Mobile TeleSystems PJSC (MBT) 2018 Q3 法說會逐字稿

Ladies and gentlemen, welcome to Mobile TeleSystems Third Quarter 2018 Financial and Operating Results Announcement and Conference Call. I'll now hand you over to Polina Ugryumova, Head of Investor Relations. Madame, you may begin.

Welcome, everybody, to today's event to discuss the group's third quarter 2018 financial and operating results.

As usual, I must remind everybody that except for historical information, any comments made during this call may constitute forward-looking statements. Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This, in turn, implies certain risks, a more thorough discussion of which are available in our annual report and Form 20-F or the materials we have distributed today. MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes in risks. Copies of the presentations and materials used and referenced in this conference call are available on our company website.

Now I have the pleasure of presenting MTS President and Chief Executive Officer, Mr. Alexey Kornya.

Ladies and gentlemen, thank you for joining us on today's conference call to discuss the group's financial and operating results for the third quarter 2018. Joining me to comment on our results are Slava Nikolaev, Vice President, Marketing; Kirill Dmitriev, Vice President, Sales and Customer Services; and Andrey Kamensky, Vice President Finance, Investments and M&A.

Let me begin with the key highlights to the quarter. In third quarter, we delivered another strong set of results. In Russia, the market continued to grow despite the recent regulatory changes in the environment of relatively stable and healthy competitive dynamics with continuing increasing data consumption and ARPU. MTS has maintained the robust growth momentum.

During the third quarter, group revenues increased by 11.7% to RUB 128 billion. Excluding the impact of new IFRS standard, group revenues increased by 12.1%. This growth was primarily driven by strong underlying performance in Russia and accelerated growth in Ukraine. In third quarter, we began consolidating the results of MTS Bank, which also contributed to reported growth. Excluding the impact of bank consolidation on like-for-like basis, our group revenue increased by meaningful 8.7%.

Third quarter group adjusted to OIBDA was RUB 59.3 billion, up 21.6% compared to the previous year. Obviously, this substantial increase was aided by a new IFRS standard. On a like-for-like basis, we also see a 7.3% increase driven by revenue performance. Excluding the impact of consolidation of MTS Bank and the new IFRS standards, adjusted OIBDA grew 4.9% on a comparable basis. Our adjusted OIBDA margin has now reached 46.3% under the new IFRS standards.

Now I turn the call over to Slava and Kirill, who will give more color on our key market performance.

Thank you, Alexey. For the period, we saw strong top line performance in Russia as revenue increased 12% to RUB 119.1 billion, driven by an impressive dynamics in handset sales as well as continued growth in core mobile segment. The consolidation of MTS Bank also contributed to increase in the top line. Our mobile business continued to grow despite the cancellation of internal roaming from September. We continue to see sustained growth in data usage and ARPU in a relatively healthy pricing environment. In August, MTS launched the new tariff plan called [tariffishare] with unlimited Internet. We already see the first positive results. The tariff was very well perceived by the market. Those MTS clients to (sic) [who] opt to switch to tariffishare tend to grow their ARPU, where their average data consumption is not increasing materially.

Our fixed line business demonstrated modest revenue decline of 1.5%, mainly in weakness in fixed telephony segment. Meanwhile, MTS widened its market share in broadband Internet and pay-TV segments in Moscow grew 36.5% and 42%, respectfully -- respectively, according to internal estimates. The number of households using GPON services grew to 1.9 million. Revenue contribution from our new segments, e-gaming and e-ticketing, was mainly in line with the previous quarters while our integration business doubled in Q3 on increasing number of projects.

In Ukraine, we witnessed an acceleration in growth to double-digit numbers. On a comparable basis, our revenue increased 13.8% on a continuing strong take-up of data products, supported by existing 3G coverage and ongoing LTE rollout. Excluding the impact of new IFRS standards, OIBDA grew 26.9%.

In Armenia, we saw a 2.3% decline in top line and 5.4% decrease in OIBDA on a like-for-like basis, while in Belarus, we enjoyed a solid double-digit growth in both revenues and OIBDA.

Now I turn the call to Kirill, who will speak on sales and retail developments.

