financing, in order to have a natural hedge in our cash flow.

Understood, thank you. Just wanted to get any guidance in terms of leverage for next year, if you have any at this stage?

You know our financial policy we said that we have certain limit, which is 2 times to debt EBITDA, beyond which we can pass over only in case of some extraordinary M&A transactions. So as you can see, we are, right now, well below this guidance, this threshold. And that is why we say that we'll stay pretty much at the level where we are right now, probably going a bit further, as we will have additional M&A, or as we pay out on our MGTS deal.

Thank you. Sorry, just a final question, in terms of M&A, shall it be domestic or we can expect you go outside of Russia?

Well, most of the debt relates to consolidation of the Russian market, specifically in the fixed broadband area.

Okay, thank you so much.

Konstantin Belov, URALSIB Capital.

I have a question regarding your on-net traffic. Could you indicate what is your share of on-net traffic in Russia and in Ukraine? And what is the trend, whether it's growing or not, whether you have any plans to stimulate share of on-net traffic?

Correct. Thinking about comparison between on-net traffic in Russia and Ukraine, it's big differences right now, but we are going to decrease these differences and create a lot of traffic on-net in Russia, like in Ukraine.

In Ukraine, right now it's approximately 90% [secured] on-net traffic. And in Russia, we estimate this number's no more than 75%. And in my opinion it's very good situation when loyalty of subscribers based on the big minute of usage and on-net traffic. Thank you.

Thank you very much.

[Feranges Harinova], HSBC.

Thanks a lot for the presentation. Most of my questions are already answered, but just want to clarify a few things. So this FX loss of $191 million, could you please just give a breakdown what is it exactly that is attributable to?

What is your long run CapEx to sales targeted ratio?

Finally, just to clarify, do you have any committed credit lines, and what is the unutilized part? Thanks.

Yes, I'll answer on this question. On our ForEx loss, it's mostly attributable to the portion of our debt denominated in US dollars and euros, which account for about 20% of our total debt portfolio.

As for our long-term CapEx sales target, we are not guiding our long-term CapEx sales ratio.

Yes, we do have both committed and uncommitted credit lines. For the total amount right now, we have, as at the end of the third quarter, we have roughly around $2 billion of committed and uncommitted credit facilities.

$2 billion? And what's the committed from that? Can you give a breakdown?

Well, most of them are committed, so uncommitted, approximately about one-quarter of that.

Okay. And, sorry, just a last question actually is there any clarity -- or what is the latest situation on your Kyrgyz assets?

Can you repeat the question, please?

What is the most recent situation with regards to Kyrgyz assets, Kyrgyzstan assets? The reason why, S&P and -- I think S&P was the one that had MTS on the negative outlook.

Yes, please understand that we are not going to comment on the running affair on the Kyrgyz asset at the moment.

Okay, thanks.

Igor Semenov; Deutsche Bank.

Yes, I just wanted to follow up on the cost side for next year. Do you have already any contracts for advertising for next year? What kind of media inflation do you see? And what do you plan to increase this spend, advertising spend, or decrease it? Thank you.

Thanks for the question. This is Vasyl, and I would like to comment on our advertising activity this year, and maybe some ideas for the next year.

First of all, we do not think there is a need to increase the total spend for advertising for the market, which is growing at a single digit pace, and the subscribers in this market are not that much volatile to the advertisement. So there is no need to boost any of the -- our activities with increased amount of money spent to direct [bets].

On the other hand, existing media contracts were not [prolonged] for the next year, but we are in negotiations right now. And we do see that there are forces trying to push the price up. And inflation, as they say, may be in the high teens for the next year, but we believe that looking for the better efficiency we would be trying to stay at a very low, possible one digit level inflation for the next year. This is our target. This is not our existing plans yet.

And I'm going to add some information. It's Andrei Dubovskov. Speaking about our tenders in the market in dealers' commissions support our network at Sistera, we strongly believe that in each next period all our expenses can be less than in previous year. And we strongly believe, again, that in this situation we can sustain our growth in revenue, subscribers, I don't know, etc. It's our base believe in. Thank you.

Okay. Thank you very much.

Cesar Tiron, Morgan Stanley

Actually I would like to understand what is the base to 4G licensing in Russia? And I have also the same question for 3G in the Ukraine. Thank you.

Yes, this is Michael Hecker. I can answer both of those questions.

On 4G we had, as you will probably know, in the last two months a big step forward with the decision of the State Frequency Commission to give frequency assignments to the big four. This is the first step in -- a very promising step in the path to 4G. Noting it does not mean that we're going to immediately be able and going to roll-out 4G.

At the moment this decision gives us, basically, a mid-term to long-term planning security. It gives us the perspective on sufficient spectrum. And it also gives the MTS specific advantageous position, because in the decision we have been able to prolong certain frequency positions we had from former assets that we acquired from Comstar.

With regard to the concrete roll-out path; please understand that we cannot give exact roll-out dates now. There is a possibility that Moscow will be rolled out LTE services potentially, next year, or in 2013. The regions outside of Moscow a little bit later, but this is all under uncertainty at the moment.

On 3G in the Ukraine, of course, you understand that there is a tender process going on, where the incumbent is selling 3G business. Please understand also here that we cannot comment on running commercial tender activities there.

But you are participating in the tender, right?

Yes, we are participating in the tender, but that is all we can say on that topic for the moment.

Thank you so much.

Anna Kurbatova. Gazprombank

Thank you for taking the follow-up question. It's about the potential share buyback. So do you consider any -- to launch any program maybe if the markets are still volatile? Thank you.

Well, right now we are not -- we do not have any decision on share buyback. And, as you know, our major shareholder has announced a share buyback on our stock. So, if such a decision will be taken we will inform the community in the proper manner.

Okay. Thank you.

Operator, we'll take one more question.

Victor Klimovich, VTB Capital.

I have a question regarding onward traffic. Andrei, you just said that you want to have a repetition of Ukrainian scenario in Russia; of course, not in price wars, but in increase of online traffic.

And can you please elaborate, should we estimate a decrease of average price per minute, and growth of traffic? And where do you see ARPU? So should it be stable or growing slightly, high single digits, maybe low teens? Thank you.

Thank you for your question, but please look at the key factors which create ARPU, activity of our subscriber base. One hour ago I told you or maybe another person that we are going to increase activity of our database, and it can support our ARPU, it can support our [ATPM], despite of increase of our on-net traffic. And thank you, Victor.

Thank you.

Ladies and gentlemen, thank you very much for taking the time today. We apologize for some of the confusion about the time, but we had some delays on our side.

We welcome, of course, any of you to contact my office at any time for any further questions. A webcast of this discussion will be available on our web site, of course, if you wish to replay the call.

In the meantime, thank you for your interest, and we wish you all a pleasant day.

Thank you, ladies and gentlemen. This concludes the Mobile TeleSystems third quarter 2011 financial and operating result conference. Thank you for participating. You may now disconnect.