VEON Ltd (VEON) 2005 Q4 法說會逐字稿

And thank you for standing by and welcome to today’s VimpelCom’s fourth quarter 2005 earnings results conference call. Today’s conference is being recorded. Now at this time I would like to turn the conference over to Peter Schmidt with Financial Dynamics. Mr. Schmidt, please go ahead.

Good morning and welcome to VimpelCom’s conference call to discuss the Company’s fourth quarter and 2005 full-year financial and operating results. Before getting started I would like to remind everyone that, except for historical information, statements made on this conference call may constitute forward-looking statements that involve certain risks and uncertainties.

These statements relate in part to, one, the Company’s strategy and development plans such as national and CIS expansion revenue and subscriber growth. Two, OIBDA margin, ARPU and cash position goals and projections. Three, litigation relating to the Company’s acquisition of URS and, four, the Company’s proposal to acquire Kyivstar.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including those risks detailed in, one, the Company’s press release announcing fourth quarter and 2005 full-year financial and operation results. Two, the Company’s earnings presentation entitled ‘Presentation of 4Q 2005 and Annual Financial and Operating Results’. Three, the Company’s Annual Report on Form 20-F for the year ended December 31, 2004, and, four, other public filings made by the Company with the United States Securities and Exchange Commission, each of which are posted on the Company’s website at www.vimpelcom.com.

In addition, the Company’s fourth quarter and 2005 full-year financial and operating results press release and Form 20-F for the year ended December 31, 2004, are posted on the Securities and Exchange Commission’s website at www.sec.gov. VimpelCom disclaims any obligation to update development of these risk factors, or to announce publicly any revision to any of the forward-looking statements made on this conference call, or to make corrections to reflect future events or developments.

If you have not received a copy of the fourth quarter and 2005 full-year financial and operating results press release, please contact Financial Dynamics at 212 850 5600, and it will be forwarded to you. In addition the press release and the earnings presentation, each of which includes reconciliations of non-GAAP financial measures presented on this conference call, can each be downloaded from the VimpelCom website.

At this time I would like to turn the call over to Alexander Izosimov, Chief Executive Officer of Vimpel Communications. Please go ahead.

Thank you. Good morning everyone. Thank you for joining our conference call today and let me introduce the team participating on this call. Here with me are Elena Shmatova, our Chief Financial Officer; Nikolai Pryanishnikov, our Executive Vice President who’s in charge of Operations in the Russian Regions; and Valery Goldin, our Vice President of International Relations.

Today we’ll start our discussion with the market overview and the Company’s progress in the past year. Then we’ll cover in more detail our fourth quarter and full-year 2005 financial and operating results, and I will conclude with the report on our corporate activities. Let’s start with the market and the evolution of our strategy.

Our strategy is a strategy of growth and for the last three years it relies on three key premises. First, maximizing the growth of our customer base during the remaining period of rapid subscriber penetration in Russia. Second, extracting maximum value from existing operations and third, expanding into the CIS countries as a natural area for continued growth.

Russia is our main market and we believe it will remain our largest revenue generator for the foreseeable future, despite the high level of penetration reached in 2005. And it is essential for us to continue to grow revenues in Russia, while remaining in the targeted area of high 40s on OIBDA margin. In the past, straight subscriber growth ensured the fulfillment of this objective. Now, although subscriber growth continues, the quality of subscriber base is becoming more and more important.

To address this shift a more sophisticated approach was needed, and it is exactly what we have deployed during 2005. For example, we introduced a state-of-the-art data mining system which allows us to make a detailed analysis of our subscriber base and its proper segmentation. With a direct marketing force that works with high-end user segment, stimulating increased usage and improving our market share position in this segment.

We launched re-branding in order to make our Beeline brand more vivid, friendly and attractive. In stimulating subscriber growth, particularly in the second half of 2005, we concentrated much more on working with dealers and on advertising rather than on price-based offerings to consumers. Needless to say that all of these actions were executed on the backdrop of our ongoing focus on improving the quality of services and products that we offer to our clients.

Focus on the quality of our subscriber base, usage stimulation and conservative price management constitutes now a major part of our strategy in Russia. Of course, in certain Russian regions we still need to improve our general market share position, and to that end we will continue to use our proven organic growth model. However, the reliance on this approach will be diminishing.

Outside of Russia we currently operate in four countries - Kazakhstan, Ukraine, Tajikistan and Uzbekistan. It was the VimpelCom’s Board’s decision made in 2004 to improve VimpelCom’s expansion into the countries of the CIS. The decision was made in anticipation of a slowdown of subscriber growth in Russia. It is absolutely natural for us to see the countries of the CIS has the next area of growth.