Thank you, Slava. In Q3, our handset sales revenue growth year-on-year, further accelerated to 37.5%. This is compared to 21% growth seen in the overall Russian smartphone market on our estimates. We grew faster than the market and widened our market share from 10% in April to above 13% by the end of Q3. This outperformance was mainly the result of our initiatives to incentivize customers to update their smartphones. In particular, various loyalty discounts and bonuses were replaced by the cash-back program, which has become the most efficient tool to attract customers. In Q3, half of our smartphones within MTS Retail were bought via the cash-back program.

Another trend was that Russian consumers spent less on travel this summer and preferred to buy expensive goods, including smartphones. This is also demonstrated by the continued increase of the smartphone penetration in our subscriber base, which reached 68.5% by the end of Q3. We observed a sustained trend of customer shift towards more expensively -- expensive devices, and we can meet this demand with MTS' broad portfolio of devices. This autumn, we successfully launched the sales of new iPhone models, XS and XR, further extending our relationship with Apple. Meanwhile, we also saw the highest growth in demand for the high-end models from Samsung and Huawei.

We continue to see promising trends in e-commerce, which remains an integral part of our sales strategy. In Q3, our online sales and retail grew by more than 50% year-on-year and exceeded RUB 2 billion. We further improved our online shop through integrating 2 new features for our customers. First, we launched the separate interface for B2B customers. This is the first step towards the planned launch of our dedicated online shops for business clients. Secondly, we introduced the online trade-in calculator, which helps our customers to immediately see and to apply a discount that he or she may get when making the online order from the new smartphone while selling the existing device under the trade-in mechanism.

Our self-care mobile application, My MTS, is becoming more and more popular. This quarter, the number of 1-month users hit 13 million mark. We focus heavily on customers' experience and continue to integrate new options into My MTS. Recently, for example, we added MTS cash-back and the possibility to make application for home Internet, TV and centralized services.

Regarding our physical store footprint, in Q3, this year, the number of total MTS Retail remain unchanged.

Now Andrey will provide further details on our financial performance.

Thank you, Kirill. For the third quarter of 2018, we reported group adjusted OIBDA of RUB 59.3 billion. This result include the impact of new IFRS standards, which added RUB 7 billion that are related to consolidation of dealers, commissions and lease expenses. On a comparable basis, group adjusted for OIBDA show the growth of 7.3% year-on-year. The key drivers of this growth were mobile revenue and profitability improvement in Ukraine. Consolidation of MTS Bank has also positively impacted group adjusted OIBDA dynamics. Meanwhile, we also saw an increase on cost side, mainly due to higher spectrum fees.

In Q3, MTS reserved RUB 55.8 billion as the potential liability with respect to the investigation being conducted by the U.S. Securities and Exchange Commission and the U.S. Department of Justice in relation to its former operations in Uzbekistan. There can be no assurance as to the form, timing or terms of any resolution to the investigation. As a result of this provision recognition, the group finished Q3 with net loss of RUB 37 billion. Excluding this noncash provision, MTS would have reported net profit of RUB 18.7 billion.

In the 9 months of 2018, CapEx, excluding licenses, totaled RUB 55.4 billion, a 13.8% increase year-on-year, which largely reflects the continuing LTE rollout in Russia. During the third quarter, we spent RUB 21.2 billion and the CapEx-to-sales ratio reached 16.6%. The combined impact from higher CapEx, such as of Avantage, one of the largest data centers in Russia, as well as several acquisitions and investments made during the year, led to a lower free cash flow over 9 months of 2018 of RUB 40.3 billion versus RUB 55.7 billion a year ago. Free cash flow was also positively impacted by the adoption of the new IFRS standards.

MTS' total debt increased during this quarter to RUB 376.5 billion, mostly on new credit facilities from B2B for a total amount of RUB 75 billion. At the same time, we repurchased a local ruble bonds for RUB 8.9 billion under put option.

We continue to systematically optimize our debt portfolio. We decreased the weighted average interest rate to 7.9% in Q3 and extended the average maturity of outstanding debt through refinancing loans at Sberbank for a total amount of RUB 110 billion during the third quarter. Our balance sheet remained strong with net debt to last 12 months adjusted OIBDA ratio at 1.2.

In 2018, we paid a total dividend of RUB 26 per ordinary share in line with our dividend policy. In addition, in July, MTS launched a new share repurchase program for RUB 30 billion over 2 years. In line with our plans, we fulfilled half of the program in 2018.

Now I turn back to Alexey for his closing remarks.

