VEON Ltd (VEON) 2002 Q4 法說會逐字稿

Good day and welcome to the Vimpel Communications conference call. Today's conference is being recorded. At this time I would like to turn the call over to Mr. John Dillard of Edelman Financial. Please go ahead, sir.

Good morning and welcome to VimpelCom's conference call to discuss the company's 2002 4Q and full year results. Before getting started, I'd like to remind everyone that, except for historical information, statements made on this call may constitute forward-looking statements that involve certain risks and uncertainties. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including those risks detailed from time to time in the company's reports on file at the Securities & Exchange Commission. If you have not received a copy of the press release, please contact Edelman Financial at 212-704-8314, and it will be forwarded to you. At this time I'd like to turn the call over to Jo Lunder, Chief Executive Officer of Vimpel Communications.

Good morning everyone, I hope you have all received our press release this morning. We also posted a company presentation on our English language Website where we give more detailed summary for our activities for the period.

Let me start by introducing our management team, Nikolay Premisnicko (phonetic), our First Vice President and Commercial Director, Yelena (Unknown), our Chief Financial Officer, and Valery Goldin, our Vice President of International Relations.

On this conference call, we will discuss the following topics: VimpelCom's achievements in 2002 and our plan and outlook for 2003; our financial results for the fourth quarter and the year of 2002; recent market developments trends and operating results in Moscow and nationwide.

2002 was a very successful year for VimpelCom. Let me highlight some of our main achievements. We significantly improved our financial performance with a revenue growth of 82%, EBITDA growth of 117%, and a net after-tax income growth of 174% year-over-year. We acquired 3 million new subscribers during the year and as of today our total subscriber base exceeds 6 million, making us the second biggest cellular company in Central and Eastern Europe. We continued an intensive regional growth and expansion, launching 26 new regional operations. In addition, we completed four valuable acquisitions of regional companies, with a fifth acquisition in the first quarter of 2003. And as of today, there are more than 2 million customers in the region outside Moscow. We acquired GSM licenses for the northwest region and for the Urals, and we regained and kept the leadership position in the Moscow market.

Let me now give some comments on the fourth quarter numbers. First of all, in the fourth quarter, we saw a continued growth of service revenues, both in Moscow and in the regions. However, due to lower roaming revenues, in fact $14m lower compared to the third quarter of 2002, the growth in consolidated net operating revenues in the quarter is smaller than in the previous quarters of the year. We see the slower revenue growth in the fourth quarter of 2002 mainly as a seasonal effect. On the cost side, we have a growth in SG&A in the fourth quarter, mainly due to the launch of ten new regional operations in line with our communicated plans. Mainly due to these two factors, the roaming factor and the ten new operations, the EBITDA margin in the fourth quarter is lower than in the previous quarters of the year, but the consolidated EBITDA margin for the year 2002 is in line with our guidance on our last earnings call.

With fiber-optic growth and increased competition, we plan to maintain our good financial performance in 2003. We are targeting 2003 revenue growth of 45-50%, and we expect our consolidated 2003 EBITDA margin at approximately the same levels as of 2002. We also expect our 2003 net after-tax to grow in absolute numbers compared to 2002. The total market of subscribers in the regions is now growing much faster than the Moscow market, and there are already more subscribers in the regions than in Moscow. In the Moscow market, we have faced a challenge through increased competition. But over the last week, we see again a growth in our incremental market share. We expect the summer season coming up to work in our favor due to strong GSM coverage in the Moscow region, and we are confident in our ability to maintain the leading position in Moscow. Our license portfolio now includes the entire country except for the Far East. A key priority for the company in 2003 is to capture these growth opportunities. Our launch in St. Petersburg in April of this year is a new and important milestone in our regional development program. Our concept for national expansion includes two basic principles. One, building a unified network across Russia with the same business processes and solution for network operations, IT, marketing, distribution, customer service and billing. Two, employing organic growth through (indiscernible) selected acquisitions. This approach allows us to reuse products and marketing concepts nationwide, utilize economies of scale and maintain control of operations in the huge territory of Russia. As a result of this strategy, we were able to reach a regional EBITDA break-even level in the second half of 2002, only one year after launching our national rollout plan.