Close economic, cultural and historical ties make it relatively easy for the Russian companies to adapt to local conditions, use the experience gained in Russia, and work successfully. The countries of the CIS have great growth potential. In terms of population, Russia, with its 145m, and the CIS markets are comparable. Population in the four CIS countries where we currently operate is approximately 96m. Another 40m live in the remaining seven countries where we do not have operating licenses yet, but we are looking for such opportunities.

Moving to our strategy in the CIS, let’s first consider Kazakhstan. It’s been four quarters since we started to report our results in Kazakhstan. While we see very good growth in subscriber numbers and robust business performance, we believe we can and will do better. In the second half of 2005 we had to address a number of both structural and operational problems.

Our growth has been hindered by the lack of available spectrum, prohibitive interconnect regime, underdeveloped dealership structures, and scratch card supply interruptions. Most of these issues have been addressed in the course of the last few months, including allocation of the additional spectrum of 2.5 megahertz and direct interconnect set-up with the other two operators.

We have also made a few changes to strengthen the management and to bring new dynamics to the unit. All of these efforts have already started to bear fruit in the first quarter of 2006, and we are very optimistic about the overall growth outlook for 2006.

The other three countries are fairly new to us, as we added them late Q4 2005 or in Q1 2006. And thus we do not yet report their operating results.

They all are in a very different market circumstances. In Ukraine, the market is already at high penetration levels and it dictates a strategy of a rapid assault to build the critical mass and establish the URS as a solid third player. In Tajikistan the market is at its infancy stage, and we can afford a calmer pace of the network rollout and [utilization] buildup.

In Uzbekistan, which is our latest addition, we’re dealing with a solid operating company which is our number two position and currently goes through an integration process. As we bring these operations to life, we will target for you more details during our next earnings releases.

To have the strategy right is important but, [as far our] operating goes the road to hell is paved with good strategies. Clearly the ability to execute the strategies pulls apart the winners and the losers of the market. We believe in 2005 we did well with the execution. The numbers that are presenting today -- that we’re presenting today speak for themselves.

It relates to subscriber growth, geographical expansion, improvements in all financial figures, and positive trends in key performance indicators. Of these trends, I would like to specifically mention ARPU development between the first and the fourth quarters of 2005. Last year’s figures of $7.20 and $7.00 for Russia for the first and the fourth quarters respectively, showed the slowest decline ever reported by the Company.

If we break it further to eliminate the mix effect, we will see that most ARPU went up by almost 8% while regional ARPU stayed flat. Although we are likely to see further seasonal dip in ARPU in the first quarter of 2006, the stabilizing trend indicates a significant growth potential still left in the market.

VimpelCom’s annual financial results more than anything else illustrate the magnitude of our success. Compared with 2004, our 2005 revenue growth was approximately 52%, OIBDA growth 53%, and net income growth of almost 76%. OIBDA margin made in the targeted area of the high 40s. So we continue to be a very profitable growth company.

Still, subscribers are those who we work for and who bring us money. We already talked about subscriber growth, now I would like to talk about active subscribers and churn. Let me remind you that we define active subscribers as those who made a chargeable transaction in the past three months. This definition is in line with the policy used by major international telecom companies, but it differs from what we traditionally do in Russia.

Mainly following legal requirements, we disconnect inactive prepaid subscribers six months after they have been blocked. We believe it distorts the picture and makes it more complicated than necessary. Since the first quarter of 2005 we've started to publish, along with the registered subscriber numbers, a percentage of active subscribers. We see that the decline in these numbers is less than a percentage point, which means that the absolute number of active subscribers is growing, closely following the number of the registered subs.

For example, in the fourth quarter of 2005 the total number of registered net additions was approximately 5.4m, and the number of added active subscribers was 4.2m.

Now about churn. It still remains high and it reflects the realities of very competitive and predominantly prepaid market, which makes it easy and inexpensive to buy a new SIM card and switch from one operator to another.

As we analyzed our subscriber base, however, we have concluded that the total churn is less meaningful to our financial performance than specific focus on churn among our high-end users. Hence, in 2005 we shifted our churn reduction efforts to this key segment and significantly lowered churn among this group. To some extent, churn controlling measures echoed those aimed to improve the quality of our subscriber base that we mentioned earlier, and we believe it yields good results.

Of course, churn management overall remains and will remain one of our primary concerns. Let me now ask Elena to present our fourth quarter financial results in more detail.

Thank you Alexander. In 2005 we again saw the same seasonal picture as before, when subscribers in the second and third quarters are much more active in terms of revenue generation than in the first and fourth quarter. But we still continue to recognize growth in top line in the fourth quarter compared to the third quarter. The Russian market is getting close to saturation, and it is becoming harder to compensate seasonal decline in revenue by new addition.