Given the strong top line performance in 2018, we feel comfortable to raise our full year guidance to the second time this year, following the upgrade announced in second quarter. For revenue, we now expect a 4% to 6% growth. This reflects the continued increase in data consumption across our customer base, acceleration of growth in sales of goods as well as the recent regulatory changes related to internal roaming.

As for OIBDA, our outlook remains unchanged. It's about 2% growth as we expect certain factors, including regulatory changes, to impact our profitability in fourth quarter to a great extent as compared to previous quarters. Overall, we believe in our solid underlying performance moving forward.

Finally, I would like to say couple of words about our ambitions in development of financial services. We have recently consolidated the controlling stake in MTS Bank, aiming to more effectively leverage the synergies between telecom and banking businesses. We are really comfortable with continuing improvement in the core bank business. The changing product mix with focus shifting towards the retail customers, together with more disciplined approach in managing risk, resulted in the noticeable improvement in the bank's earnings since 2013. After a number of loss-making year -- years, MTS Bank reported a net profit of about RUB 600 million in 2017 on a stand-alone basis. Over the first 9 months of 2018, the bank's net income on a stand-alone basis reached RUB 673 million.

We believe that knowing MTS customer profiles with an offering financial products to our clients gives us a competitive edge. One of the key recent developments was the launch of dual contract or double offer as an initiative under which most of new customers for MTS are signing a banking contract in parallel with the telecom contract. This allows us to offer personalized financial services that customers can accept online with just one click. For that type of customers, we have just launched virtual credit card, which they can get remotely in My MTS app once specific offer from MTS Bank is received and accepted. We're targeting to have at least 5 million MTS customers who signed up for dual contracts by the end of next year.

We also have a number of other innovative financial services products in the pipeline, which we will look to offer to co-MTS customer base in order to increase the clients' engagement and loyalty. Big data, one of the innovative areas which MTS has been focusing on since 2015, offers another highly efficient instrument, helping us leverage the synergies between our telecom and our bank. In 2018, MTS Bank improved its scoring models with the help of big data analytics.

Since the introduction of the improved scoring system, MTS Bank has increased the share of approved loans application by 5 percentage points while the level of default on issued loans remained largely unchanged. This is a good example of the synergies that might be achieved at the crossroad of telecom and the bank. We expect further improvements in scoring process as the more and more data on customers' behavior becomes available while we continue to increase our capabilities in Big Data.

Overall, we continue to believe that fintech is a critical pillar in our digital transformation strategy. Fintech is not just good business by itself, but it is also a great contributor to the lasting loyalty with our customer base and an important enabler for a variety of products and services in our ecosystem.

Thank you, and we are now ready to answer your questions.

Operator, we're ready to answer the questions.

(Operator Instructions) Our first question comes from Ivan Kim from Exile Capital (sic) [VTB Capital].

I have 2 questions, please. Firstly, on the potential impact of the potential settlement of the Uzbek case. So if it happens, do you anticipate any influence on your dividends or buyback? Related to that, what is your comfortable leverage level? And maybe if you can give a comment also, whether you consider the sale of any of the CIS assets in light of this upcoming settlement, just to free up some cash. And secondly, just -- is there any timing on the purchase of the remaining stake in MTS Bank?

Ivan, thank you for your question. I'd like to stress that the result was -- which we made relates to a potential liability related to the ongoing investigation, and there was the -- and we would like to seek to this wording, which was thoroughly checked with our legal team, so not to rephrase it in any different forms to start with.

Then as for the potential implication for our dividend policy, we believe that our dividend is important piece of our value proposition thesis for the market, and that will remain as such. So we'll come with the new dividend policy traditionally in spring of next year, and we expect that substantial dividend return will be part of our value proposition going forward. We are not ready to give more visibility towards our dividend policy at this point of time. And I would like to stress here that these rhetorics has not changed from what we communicated and what we promised over the long period of time in relation to our dividend policy. And could you remind what was the second question about?

Yes. So related to the first one still, what are your comfortable leverage levels? Am I ask -- if I may ask. And the second question was the timing of the purchase of the remaining stake in MTS Bank?