In 2002, our cash expenditures totaled $509m, in line with our guidance given in the middle of last year. We expect our 2003 capex to be at the same level as 2002, supporting our aggressive plans for increased coverage and network capacity, supporting continued growth of our subscriber base during 2003. As we indicated before, in order to fulfill our capex plans for 2003 and 04, we expect to rise external financing in the amount of some $350m this year. Before I give the floor to Yelena (Unknown) to give the fourth quarter and year-end numbers, let me point out that we see ourselves stronger and more motivated than before. With a strong cash-generating base in Moscow, a powerful national market development and true dedicated strategic partners, we are confident that we are well positioned to continue grow shareholder value.

Thank you, Jo. Our financial results for year 2002 are reflecting the major initiatives and accomplishments, which Jo indicated in his speech. Rapid regional development and positive development of our business in Moscow showing another year of profitable growth. Consolidated revenue grew by 82% from year to year, showing permanent development every quarter, with some slowdown in the fourth quarter. This was accompanied by profitability improvements. Net income grew in year 2002 compared to 2001 for more than 170% from $47.3m in year 2001 to $129.5m in year 2002. Main driver for this improvement was Moscow operations, which showed a revenue growth from year to year of 67%, due to substantial subscriber base growth and modest compared to previous years ARPU decrease 27% in year 2002 versus 29% in year 2001 and 62% decrease in year 2000. Regional operations also showed impressive results in terms of more than seven times revenue growth, reaching in year 2002, $80.7m, which is a result of intensive investments in greenfield operations, supported by successful acquisitions of solid and profitable companies, such as (indiscernible) in Volga region and Excel (phonetic) in northwest. (Indiscernible) developed accordingly to revenue growth and our plans for bottom line improvements. Key factors contributing to the consolidated picture were continued improvement in interconnect costs resulting from greater use of federal (phonetic) numbers, and these changes improved our gross margin year-to-year, from 74% in year 2001 to 80% in year 2002. Stable operating expenses, which showed for SG&A the same ratio 35% on that operating revenues year-to-year, in spite of the fact that startup operations in 26 new branches across Russia in year 2002 negatively impacted this line. Especially looking at 4Q02, when our SG&A comprised 39% of net revenue, which is 4 percentage points above the year average, and this was driven by the following factors. Usual new year sales complaints, launch into commercial operations of ten new branches in the fourth quarter, costs related to acquired companies and stock options line accrual. In 2002, we saw positive development of such important indicator as subscriber acquisition costs, which decreased from $37.60 per subscriber in 2001 to $25.70 dollars per subscribers in 2002. Rapid regional development helped us, together with other factors, to improve acquisition cost-per-subscriber, as regional dealer commission is lower and the significant portion of our sales in regions the initial stage goes through our own sales offices. In addition to this, we'll manage carefully our advertising expenses and decrease dealer commission in Moscow.

Other income and expense year-to-year increased from $21.3m in 2001 to $47.1m in year 2002, or 121% growth, due to increase in our interest-bearing debt, which was defined by rapid growth of our operation in regions, as well as in Moscow, and necessity to provide adequate funding support for the development. Profit tax showed effective tax rate of 28%, the same as in year 2001. As a result of this, bottom line for Moscow operations showed improvement of 13% of net-income to-revenue in year 2001 to 21% of net- income-to-revenue in 2002, while regional operations showed losses, which in year 2001 represented 59% to regional revenue, and in year 2002, 27%.

All this positive changes resulted in increase of more than two times in the net cash provided by our operating activities from $101m in year 2001 to $221.7m in year 2002. This cash inflow, combined with internal funds, allowed us to finance planned investment of total amount of $578.3m in year 2002, consisting of $509.1m of capital expenditures and $69.2m in acquisition. External financing was received by means of rising $250m from Euro (phonetic) bonds issued in April 2002, (indiscernible) bank loan in total amount of $70m, approximately 40 of which were withdrawn in year 2002 and Vimpel financing. But not only external debt and noncash funded our operations. In November 2002, in accordance with the agreements between VimpelCom and (indiscernible), the second tranche of the contribution to regional development was invested, which increased total group equity by $170m. So this is indeed the milestones of our financial results in year 2002, which I think provided a solid base for our future development.

Thank you. Nikolay Premisnicko will now present our corporational result in Moscow and nationwide.