That is why our focus was not only on new additions but on improvement of our subscriber base. So total revenue in quarter four was up 2.3% quarter-on-quarter and 45.7% year-on-year. Talking about the whole year, we are quite satisfied with our top-line development. According to independent research of [Geevers] and Partners, we were the leaders in year revenue growth, taking 36% of total mobile market revenue growth or 38% in the second half of year 2005 in Russia. And our revenue market share in Russia increased in 2005 by two percentage points, from 27% to 29%.

Another positive trend which we saw in the fourth quarter is our OIBDA margin. Although seasonally it declined, it was less pronounced than in year 2004. OIBDA margin in the fourth quarter of 2004 was 45.5% and in year 2005 it was 46.1%.

Sales and marketing expenses in the fourth quarter 2005 were 14.1% to revenue, which is one percentage point less than a year ago. And although we reflected additional expenses connected with the universal service fund, we gained efficiency on gross margin level, as the volume of alterations brought economies of scale in terms of network utilization.

So in actual terms our quarterly OIBDA increased by approximately $135m as compared with the fourth quarter of 2004. Part of this was [eaten] by increase in depreciation and amortization, but still net income in the fourth quarter year 2005 was approximately $68m higher than a year ago.

I would like to talk about our operational indicators such as minutes of use for ARPU and subscriber acquisition cost, and let me start with minutes of use. For the last quarter though minutes of use is staying above 100 minutes, and demonstrated in the fourth quarter only modest decline for less than three minutes compared to the third quarter. But approximately nine minutes more than in the last quarter a year ago.

That’s helped ARPU to be more stable during this year than we ever saw in our history. If in year 2004 ARPU drop in the fourth quarter compared to the fourth quarter of year 2003 was $3.60, in year 2005 the difference with 2004 was approximately half, $1.90. We see this as a positive sign, showing that we are on the road to a more stable environment. Of course, this analysis mainly applies to Russia.

If you look at Kazakhstan, you will see a different trend in minutes of use and average revenue per user. Low minutes of use in the fourth quarter in Kazakhstan sticks to the fact that market development in its initial stage, whereas a new year campaign have strong diluted effect on minutes of use and ARPU. This, combined with customers who are buying SIM cards for trial and underdeveloped structural relations with dealers, resulted in a low usage and ARPU decline.

We've identified these issues and, as it was already mentioned, we are addressing it by means of building strong distribution network and improving quality of our services.

Our blended subscriber acquisition cost has increased slightly in the fourth quarter compared to the third quarter, mainly due to the large advertising expenses connected with new year campaign. But year-on-year it was practically stable, $13.10 average for year 2005 and $13.90 average for year 2004.

During year 2005 our total average increased by 32%, or approximately $1.5b, which was essential for our ability to generate more revenue. But at the end of the day, revenue growth only is only a way to generate more cash from operation. And as long as in addition to revenue growth, we have kept quite high OIBDA margin, our cash generation significantly improved.

For building of the network last year we still use external financing, so the total debt increased approximately 26%. But debt equity ratio stayed the same, 0.7, and this OIBDA improved from 1.5% to 1.3%. The structure of our debt has also improved. At the end of the year only approximately 11% of our debt was secured, while at the end of the year 2004 it was around 20%.

Our prudent policy in this regard was supported by rating agencies. In March 2006 Moody’s upgraded our debt rating to B3 from B1 and changed outlook to positive. And in September 2005, Standard & Poor rated our corporate rating to BB from B minus.

As I have already mentioned, our top-line growth was translated into cash generation. Our operations generated $493m more than in year 2004 and our capital investments were $393m more than in year 2004. So the gap between cash generated and investments in the network decreased. In year 2005 we have covered approximately 80% of our capital needs by our own cash, while in year 2004 this ratio was close to 65%.

We confirm our intention to deliver positive net cash flow in Russia this year. As we continue our expansion in CIS, we will still need additional funding for our start-up operations in these countries. But we assume that the debt [for it] will be not much different from Russia in the medium term.

Thank you Elena, and let me now turn to our corporate affairs. First an operating license for the Russian Federation. We assume we won’t have the license as a result, we believe, of an unfair position taken by the regulator. This view was supported by the Anti-Monopoly Committee to which we appealed for help. This report is important and it gives us a new basis for our ongoing discussion with the regulator.

Now the shareholder dispute and Ukrainian expansion. As you know, Telenor continues to oppose our acquisition of Ukrainian Radio Systems, URS, which we completed in November 2005, executing the September 2005 AGM decision. The matter is further aggravated by the ongoing dispute between Telenor and Alfa, our two big shareholders. In February we made a proposal to purchase Kyivstar, a major Ukrainian mobile operator, for an indicative price of $5b in the VimpelCom common shares.