Okay. With the leverage, we think what -- that we have a really strong balance sheet. And right now, our leverage substantially below that of our peers in the market, and we are comfortable with the level of our leverage up to 2x net debt to OIBDA. Our covenants reflect up to 3x net to OIBDA. So right now, we're hearing 1.2. So we are very comfortable with the current standing and don't see any threats to our balance sheet strength. As far as the timing of purchase of the remaining stake in MTS Bank, I just can confirm that full consolidation of MTS Bank is our strategic goal, and I think that remains as such. As for when we'll agree on the full consolidation -- or full purchase of remaining minority stakes, that we don't ready to give, we have not yet any decision at this point of time.

Our next question comes from Peter Tiron from Bank of America Merrill Lynch.

It's Cesar. I have 3 questions, if that's okay. The first one, there seems to be a slowdown in the -- not in the revenue, but in the service revenue growth in Russia in 3Q on a year-on-year basis. Can you please explain the reasons? Second question, the pressure on the margins in Russia in 2H, is that relates, among others, to the incremental spectrum cost? Can you please say exactly how much it is and also mention if we should expect this cost to be repeated in 1H next year as well? And then third question, as regards to the DOJ/SEC-related provision, can you please explain the timing as recently this year and to take that provision in a specific quarter? Because I think this issue has been going on for a couple of years now.

It's Slava Nikolaev. I'll take the first question. There are 2 main reasons for a slight slowdown that you can see in service revenue in Russia, one is the high base last year. You can see that our major growth started in the third quarter of last year, so one thing. And second, we have already had some impact of elimination of intercountry roaming, which actually diluted these revenues in September this year. So these are 2 main reasons. Otherwise, we're going in the same -- with the same trends.

Speaking about the third question on timing of field related -- as it relates to the investigation, we do not comment on the ongoing investigation. So unfortunately, we have nothing to add to what we already communicated.

So answering your question, yes, sorry?

Sorry, just on the timing. My question was not on the investigation, but just as to why you decided to take that provision in that specific quarter.

In that -- that, in accordance with IFRS standards. We need to provide when we can evaluate potential outcomes from such an investigation. So right now, we feel having more visibility towards the potential outcome. And for that reason, we have made this evaluation and made provisions.

So if I -- and this is Andrey Kamensky -- if I can answer your second question, which was on the pressure on the margins in second half of this year. You can see the main drivers or factors, which were listed in our guidelines, which are hitting most -- mostly in the second half of this year. This is the increase in spectrum costs that you mentioned. But besides that, we also some -- we have some other factors, such as -- like roaming, also labor costs. So that put pressure on us in the second half. And because of that, actually, we're keeping the guideline on an OIBDA level. In terms of the effect itself in the second half from the spectrum fees, we are disclosing also in the presentation among the factors, which hit our OIBDA. The fact -- in fact, the hit is RUB 400 million, if we compare it with the quarter of 2017.

Our next question comes from Alexander Vengranovich from Sova Capital.

So first question is on your integration business. So it doubled year-over-year in the third quarter, can you please provide us, first, like what are the reasons for such a rapid acceleration of the growth? And can you also please like share some targets from that business segments and what sort of plans you have for the further development of this business line? So obviously, we've seen, recently, launched the partnership on the cloud business. So looks like that's going to be like a pretty promising. So if you can evaluate probably the plans, that would be quite interesting. And also on your M&A plans. So you've done a couple of small M&As recently in gaming, like ticketing. Do you have any further sort of priority areas where you can invest in the future outside the financial services, which looks like your top priority for now? And should we expect any further M&A activity from your side this next year?

Yes, Alex. Thank you for the -- for your question. The growth, which we demonstrated in our integration businesses, is due to the development of this business line. So we did introduce some new products, which includes partnership with Microsoft and Microsoft licenses. And as we also noted in our press release, we partnering with Microsoft for Azure Stake (sic) [Azure Stack] products, and some other products will be added to our portfolio going forward. So we expect this business to grow.

And to reflect this expectation and our focus towards the growth, we even separated the new business line, which we call now as B2B digital products with a new Vice President, the head of this business line. Valery Shorzhin is now heading this as the Vice President for B2B digital services business line, and this business line will include a few products, so a few direction, including clouds, including B2B Internet of Things and new developments in industrial automation. So all the products in this kind of sphere will now have a high focus within our organizational structure, and I think integration services will -- is also part of this story and will contribute towards our overall growth. So we are optimistically looking at the potential of this direction in this business. And as far as M&A plans, the answer is traditional. Whatever is complementary to our overall strategy, we'll be considering. There is nothing specific to announce at this point of time.