Thank you, Jo. First of all about Moscow. 2002 was year of very active growth in the Moscow market. The total estimated penetration increased from 27% to 47% by the year-end. With an estimated 7.2 million cellular users, VimpelCom took major advantage of this growth. Our share of net additions in 2002 was approximately 57%, which made us the leader in the Moscow market. We have 3.7 million subscribers at the end of 2002, and approximately 3.9 million subscribers as of today in the Moscow license area. Our core product, GSM network, was significantly improved in year 2002, and now we operate approximately 1880 GSM-based stations in the Moscow license area. We strengthened our leadership in product developments in the Russian markets. We were first to launch GPRS into commercial service, MMS for testing by our subscribers, (indiscernible) office systems for our customers. Leadership in innovation helped us to increase revenues from value-added services. As percentage of service receives, revenues from VAS have grown in 2001 to more than 8% in 2002. We have seriously improved our customer operations during 2002. Industrial billing system provided by AMDOX (phonetic) was successfully installed. The level of customer care and automation of business processes significantly increased. As of today, all indicators look as follows. Calls answered within 40 seconds, 98% for contract subscribers and 85% for prepaid subscribers. And more than 50% of requests are handled now automatically. Customer care, as well as leadership in product innovation, are the strong VimpelCom competitive advantage in today's Russian market.

2002 was the key year for our regional expansion. Now, we're operating in 43 regions of Russia. We use the integrated network and IT solutions, promote unified brand values and product offerings, it gives us economies of scale and helps to demonstrate rapid growth. Our regional subscriber base has grown from 200,000 to 1.4 million during 2002 and is approximately 2.2 million as of today. In a number of regions we've already managed to take the leadership position in the market. CAMERVA (phonetic) and BARONA (phonetic) in Siberia, (indiscernible) in the central region, (indiscernible) in the south, our acquired companies, Iamsot (phonetic), Excel Patoso (phonetic) are also leaders in their markets.

On a consolidated basis, our indicators for 2002 looks as follows. ARPU, $18.30, MOU 92.3 minutes, subscriber (indiscernible) costs $25.7, churn rate 30.8%. We estimate that approximately 30% of the registered churn represents internal migration between various packages. For the fourth quarter of 2002, ARPU $16.00, $17.60 in Moscow and $11.80 in the regions. Subscriber acquisition costs $20.90, $29.40 in Moscow and only $13.50 for acquiring our regional subscribers.

We consider 2002 as a very successful year for VimpelCom. In the future, we see promising opportunities in the growing Russian markets, and we will focus on exploiting these opportunities in the most efficient way.

Thank you. Let me now open the floor for questions.

Today's question and answer session will be conducted electronically. If you would like to ask a question, press star followed by 1. If you are using a speakerphone please allow the mute button to remain off to allow your signal to reach our equipment. To allow for as many questioners as possible, please initially limit yourself to one question and one follow-up question. We'll take as many questions as time permits. Once again, press star 1 if you have a question. We'll take our first question today from Alex Casbeggi (phonetic) with Renaissance Capital.

Good afternoon, gentlemen. Jo, what will be the schedule for the new network rollout in 2003, and could you give us some details in terms of quarterly schedule of rollouts?

2003 is, we have, of course, St. Petersburg as the big thing in 2003. We are planning to commercially launch our St. Petersburg network within the next 45 days. We have great hopes, and we see very good opportunities up there. And then, in the next stage of development later in 2003, we will then build coverage from Moscow to St. Petersburg and further to the Finnish border, so that will be the focus area for that region during 2003. We have (indiscernible) as a key priority in the Urals, following up by (indiscernible) and (indiscernible) a bit later in 2003. And we will also increase coverage and network capacity in the southern region, using our recent acquired company, (indiscernible), as a key driver for development down there, building coverage in the areas at the seaside and prepping for roaming revenues in the region. So that's -- that's sort of the new operation that we will launch. And then, of course, we are going to increase both coverage and capacity in existing operations, so if you look at the coverage map it's going to look very different at the end of 2003, compared to the beginning of 2003. But it's going to be expanding existing operations, so in a way you can call this year a less risky year in terms of investments, because we are mostly expanding on proven operations. But we are also increasing the numbers a bit with the cities that I just gave you.

Okay. Could you also give us the breakdown of the EBITDA margin between the regions and Moscow in the last quarter of this year?