We believe that the proposed transaction would position VimpelCom as a premier wireless telecom company in the CIS. In addition, as Kyivstar is jointly owned by Telenor and Alfa, this transaction was accepted to facilitate a resolution of this long-standing dispute. Telenor has indicated that they would be willing to entertain the transaction if a number of conditions would be met, among which would be the creation of a market-based separation mechanism between Alfa and Telenor.

Two weeks ago the two sides announced that they have initiated discussions on the subject. We believe it is a positive development, and we can only hope that the matter will be resolved soon to the satisfaction of all VimpelCom shareholders. It is also clear to everybody that the timing is critical, and we would like to see some progress in the next few weeks.

Meanwhile we cannot lose more time in Ukraine, so we continue our rollout with URS as planned, including the launch of our brand which we did a week ago. We also have to defend shareholders’ decision against Telenor’s lawsuit, aimed at invalidating the AGM and unwinding the URS transaction. We hope we’ll prevail in court but most of all, we hope to see Telenor and Alfa resolve their dispute, so that management could concentrate on business matters and create more value to our shareholders.

Concluding our presentation I would like to say the following. The Company’s business is growing successfully, generating strong financial results. Our fourth quarter results underscore our ability to secure growth in the top line, and to control costs and neutralize economies of scale, so that operating cash flow, OIBDA and net income grow faster than revenue.

The scope of our operation is increasing in size, so that our footprint now covers 232m people. We have a strategy that works and we have a strong and dedicated management team. As I've said before, this team has proven many times its ability to deliver results, which we intend to continue.

So thank you for your attention and let me now open the floor for questions.

Very good. [OPERATOR INSTRUCTIONS]. We’ll first take a question from Alex Kazbegi with Renaissance Capital.

Yes, good evening gentlemen. I was wondering if I can try to have a more or less extended question, if you wish, and just ask you what your expectations. Your first one would be what's your expectations in Russia? You obviously had an increase of the subscriber acquisition cost. You also mentioned that partially probably that was due to the -- or the question would be was that due to the churn control and the higher subscriber base?

What's going to be your policy going forward with regard to the subsidies and so on? And more generally what's your expectation on the ARPU stabilization? Do we see the first year 2006 as a stable ARPU year in Russia? And generally some expectation on the EBITDA and CapEx side.

And the second one, if I may also have like a broadly discussion about the Ukraine in terms of your CapEx plans there, in terms of your decide to, I think, start offering services about 2 kopeks per minute. What impact that would have on ARPU, and what impact would have on the EBITDA? Sorry to blend a lot of things in one but I think it’s a generic question on two countries. Thank you.

Thank you Alex and that’s a hell of a question, so we’ll do our best to answer it. So let me turn over to Nikolai to cover Russia and then I’ll pick up on Ukraine.

Thank you.

First one concerning subscriber acquisition cost. If you look to our results, you can see that on average it was $13.00 during 2005, with some difference between quarters. But in general this level which you can see there is a very efficient result. During the fourth quarter we specifically increased our spending because it was clearly there a very active period, new year campaign etc. So we increased our advertising.

We had some specific promotion -- promotional campaigns with the national dealers. But it was not some long-term -- this isn’t the same for commissions as an example.

Looking forward, we think that it will be of course some pressure on the market, because there is some fight of different competitors for that remaining subscribers in Russia, and it will be a hard competitive situation. But also I believe that the Company has a very strong position in distribution. So we’ll do our best to control that cost moving forward.

And we don’t plan to have handset subsidies. We believe that that’s not needed in Russia and we would like to avoid it. In terms of ARPU, as you can see, during 2005 we believe it’s a good tendency. The difference from that fourth quarter compared to the first one is very small. As Alexander mentioned, if we look to regional ARPU it was flat from first to fourth quarter. In Moscow, it even increased. So it’s a very positive for a trend we believe, and we hope that price wars would not happen anymore moving forward.

At least that would be a very good [inaudible] position to be very accurate in terms of any price reductions. We want to stimulate traffic, we want to increase revenues from validated services but we don’t want to decrease tariffs.

Well, let me pick up from here to complete the question on Russia first. So on CapEx, our outlook is roughly CapEx at the same level as this year. Saying all this, I have to throw a caveat here that the budget hasn’t been approved yet, right, so -- and if the Board takes a decision to operate going forward, we might see different numbers. But currently we’re operating within the proposed budget, and the proposed budget was $1.6b.