Our next question comes from Slava Degtyarev from Goldman Sachs.

How do you think, basically, you in the industry will plan to deal with the value-added tax increase starting from January? Do you have certain plans to increase the prices across your mobile or fixed line products? And also, your free cash flow is declining this year, driven by higher CapEx and various investments. And looking for 2019 and beyond, how do you think about the cash generation? Do you think that 2018 is a trough year in terms of the cash generation?

Thank you for the question. I have to say that we have some tariffs that are primarily in B2B that are nominated before the value tax. So those will automatically increase, but this is really minority of our tariffs. Other tariffs are -- we set them including VAT, and we do not have any direct plans of increasing the prices at the 1st of January when the new tax is going to be implied. We do change our tariff plans on a constant basis, reflecting the changes in the markets. But this is not directly connected in any way to VAT increase.

Yes. And your second question about the cash generation. You're absolutely right that it declined in 2018, and you know the reasons. It was our CapEx investments and the M&A deals. And looking forward, I think you'll have all the data in hand. That's actually the formal, because we are saying that in terms of our CapEx, we already gave the number for 2 years for 2018 and 2019. So we expect that within RUB 160 billion over 2 years. And in terms of our operating cash flow, it is growing actually, and we believe that we will see the same trend before -- for looking forward as well.

Slava, this is Polina. We have also missed your second question. Can you repeat it, please?

No. That actually were the questions with regard to VAT and the free cash flow. So all my questions are answered.

Our next question comes from Ondrej Cabejšek from UBS.

I've got a couple, please. I was just wondering if I could follow up on the leverage policy, if this will change somehow under the new IFRS standards going into next year, potentially. Second question is, if you could give us some color on the incoming unlimited tariff customers 3 months into this new initiative, if you could break these down a bit? And then third question is, if you could provide some background on the thinking behind the cashback initiatives, whether these are related simply to growing data consumption or whether this is some sort of reaction to what's going on in the retail market, especially driven by Beyond?

The new tariff plan, first of all, we see about 50% of new sales that have been sold to this tariff plan, so it's a very positive thing. Another point is that, we, of course, have migrations within our subscriber base, but the new tariff is one of the very few that shows increase on average in ARPU in migrations within the tariff -- within the subscriber base. At the same time, the average usage in this tariff for data is even lower than in some old tariff plans, including use-tariff plans. So that seems to be really success on both cost side and revenue side.

So let me take the third question, on the cashback, and let me slightly elaborate on what's happening in this retail market. First of all, if you hadn't asked me this question, but I want to stress it out, the number of our retail stores remains unchanged. At the moment, I don't see any prerequisites for any filter outside closing down closest -- for the retail and for any organization. This is mainly driven by the different agenda or agendas, if I may name it like that, by different carriers. We are fully satisfied with the current level of our presence throughout Russia. We still have around 5,700 stores, including franchises. And we are happy with that.

Regarding on the cashback and what's happening in the smartphone market. First of all, the smartphone market reflects the overall trend -- world trend, I would say. It remains more stable in the units. So in third quarter, specifically the Russians mark-to-markets grew only by 1.6% in units and around 21% in [monetary] terms. We, on the contrary, still enjoy the quite aggressive goal of our sellout. We call the sellout around about 50% revenue-wise and around 14% in units. Why we did so, at the moment, we would like to stimulate the additional footfall, the inflow of the customers into our stores, and we see that this footfall can be updated up -- can be provided the new services we are launching or we will be launching in the nearest future, including the fintech services and the payment services and all the stuff. Insurance policy in terms of [all.]

We at the moment enjoy the quiet tight grip or what's happening in the market, and among all the carriers, we have the largest market share in smartphones, and we think that this is the good balance of the value and revenue. As for the outlook for the future, I believe that we'll remain flexible in terms of our pricing policy and aggressiveness on the cashback. Thank you.

Can I just -- I'm not sure I heard whether you were answering the question on the leverage policy and the essentially changing under the new IFRS standards. And then if I may follow up on the 2 answers that you gave us. Could you break down within the unlimited tariff sales? Could you break them down between the 4 -- or among the 4 different tiers that you're rolling out, please?

Between 4 different what?