It's -- it's the -- you can call the regional development reached break-even point during the second half of 2002. We don't report EBITDA separate for Moscow and the regions. So this is more of a guidance in order to understand the profile of the numbers. There is an EBITDA breakthrough in the second half of 2002 for our regional operation, and then it's still Moscow in the fourth quarter that is contributing the EBITDA line in the audited financials we've reported today.

Okay, thank you.

We'll take our next question from Lindsey Hayes (phonetic) with Morgan Stanley.

I wonder if you could talk a little bit about the competitive position in Moscow. You said, you know, you have experienced a more intense competition there. Perhaps you could talk about that and how you're intending to deal with that, assuming that's going to continue coming into the first quarter. Thanks.

Yeah, I -- if you'll look at Moscow, if you look at the Moscow market, we had, as we also described and talked about on the last call, we had a bit more aggressive behavior from competitors starting November, October-November last year, with Megaphone (phonetic) reducing tariffs quite substantially and with MCS launching their product, pushing pretty hard advertising into the market to try to win market share. That is what happened in the end of or in the fourth quarter of 2002. We decided not to heavily respond with our tariffs and instead stay calm and see what the development would bring us. The development continued gradually into January-February. We have now put in place a number of actions to change that picture. We see over the last couple of weeks, again, a growth in our incremental market share in Moscow. And we feel strong and comfortable that we'll be able to maintain our strong position in Moscow. We are not planning to aggressively respond to any tariff decreases in the Moscow market outside what we have already done in order to reply to competitive actions.

Right. So you basically you did put your tariffs down in order to compete but not too substantially?

Well, we -- we see the Moscow market as a cash generator for regional expansion. We would like to keep the market profitable. And for that reason, we will wait with using the tariffs aggressively to reply to competition. We still think our coverage and network quality will help us a lot. Summer season is coming up now. We have a good network compared to, for example, Megaphone (phonetic). We believe what we're doing right now is the right thing to do. We prioritize profitability in Moscow on behalf of market share. But as I said those are the market share right now. Looks like it is turning a bit around and coming back in our favor. So we see this as normal competition, business as usual. Things go a bit up and down, and there is absolutely no material change in the overall picture in the Moscow market.

Okay. Thanks.

Next question from Vladimir Posovosky (phonetic) with Citigroup.

Good afternoon, ladies and gentlemen. Couple of questions, if I may. The first one is, couple of articles in the press lately about Alpha's intention to contribute to the (indiscernible) income are ahead of schedule, i.e., significantly before November of this year. If that happens indeed quite soon, would you - can you say that VimpelCom might opt to exercise their options to contribute to match Alpha's contribution also earlier than November (indiscernible) '03, and if that is the case, could that accelerate just hypothetically a merger of VimpelCom and VimpelCom-R this year? Secondly, looking at your numbers, it appears that use of minutes in the regions has come down considerably in Q4. Could you confirm that's the case, because it's quite unusual to see minutes of use going up, which was the case according to information you provided in Q4, and if that is the case, is it an indication of increasing pricing pressure in the regions or not? Thanks.

Let me start with the first question, and then Nikolay can brief you on the second one. There must be some confusion about this article. We've received a couple of questions as well. Let's clear up the reality. First of all, Alpha has a commitment to pay $58.5m in November 2003. And, of course, they will fulfill their commitment. (Indiscernible) Vimpel had an option that was accelerated and is already paid in November of last year, so the remaining piece of the equity coming in from the Alpha transaction is $58.3m, and that is coming in November of this year. If we would like to accelerate that payment for any reason, of course, we as a company would like to -- would be willing to discuss and listen to that. But as of today, the agreement is to pay as scheduled November 2003. You asked about the merger between VimpelCom and VimpelCom R. I think the answer to that one is that, of course, we are on a constant basis evaluating what is best for our shareholders, but we don't have anything to report on that specific issue.

In terms of price, average price per minute, in the regions, average price per minute is less than in Moscow. For example, in the fourth quarter, we have 13 cents per minute as an average price per minute for the regions, but important to say that also, cost - cost elements are also less, lower, in the regions. So we have a lower subscriber acquisition cost. To remind you, it was only $13.50 to acquire regional subscribers. So it's lower marketing expense, lower dealer commissions, lower personal and administrative expenses. So we believe that in terms of margins, gross margins, we can achieve in our regional operations.