Where we see the change is that in Russia, instead of $1.5b which we've spent this year, I mean 2005, we drop down to $1.2b, which is about 20% reduction in investment in Russia. And we believe that moving further we’ll see further reduction in CapEx allocated to our financial growth. The growth come to a much slower pace.

With regard to EBITDA, we maintain our position that the margins don’t happen to you, you make them happen at a certain level. And we intend to make them happen at the level of high 40s. As we said, that it’s between 45 and 50%, our comfort zone, and we aiming at the higher part of that corridor. So that’s where we are with Russia.

Now about Ukraine. So, yes, in Ukraine we launched our operations, our brand, last week and the brand has been so far positively, very much so actually, received by the press and general public. When are we talking about launching tariffs to corporates? I wouldn’t pay much attention to that because we went through that exercise in, let’s say, St. Petersburg and so on. That’s the unconscious tactics to enter with aggressive price proposition, to build rapidly critical mass, and then we’ll mitigate out of it.

We’ve gradually been increasing prices in the north west region in St. Petersburg, and now we see actually a very good performance in terms of both ARPU, we build the market share first of 20% in St. Petersburg and north west. And we see very strong ARPU performance actually constantly increasing, so it is absolutely feasible.

The impact on the economics. I would say that our objective is to bring the operations into a great deal of territory next year, and that’s how we’re structuring our activities in Ukraine.

Is that on EBITDA level?

This is on EBITDA level. We’ll see -- we give usually between six to 12 months our operations to reach positive EBITDA territory, and we don’t see why it should be different in Ukraine.

Okay. Can I just ask whether you have -- obviously with the shareholder dispute, you have still not an actual budget for Ukraine. Are you comfortable with the amount of the fund you have currently to launch a fairly aggressive campaign? And again, going back to the same question, what was the CapEx for Ukraine? Do you see that feasible to be covered this year?

Alex, if other questions still left for the rest of the audience, we will have time to handle it. But I’ll try to answer because I guess that’s a burning issue for most of the investors.

I think that -- first about the budget. We've expressed our position on that one, and this position been reached after consulting with a number of well-respected international law firms, Russian law firms and experts on the corporate law in Russia. That the budget is fudged is not a permission to spend money, it’s a control mechanism for the Board of Directors to limit spending ability of the management. And exercises the means of financial control.

As we view the situation by the Board was not able to adopt the budget, or any budget, the interpretation by our legal advisers is that the Board relinquished the responsibility for financial control to management. That’s why we picked up the guidance for ourself and that was we communicate to the market, that we operate within the proposed budget.

Effectively the proposed budget been everybody was happy to say it, was 98% agreed by everybody, and the only point of disagreement was Ukraine. Whether we’re comfortable or not comfortable? Well, of course, we would prefer not to have this dispute and not having the discussion like we’re having now. But we are where we are, and for us we don’t see any other path after the transaction has been completed, but to push ahead and develop our presence in Ukraine.

If we sit and wait until something materializes, either the lawsuits will be dropped or the budget will be approved. We are really risking the whole game in Ukraine, and then a lot of effort would be done for nothing. So that’s our view, and that’s why we believe that we don’t have a luxury of procrastinating whether we can or we cannot move in Ukraine. That’s why we keep on pushing with the budget.

In terms of CapEx we do not guide for the companies and the countries which are not fully brought into operations. And from that perspective we can only stress that Ukraine is part of that pool which I've indicated of $250m. If I haven’t indicated it, sorry. It’s $1.6b total CapEx, $1.2b is CapEx for Russia, $150m is CapEx for Kazakhstan, and the remaining -- the remainder of the budget will be divided between the Ukraine, Uzbekistan and Tajikistan. So that’s as far as we can go. Thank you.

Thank you very much, that’s very helpful.

Our next question will come from John Gardner with Morgan Stanley.

Yes, thank you. Just on the -- two questions. Firstly, following up on the Russian CapEx story. Can you run through where your network is at the moment, in terms of capacity utilization? And where you're targeting to get to by the end of 2006? And then secondly, a follow-on question. Your minutes of use per user in Russia, can you give us a broad indication of what growth you're expecting to see in 2006 on your minutes per user? Thanks.

Well, let met start from network utilization. Actual utilization is falling. We know that our strategy is invest as you grow. That’s why when we were building our networks we were first building the coverage, and then adding capacity just after we’re growing accordingly to the growth of the subscriber base. Which means that overall we are very satisfied by the level of loading of the network.

And we’re using -- fully using our capacity of the network, and matter of fact they're growing growth story for the next year will be the same. And in terms of minutes of use, in Russia we had the level of 100 minutes per subscriber. We believe that there is still opportunity to grow this level in general, in more so the countries where people talk more on the telephone. And we will have some traffic-stimulating program moving forward.