If I may intervene here. On -- I think just to summarize what Slava commented on unlimited tariff plans, we see growth in ARPU, and that's one of the most successful ARPU-growing tariff plans. And the second one is that we see that real consumption is -- is even lower in terms of data consumption, lower than some other tariff plans. So we're not ready to make a direct comparison between different tariff plans which we have on shelf. I think that's the best characteristics of the quality of the proposition and the benefits which it's giving to us. And as far as -- if I answered your question, and as far as leverage concerned, we don't see any reasons to change our leverage policy, not related to IFRS standards, not related to any other assets.

Our next question comes from Maddy Singh from Morgan Stanley.

Just wanted to discuss the competitive environment in the shelves and especially the unlimited tariffs launched. Do you see these tariffs going away? Or do you think they would become permanent feature of the market? And if that is the case, that it does become permanent feature in the market, then is it likely that we actually start to see some pricing pressure on those packages themselves? And then secondly, I noticed that number of stores actually went up during the quarter, if I'm not wrong. So how does that -- changes the overall strategy of reducing the number of stores?

Okay, if I understand the first question correctly, you're asking whether the unlimited tariff plans will stay or go in this market. That is still, I would say, unclear at that point. In my view, this will not stay forever, and at some point, we might go away from unlimited tariff once again. It's a good instrument against tariff wars, against decreasing prices by some of the competitors, but whenever the market will turn back to growth, I think, we might again go away from unlimited tariff plans, but it's not a promise. I think, we can do it somewhere around.

Maddy, let me pick up the second question of yours. Could you please rephrase it once again? I don't think I got it right.

Sorry, I just wanted to understand your retail distribution strategy, whether the overall ambition of reducing the number of stores still is intact? And what happened in third quarter, if you could discuss that as well?

Okay. So okay, I'll provide little bit more outlook of ours. First of all, nothing really changed in the market, in the retail market in the third quarter compared to the second quarter. So we see that all of the players in the market, included us, don't show any, I would say, sign of willingness to significantly decrease the number of stores. All of the carriers have their own agenda.

As for us, we keep the level of our -- the size of our footprint in Russia stable. I don't see any significant changes because we're a couple of dozens of stores up, plus or minus, don't make any difference from my perspective. So 5,700 key stores, for Russia, is at the moment, the optimal or close to optimal level of the retail. Maybe we can see that, maybe, we will open 100 to 200 stores more or we'll maybe close down 100 to couple of hundreds of stores. This is not the major change. No, this is not a sign of some optimization or, well, improving our sales sentiment for the market.

At the moment, we see, let me repeat it again, we don't see any prerequisites in -- from the market to get optimized. Maybe, this will change -- the story will change in the early on the first half of next year because by that moment of time, some relationships with the major independent players is nigh for the change from -- or we expected this limb to be changed from [Vion] or from other players. But at the moment, again, all of the carriers have the, more or less, optimal size of the old retail from their perspectives. No major changes. Thank you.

(Operator Instructions) Our next question comes from Alex Kazbegi from Renaissance Capital.

Two small questions, please. On your CapEx guidance, there are 2 elements there which are, one, is the spending on the compliance with the anti-terror law in Russia and Netherlands, as you mentioned there. Also some evolution of the commercial 5G solutions. And I wonder, do you see any risks there for one or the other spending to actually increase? Are you fully in compliance, so to say, what the government wants to see in terms of the implementation of this anti-terror law? Or do you think there is a risk that this CapEx may actually be changed upwards or downward but mostly upwards?

And related to that on the 5G, I mean, I assume here that you are talking about just pure rollout and maybe buying some spectrum but not really buying a license. There was a talk of a possibility that there will be a license auction at some stage in Russia. Do you have any visibility on that? And again, what's your risk of base CapEx to actually increase? And the second question is just on MTS Bank. Do you have a target credit portfolio which you will be comfortable with in terms of -- yes, just the target credit portfolio?

Thank you, Alex. So in terms of the CapEx, I think that the guidance that we gave RUB 160 for 2 years for CapEx, again, we'll repeat, that actually does not include CapEx for [AI wire] mostly. So and at the moment, we don't see any risk in increasing this number. And we also said that for AI wire , the estimation that we gave was RUB 60 billion for 5 years, starting from summer this year and, at the moment, the same situation that we see no risk that this amount can be higher.