Thanks for that but I guess --

Frank with Morgan Stanley has our next question.

Thank you. Could you -- you went through there's about four reasons why the SG&A had been significantly higher than what many people expected. Could you go through those just a little bit -- go through them again a little bit slower this time. Thank you.

Yeah, if you look at SG&A, you have approximately $10m coming from the ten new operations that we launched in the fourth quarter of this year. There's a lot of startup expenses, and different expenses linked to that. $2-3m is coming from sales and marketing expenses, due to higher sales in the fourth quarter. There is a couple of million dollars from consolidated acquired companies in there, and there is also a $2m provisioning on our stock option plans because of the growth in the share price, where we follow a very conservative policy according to SEC recommendations, so those four elements add up to the SG&A growth in the fourth quarter. And we do believe that most of these expense are investments in operations that will start generating revenues now in 2003, and establish a higher revenue top line for the company, and so for that reason accommodate the increased expenses from the new operations and also the sales expenses are investments in future revenues. So we see, of course, costs and expense growth as a general problem, but we think it's controlled and it's linked into investment in future revenue streams mainly.

Okay, thanks very much.

We'll take a follow up question from Vladimir Posovosky (phonetic).

Just to finish off the question I was asking--thanks very much for the explanation of your approach to regional business with regards to its lower cost basis therefore lower pricing theoretically appropriate for that business. But I guess my question was, quarter-on-quarter, in Q4, compared to Q3, there was a significant drop in the yield-per-minute, which leads me to believe that there's significant pressure on pricing in your regional business. Is that true or not? Because you mentioned yourself that in Q4 yield-Per-minute was 13 cents. In Q3 it was 16. That is too much of a drop to accept it as a normal course of business. Could you please comment on that?

Yes, but if we look to that minutes of use, minutes of use per one subscriber, in the region, we are more or less on the same level. It was 85 minutes in Q3, and 88 minutes in Q4. As of price-per-minute, yes, some reduction. But we need to take consideration that we had serious growth during this two quarters. So we had a very small subscriber base in the third quarter and good growth was coming in the fourth quarter. So that's actually the trends, but I think most important is this ratio -- sorry, cost ARPU (indiscernible), which are more or less both low side, but if we compare acquiring subscriber and getting revenue from subscriber, I think in a good level. We pay $13 for acquiring subscriber. We make $12 on average on one regional subscriber. And that's today's market situation.

The very last question on that subject, so you're not seeing an increasing pressure on pricing in the regions?

I think that, to date, the situation is the following. There is three big players, VimpelCom, MTS and Megaphone (phonetic) and, by the way there is different situation in a lot of regional markets, for example, in some markets we compete only with Megaphone, some markets we compete only with MTS, and actually three big players in one market is a rare case at the moment. And there is, of course, some local players, which will keep losing their market share. In terms of position of the big players, we feel that all operators understand right now that there is no need for serious price reduction right now. And we believe that the biggest advantage that to have right now with that we can forecast not to have a very serious price reduction pressure on tariffs moving forward.

We'll take our next question from Vladimir Bogdanov with (Unknown).

Hi, could you please provide us with ARPU breakdown for Moscow and the regions. Thank you. On -- in fourth quarter and for entire year.

Yes. For the fourth quarter, it was $17.60 for our Moscow operations and $11.80 for our regional subscriber, for the total year-end 2002, we had $18.30 consolidated number.

And all these numbers are posted on our Website, so you can visit the site and see all the details.

Okay, thank you.

Steven Pedefer (phonetic) with Merrill Lynch has our next question.

Two follow-up questions if I could. First to get back to the pricing issue and the earlier questions on yields. Given, Jo, what your strength being unified pricing going forward, I just wondered what your thoughts were in terms of the effective yield in Moscow and the regions converging over time and how quick that might happen. Second your earlier comments on margin guidance for the full year, given your comments on the sort of almost one-off nature of a series of costs in the fourth quarter, I just wonder if you could comment on the implication that your Moscow margin is going to fall next year. Thanks.