But also we believe that their overall economic growth in Russia would help growing this [ratio].

Just probably one more addition that you always run a compromise between network utilization and the quality. And from that perspective it’s important probably to mention that we’re still running extremely high [half-rate] usage, which optimizes the capacity of the network but brings compromise in terms of quality of our service. If the recommended rate is about 25%, we’ll still probably in excess of 40%.

And so that’s just an indication of utilization of the network. In general, this question is fairly difficult to answer because it always will depend on what time we’re talking about, what combination of data traffic we’re allowing or not allowing on the network. Because we always have, of course, all this [privilege] in that sense.

So it would be fair to say that our network is highly utilized, and probably we’re overloading it at times and, therefore, we have to invest in it this year. But anticipating also that your question is growing in linkage [internal] use, I would like to stress that most of the investments in Russia will go into capacity. We are not basically investing any more, or very little, into coverage.

So here, from that perspective, it’s relatively easy for us to keep a pretty tight control over what we spend and whether we see the growth in traffic, and particularly paid traffic, materializing or not. And therefore scaling up or down our investments. We’re being very aware of that and we’re managing actually capacity -- we’re monitoring capacity on the utilization on the per-sector, per-base-station level and periodically reviewing performance of the network from that perspective. Thank you.

Okay. Just to finish up, the $1.5b you spent last year, could you give an indication of how much was spent on coverage and how much was spent on capacity? So we can compare your $1.2b you're talking about this year for enlarging capacity.

It’s about 30% still went into coverage because we've launched new territories still, and there was a quite an intensive development in Urals and north west, where we had to cover the roads and so on. We pushed into very rich, money-rich, regions in the -- up north, [Merizk] and so on. So it was still a fair amount of investments went into coverage. Now we’re moving much closer towards capacity management.

Okay, thank you very much.

Our next question will come from Olga Ostrova with Credit Suisse.

Good evening, a few questions. First, you mentioned that you were trying -- you will be basically trying to keep margins at the high 40s. Where do you see -- in which cost items do you see the main risks to your guidance? And I'm primarily concerned with various breakdown of SG&A expenses here.

We think that the major -- talking about the full structure of our expenses. Of course, we think that the major risk in terms of increased spendings as -- in total SG&A is potentially our continuous investments into the marketing development, and improvement of the quality of the network, which is connected to the maintenance expense on the network.

And of course, as long as we are improving our IT systems and some of the working in this regard, of course, there will be major items connected with these items. Also we should mention that depreciation is slightly increased during the exercise in ‘05. So we’ll be on that level in year 2006, as long as our investments into the network in year 2005 and 2006 are slightly intensive.

So that’s in general what we think the development. But on the other hand, it will be compensated on our abilities to potentially improve our relations with other operators, and potential decrease in expenses on their network channels, leasing arrangement, because we are building our own [network].

I would also like to add that, of course, as I see [for] more thinking about risks. But overall management commitment is actually to deliver a certain level of margins, and naturally we’ll be balancing how much efficiency we can extract from the operations. Either through addition of our own transport network, extending services, taking advantage of the long-distance license. I think improving the interconnect [shipment] and so on.

These are the investments which we have to make into the market developing, loyalty [covers] and so on. Those two should develop, and if we see that there is a pressure coming on one side, naturally we’ll be balancing the other side to stay within the corridor which we've indicated.

Okay, thank you. And maybe related but more of a social [inaudible] question. I don’t know -- I don’t remember if you commented on the ARPU outlook for next year. But my thinking is that, given that the pricing of, let’s say, average [inaudible] is already quite low for you and Russia overall. It might be somewhat difficult to, let’s say, stimulate usage just with pricing and that’s what exactly you're doing. So my thinking is that you will be investing more and more into certain subscriber retention.

Do -- how do you see that? Do you -- will you sacrifice some of the subscriber retention costs to improve ARPU, or would you -- I understand you will be balancing but what is your thinking currently on this?

I think that it is a philosophical question, and I think that we share the same philosophy here, that spending, just putting a lot of money into price is not going to yield much. And therefore that’s where I disagree with you, that’s exactly what we’re doing. We’re not doing this. We’re believe that actually we’re doing exactly the opposite, that we haven’t done major price moves this year.

And for example, in quarter four instead of doing price stimulating promotions we went into more relationship with the dealers, and stimulated our presence in the dealer networks. Overall I believe that, and it’s a general strategy of the Company and it’s shared by the management team here. We believe that actually conservative price management and a corporate market stimulation, not through pricing but marketing, is much broader than pricing.