Alex, as far as 5G concern, we don't have any visibility right now is towards what would be the approach towards 5G in terms of how it will be auctioned, how it will be distributed and so on and so forth. We think it is very important for development of infrastructure, for development of industry in our country, for development for economical growth that there will be a full-fledged 5G policy on -- from the governmental level, which allow a substantial 5G spectrum for the development of 5G in the country. So we reiterate that at least 500, 600 megahertz in the C-band and about 1,000 in the millimeter band are needed for full-scale 5G development in the country. However, right now, there is, once again, no clarity as towards what the approach of the government is and when this will be available.

And speaking about bank, of course, tactically, we do have in the budgets for the next year some credit portfolio targets, but these are other tactical and not strategic goals, so credit portfolio, per se, is not a key metric of our success or the key target or the key KPI for the bank. We think of bank in 2 ways, firstly, how that will affect in terms of loyalty and value add to our existing customer base. So we -- for that goal, we need to develop a top-notch daily banking experience. We need to develop transactional services offering and so on and so forth. So this is not necessarily related to our credit portfolio. It's more customers being willing to use our services, including financial services. And of course, an active side on the bank, we also think of that, how here we need to have a very balanced approach, and we thoroughly monitor that there will be balance between risk which we are taking and the growth which we achieve. So these are twofold goals. One of them is in terms of how much time customers spend with us, how willing they are and how deep is penetration. And the second is growth in net income and key financial metrics, balanced growth.

We have a follow-up question from Alexander Vengranovich from Sova Capital.

Just had a brief one. So I hear on your presentation Slide 9, you have quite a nice pickup in the number of active users of My MTS app. So basically, at the quarter-end, adding more than 1 million of active users. I'm just wondering whether you can already share some benefits in terms of the cost savings, which these users allow you to execute in terms of your customer service cost savings, like cutting some people in your stores which are doing customer service or whatever you can share with us. And also, do you think there is a good possibility that you might even accelerate the number of the users of My MTS app to get us like a closer to some meaningful numbers as percentage of your data users and what sort of tools you might be using to reach that?

All right, so let me briefly answer question. First of all, thanks for acknowledging that we are demonstrating good progress because we are. This is the outcome of the initial work of different functions in our company and answering a question in terms of what's the kind of the real implication on the savings.

We enjoy the second consecutive year of the decrease in numbers of headcount in our contact centers, first of all, which has very good implication on our EBITDA because we minimize the cost we bear, first of all. Secondly, we enjoy some optimization in the service operation in retail, absolutely. Because nowadays, part of the working time spent on non-value-creating transactions now retail is going down. While the percentage of time dedicated by the floor staff, floor personnel in our stores to sell the, I don't know, the expensive devices, the iPhones or the accessories is going up, so this is kind of indirect implication. So it would not be -- it would not have been possible, I would say, to demonstrate such a good result in terms of retail operations if you would not have spirit up some of the time of our staff. So as for your potential -- as for potential outlook and question, I ought to know what this was.

Yes, I think that we cannot promise you that we will increase the pace of active users in My MTS, but we will anticipate to go with this trend for the next year, at least. We are providing new functions in this application, sometimes every 2 weeks, sometimes every second release, which is 1 month. And we give more and more features to our subscribers, including banking in -- and you can also sign up for phone cards, including different means of payments, including, for example, some -- well, I would rather go for benefits that subscribers can get only using this application, which actually allows us to increase daily users. Because when you see the number and compare it to the number of data users, it's slightly not fair because, if you look at daily users, you would see, it's not -- the number is not on the presentation, but it's now close to 3 million, which is a huge number, even for a social network. So we -- this is something that we're really looking for. We're looking for people to come back to this application many times during the month, not only monthly users.

So we think that we would still have great opportunities here. But we are already on a very good level of usage without making any harsh moves like some of our international peers, they made this move like you will never use data without opening our application. This is something we are not using yet. And we think we're still growing at a very good speed with much nicer incentives for our subscribers.

And I have one more word to add here. Nowadays, we have some offerings for our customers, mainly driven by the Big Data or the kind of data have produced by Big Data, which the customer can only get wireless application. We will push the story forwards to make -- to create more opportunities for the customer to -- with application and spend more time or a little bit more frequently.

Our next question comes from Svetlana Sukhanova from Sberbank CIB.