When it comes to the pricing structure, we still think that we will have individual competition in individual markets. We will have markets with less players, and we will have markets with more players. And we also have different pricing pictures in different markets as of today. So I am -- I do think it's going to take a while before we see a full unification of the same tariff level throughout the country. So even though we are saying that we are targeting national tariff plans, that is more the structure of the tariff plan, the simplicity of the tariff plan, but there has to be individual adjustment to tariffs according to local competition. When it comes to the guidance for 2003, we do think that the regional operation will improve its overall performance. We do expect to see an EBITDA growth, a revenue growth, and through that also an EBITDA margin improvement in 2003.

On a consolidated basis, our guidance is that we will target the same level we saw this year, and built into that is also a decrease of the overall margins potentially in the Moscow market. But we will, of course, do our best to avoid that to happen. But we see now early in the year that there are aggressive pricing initiatives being taken by competitors. We are trying to avoid responding directly. But, of course, we will not sit still in Moscow and watch our leading position there be taken away from us, and through that, we are potentially seeing some more competition both with respect to marketing expenses, potentially pricing initiatives, pricing campaigns, et cetera, that might put some pressure on the EBITDA margin in Moscow.

Okay, thank you.

We will now hear from Gadier (phonetic) Cooper with Bering (phonetic) Asset Management.

I'm wondering if you could answer a question for me, one is on your capex guidance going forward, and the other one is what are your expectations for ARPUs going forward in the regions and in St. Petersburg. Thank you.

Yes, we, of course, you all understand that capex is and will always be linked to subscriber growth. And our guidance, we changed our guidance once in the middle of 2002, telling you that it would increase from $400 -500m. We came in at $509m. We are saying right now that we expect to come in approximately at the same level for 2003, given the growth in the market that we see right now. And we are estimating to see the speed that we've seen in the first quarter to continue into the next quarters. If the growth for some reason accelerates and becomes even bigger, then there might be necessary to add some capex in order to accommodate that. But we also plainly see right now that we are building less coverage station and more capacity station, and that, given economies of scale, that driving down capex per sub. So even with a bit bigger growth in terms of subscriber base this year, we think it's possible to come in on the same capex level. That's the best guidance we can give as of today.

Compared about ARPUs in the regions, our today's trends show that regional ARPUs will be from $10-12 going forward.

Our next question comes from Iuli Masavosov (phonetic) with Deutsche Banc.

Good evening. Two questions if I may. What was the reason for substantial reduction in text charge in the fourth quarter? And if possible could you please break your blended minutes of use for 2002 in three categories, mobile-to-mobile, mobile-to-fixed outgoing and fixed-to-mobile incoming, in terms of percentage. Thank you.

So I will answer the first question, regarding tax decrease. One of the main impacts for this decrease comes from the deferred tax per calculations. Basing on the provision which we decided to do for bad debt in our textbook for year 2003, which changed, actually there are differences between Russian book balances and GAAP book balances, and thus resulted in decrease in the deferred tax provision.

And as of minutes of use, split between incoming and outgoing calls is approximately 50-50. And mobile-to-fixed, 55, mobile, 45, fixed-mobile was growing with the growth of penetrations.

And let me just comment briefly on the tax issue. It was a fourth quarter thing driven by legislation, and changes. And if you'll look at the effective tax rate in 2001 and 2002, it was fairly stable. And I think for modeling purposes when you look at tax rate, the effective tax rate for 2003, we don't think it's going to materially change from what we've seen in 2001 and 2002 on a annualized basis.

Thank you. Nikolay, could you please repeat, mobile-to-fixed was 35, and fixed mobile 45, if I'm not mistaken.

Mobile, 55%, mobile-to-mobile, uh mobile-to-fixed or fixed-to- mobile, 45%. And then incoming and outgoing, 50-50 split. And then it's, of course, slightly depends for different segment. But that's an average figure.

Next question from Phillip Townsend with MB (phonetic).

My question has already been answered.

Jen Modrajuski (phonetic) has a question from CIBC International Markets.

Hello gentlemen and Ms (Unknown). I would just like you to repeat the reason of the tax change. You just said it, but I didn't get it. Would you please repeat that? Thank you.

Yes. I will, let me go into a little bit more details on this matter. So you know, Russian tax legislation is changing. And in year 2002, the 25th chapter of the new tax codes came into effect. And this chapter now allows us, for Russian tax purposes, for current tax payments, to make a provision for bad debt and thus decrease the tax payments, which we previously didn't do in Russian book. So we validated the matter of doing such provision in 2002, and our understanding of this treatment of the chapter of the tax code is we can do this provision any time we want in year 2002. But tax inspector argued this and said that you should do this provision just once in a year, in the beginning of the year, going forward for the full year. And so we decided not to argue this position and to keep conservative position, and thus we are doing it now for year 2003.