Pricing actually is probably the crudest element of marketing and brings very good results. Hence, I would like to stress again that if you look at Moscow performance and you look at quarter four ARPU in Moscow versus quarter one ARPU in Moscow in 2005, we see 8% increase. And this is even before what I referred to discussing active subscribers versus registered subscribers, and productivity on the subscriber base.

It’s just on the registered numbers we see already ARPU is growing on the mature market, and in the regions with some lag we hope to see exactly the same dynamics. And the fact that regions stayed flat quarter four on quarter one in 2005, is also very encouraging.

Okay, thank you. And maybe just a quick follow-up. So basically how much would you be willing to, let’s say, sacrifice or, let’s say, what would be your comfortable target ratio for [inaudible] ARPU or subscriber retention costs over ARPU?

We don’t really budget it that way because this type of ratio is when you divide one by the other, they help you to analyze and build a model. But they are not very productive for the budgeting purposes. And we basically -- when we decide we’re at a certain level of margins, and internally we decide where the priorities are in terms of both competitive dynamics on the market, and opportunities which open up for the particular period of time.

Rather than targeting a certain very short tap or a pool is effectively, believe me, that is an average temperature in a hospital. You will have very different both tactical and strategic taps in the different regions, and that’s how we build it. So it’s not top-down based on ratio, it’s more bottom-up within the certain boundaries of financial constraints.

Okay, thank you very much.

Our next question will come from Alex Kuznezov with Bear Stearns.

Good afternoon. It is Alex Kuznezov from Bear Stearns. I have two questions if I may. Now could you explain what was the reason for a dramatic 20% increase in depreciation and amortization expense in the last quarter of last year? And second, could you provide us with some outlook on the potential impact of the [CPT] implementation in Russia? Do you probably have some information about it that the CPT revenue breakdown between our wireless and wireline operators? Thank you.

Yes, let me start with depreciation. Yes, we have seen quite intense increase in depreciation in the fourth quarter but it was generally connected with two reasons. First, of course with our investment into the network, which we have discussed, they were quite substantial and depreciation is coming not exactly after the month you will see it just was the reflect of capital investment because potentially it may go to the warehouse. But we start depreciating as long as we launch the agreement into operation. So that was kind of a catch-up from previous months of what's been in process of installation and then was put into operation in -– starting from September till the end of the year.

And another reason is that we are also –- we were also adding some software licenses and start to depreciating them, as well as licenses connected with our purchases and acquisitions in CIS.

And let me comment on the CPT. First of all, we believe that CPT could lead to some increase of the mobile-to-mobile traffic because right now the number of mobile subscribers is significantly higher than fixed-line subscribers, and these new methods of payment would -– could financially increase the total traffic of the mobile network which could be positive [by].

Of course we're concerned about the total revenue which is at risk, and to give you our figures, the total traffic from the fixed line to mobile is 4 to 5% of the total traffic, dependent on the regions, which corresponds to 7 to 9% of the total -– our total revenues. But we are sure that we will be able to compensate the most of it.

First of all we will get some payment for interconnect. It's not defined yet and it will be set for a lot of fixed operators by the regulator, but we believe that the serious portion of that we will receive from that fixed line operators and the decision should be done shortly.

Secondly, of course we will look to our overall tariffs and we will make sure that our tariffs are competitive but also we get enough revenues from our subscribers. So that's our approach to this issue.

May I seek a little clarification? First of all, in replying to the first question you highlight that you will start depreciating licenses. Does it mean that you have started depreciating licenses in the previous quarter, in the fourth quarter?

And regarding interconnect revenue, do you expect that CPT may be positive for your Company or do you still believe it should be neutral to slightly negative?

Talking about depreciation of licenses, of course when we recognize for example license for URS, we start depreciating it next month.

In terms of [overall the facts there] frankly speaking that depends on these tariffs which regulator will determine. In the very optimistic case, if we'll fully compensate our cost, it could be positive but the most probable scenario is that it will be neutral, slightly negative.

And one more clarification. Do you consider increasing tariffs?

We will make sure that our tariffs are competitive to the market and it will be a number of different tariff initiatives during different periods of time. One of the examples, even this year, this week, we are planning to launch some interesting new tariffs, but overall our strategy is to have competitive tariffs on the market but also of course fulfilling our legal requirements.

Thank you very much.

Our next question comes from Alexei Yakovitsky with Deutsche UFG.

Yes, good evening. Congratulations on a good ARPU. I have two questions, two quick ones. Should we expect the same [resilient] ARPU trends to be carried into the first quarter? Should we expect, let's say, single-digit ARPU erosion quarter-on-quarter in the first quarter, especially given that you added less subscribers in the first quarter relative to the first quarter of '05? That's my first question.