May I have 2 questions. The first one would be on your strategy. My perception was that some time ago, you approved the Board of Directors a new strategy. So my question would be, how different is it from existing strategy and if you plan to share this new strategy with us? So that would be the first question. And the second question would be on the building, which you recently acquired for RUB 4-something billion. Can you please share with us rationale for acquiring that building and what you expect to do with it? And what [is the future of] system-related company, so (inaudible) buildings? So would it be only your building? Would it be while you rented it? And will you just remove the system-related companies from the building?

Okay, thank you. Speaking about our strategy, it did not change conceptually or principally. Of course, it evolves together with the evolution of the company. It stayed the same 3D strategy. With the higher focus on digital, so we announce within our strategy that we are going to go more aggressively towards new lines of business and have a higher focus on convergence in those businesses and services into our main product -- in our main service, which is the connectivity. So that's already reflected in our convergent fixed-line and TV proposition, which were rolled out for this year all across our fixed-line presence. And that -- that is reflected in our more aggressive move into fintech and financial convergency with connectivity. That reflected in B2B that we are focusing more on new digital B2B services, which will be add-on or which will have an additional growth, such as those which I mentioned -- clouds, integration service and so on and so forth -- which will create a higher value add on the main value proposition, which we'll bring to our B2B customers.

So this is, in a nutshell, the essence of our refreshed or restyled strategy, which is in core is the same that we are focusing on our core business, being best infrastructure, best value proposition, a leader in the market in terms of innovation in this sphere. And more aggressively converging our digital services and developing our digital services with our core proposition. And on top of that, the leader in return, including dividend return to our shareholders.

And now speaking about specific view, that's purely economical rationale. We're sitting right now in this building, and we are planning to increase our occupation of this space so that we'll be meeting. That doesn't mean that we'll be the only ones, but we'll be clearly be meeting the presence in our building. And that's -- we in Moscow, our headquarters, we own predominantly all our headquarters in -- headquarters buildings in Moscow region.

So [the stem of] companies will also stay in this building. [Is that] accurate?

Their presence will decrease over time, but of course, there might be some will stay there. That's subject to initiation. Some of them have long-term contract. But as I said, we view that we are already occupying substantial part of this business. So for us, as we extending our teams -- our digital product teams, we need to have more capacity. We need to have more modern capacities. And that's part of our strategy in allocating our IT teams, product teams in the -- in modern facilities. So that's complementary toward our vision and requirements because we need additional capacities. So we were occupying already this building, and we are increasing our occupancy. That does not mean that we'll, in 1 year, there will be no one except of us, but long term, yes, of course, we see that we'll have enough personnel potentially to accommodate this whole building. Not now, yet.

Our next question comes from Sergey Libin from Raiffeisen Bank.

I wanted to follow up on the EBITDA guidance. So it seems like that's for the fourth quarter, the -- your current guidance implies the decline in OIBDA. So I just wanted to understand, for example, even if we deduct the upcoming spectrum fees, there would still be a decline in organic OIBDA. And I wanted to understand whether you already see something 2 months into the fourth quarter, something that's -- is completely different from what was the case in the first 9 months and something really bad that drives your OIBDA down? Or are you just leaving room for something bad to happen in December, and October and November are pretty much okay? And it's more or less in line with what you saw throughout the first 9 months of the year?

Sergey, thank you. So in answering your question, I will come back to one of the answers that I already gave in terms of our guideline on OIBDA. If you see in our press release, actually, we listed the factors that we've foreseen the fourth quarter, and most of them are negative, and of course, this the reason why we're actually -- we're staying pretty conservative so far at the moment. And the answer is actually, at the moment, we don't see -- we want to be -- we want to stay conservative, actually, and to -- not to come up with a more optimistic guideline. So then the -- and the main factors, if you see on OIBDA level, this is, of course, the spectrum fees and the roaming, and of course, the factor in fourth quarter would be in terms of the roaming, for example, would be higher than in the third quarter. And that this is one of the reasons why we actually -- we are keeping the guidance on OIBDA. So that's practically it.

(Operator Instructions)

Operator, as we have no further questions, we would like to conclude this conference call. Ladies and gentlemen, thank you very much for listening. We welcome you at any time to contact MTS Investor Relations department if you have further questions. 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 everybody a pleasant day.

Ladies and gentlemen, this concludes our conference call. Thank you all for participating. You may now disconnect.