Okay, thank you very much.

Our next question comes from Paulina Kurjadako (phonetic) with UBS Warburg.

Hi, thank you. I wanted to ask just one question. Did you experience any operational difficulties in the regions, and if yes, then what are the regions and how do you address those issues. Thank you.

Of course, when we talk about our regional operations, sometimes, some issues are coming. And, for example, we were not satisfied by the developments of our position on the market in a few regions. And then we're looking, essentially, we have got a dedicated team from responsible people in different functions, marketing, technical, et cetera, we are looking at this issue together with the branch, and then we're putting together a plan to fix that action, to fix the issues, and to improve their operations. In the past year and last quarter, we had a couple of serious plans of actions, and they were fulfilled successfully.

And we don't have any different situation in the regions than in Moscow when it comes to government relations and the overall help we need in order to set up our operations. So I would say there are no technical issues in our regional operation. I mean, you will always have issues, that's pretty obvious. But there are no material technical issues when it comes to operations, regulatory environment, or frequencies or anything like that. It's business as usual, and we are setting up an organization now that handles the day-to-day things.

In terms of network quality I think we are in a better position than competition because right now we are building a unified one modern network. We monitor from the central.

We'll take our next question from Alia Kay (phonetic) from HBK.

My question has already been answered, thank you. Congratulations on a great quarter.

Nadia Kolovebay (phonetic) has a question from Adam Bank (phonetic).

Could you give us the absolutefigures for your roaming revenues in fourth quarter, and possibly, in third quarter. I missed the change. Second question, is it possible to get the breakdown of your non(indiscernible) revenues?

The roaming revenues in the fourth quarter is $14m lower than in the third quarter. This is partially guests coming to Moscow, and it is partly BeeLine subscribers going abroad. This is a typical seasonal effect, because the third quarter is always the strong quarter for the Russian operators. The seasonal effect and the roaming effect is a bit bigger than what we expected. But that's the biggest difference. If you're going to split the $14m, four of them are coming from guests visiting Moscow and 10 is coming from BeeLine subscribers going abroad. So that adds up to the $14m in less roaming revenues.

Sir, and what was roaming in third quarter, or what was the absolute number, the absolute figure not the decrease but the absolute level?

During the third quarter and $25m during the fourth quarter total, guest and out.

Our next question comes from Sanem Bilgen (phonetic) with Alliance Capital.

Hello. I have a follow up question on the capex. Could you give a breakdown between Moscow and the regions and St. Petersburg, if possible, and second question is on the Financing. I'm not sure I heard right, but I guess you mentioned $350m of raising capital. Could you comment on your preference on whether you want to go to the bond market or the equity market and in terms of timing as well?

When it comes through to capex, let's say St. Petersburg first. Of course, there has already been some investments going into the St. Petersburg market obvious reasons, since we are launching in 45 days. Stage two is going to come a half a year from now and stage three in early 2004. The total capex going into St. Petersburg through those three stages is about $50m. And when it comes to the regions, and Moscow, it depends on how the Moscow market develops, of course. But $150-200m coming from Moscow, and then $300-350m going into the regions, including what I just said about St. Petersburg. If we look at our funding plans for 2003 and 2004, we have a capex guidance of $900m in those two years. Our cash balance at the beginning of the year were $250m. If you add another 58 of equity to that you come to 300. Then you plan to raise approximately $350m in external debt instrument, that takes it to 650 and then it's $250m less that will be covered from operating cash flows, which is more or less in line with what we already had in 2002, total was 220 I think, then you have almost a year of operating cash from our operations in reserve to fund any extras you need in order to meet new challenges. So that is the overall picture right now as we see it.

That's all the time we have for questions today. I'll turn the call over to our moderators for any additional or closing remarks.

Thank you all for questions, and also thank you for joining us today on this conference call. I hope we were able to answer your questions and clarify some of the slowdown we saw in the fourth quarter. We feel strong and motivated, and if you have any follow-up questions please come back, contact us. We are ready to discuss and answer questions. Good-bye and have a nice day.

And that concludes today's conference call. We thank you for your participation, and have a nice day.