And my second question is on your advertising expenses which continue to grow significantly faster than the media market in Russia. Should we expect the same trend this year?

And on a related note, has there been any, or will there be any change in your advertising budget because of the new advertising regulation which is effective from July 1? Do you, in other words, plan to stand the budget that you've planned anyway and simply [buy less JRPs] for a higher price if prices go up? Or will you have to increase your overall budget to buy the same number of JRPs that you planned initially? Thank you.

Let me start with ARPU and I think it's a question which worries everybody including ourselves. It is clear that ARPU will take probably further dip on the quarter one results for a very simple reason that there are fewer days in February. It's a long holiday in January which depresses the traffic. It’s quite a few holidays again in February and March, so we'll see that happening every year and this year is not going to be an exception.

Then we expect that ARPU -- if you would ask where I would put my money, I would say that the bottom of the ARPU development should be in quarter one, 2006, and we should see a slow ascending trend going from thereon, of course with the seasonal fluctuations and so on. That's how we think about it and we put everything possible in our stewardship role to the market as well as executing our strategy to stay away as much as we can from pushing the market with further price reductions. And therefore we will be focusing on very conservative price management and hoping that, combine this and strong marketing pressure, so good advertising campaigns, good offers on the product, and that will bring stimulation of additional traffic at the good price -– at the price the revenue increase.

Actually in terms of comparison, we use as our role model development of South Europe when those markets, like Italy, Spain, reached the point of saturation. In the next two years after they reached that point they have shown ARPU increase of 10% over two years with modest decline in pricing. So that's what we're trying to model ourselves after. How it will pan out we will see I guess in the course of this year, but that's our intention.

Now when we go back to the advertising, in principle we do not intend to increase the budget. We believe that amount of JRPs which are being spent by the industry overall is way in excess of [inaudible]. It's just the competitive dynamics and certainly one cannot argue that as being very productive. [For understating] now when we're engaged in the discussions we see only modest increase in pricing per unit of the airtime on advertising.

So that actually on this course what I said before, that we are not going to increase our advertising spend compared to what was budgeted. And, again, that's an interplay of our efficiency gains on the operational side, competitive intensity and our ability and desire to drive the usage of our subscriber base.

And what about the overall growth in your ad budget for '06 versus '05? Is that 50% -- is that significantly ahead of the projected growth rate for the market, which is roughly, let's say 30% this year for the media market? Because you've doubled your ad expense in the fourth quarter relative to the previous fourth quarter, and I wonder if we should expect a doubling of your ad expense in '06 relative to '05?

I certainly wouldn't take the fourth quarter as a proxy. As we said, the fourth quarter is the highest competitive intensity and particularly with the Christmas season and so on. So that's a bad proxy to take. So in that sense please don't be misguided by this. But we manage our our [whole] [inaudible] [agreements] not on a quarterly basis but on a full-year basis, and here there is a good marketing maxim that your share of voice should be slightly above your market share. And that drives your market share up, so it depends again on the competitive intensity and how much the competition will put up into the marketing stand.

So I will try to stay away from guiding you actually precisely on where our budget is. We never do it for other elements so I am not going to do it on the advertising but trust me, it's not -– it behaves appropriately so you don't see any drastic changes in the proportionate cost elements within the P&L.

Thank you.

Our next question will come from Andrei Bogdanov with Alfa Bank.

So it's Andrei Bogdanov. Great results. Just a few questions if I may. First, if you could please talk a little bit about competition. Everybody seems to be to -– this thing about competition of you and [MTF] and MegaFon, I think the last year the trend was a little different that probably the big three [last – want the business points] of market share in Russia. I'm not so much concerned about this force, I'm more concerned about will you think conditional increase in the way that there should be some pricing pressure from a small player, such as [Teletur] in the regional telecoms? That's the first question.

A second question is in line with your strategy to retain the customer base more than adding more -– a big number of non-[inaudible] subscribers, what's your plans towards the [VAS] at the services? Do you see any positive trends in this area? As far as I understand the [financial] terms is still a very low number of the –- in total ARPU, both for you and for MTF as well, so do you think any breakthrough in this area going forward in this year in particular? Thank you.

Let me start from competition. First of all, of course Russian competitive situation is relatively active. We have these three national players, which, we're glad to say, demonstrating more mature behavior. And we have active position of the other players. Important to say that according to our estimates, other operators are not gaining but losing a real revenue market share. If you will look to subscriber numbers you can see that this 13% of the total market, but what we see is that the subscriber -– these operators are gaining market share mostly because of their [venting prices] very active promotions, etc, which means that they have a low-quality subscriber base and the real revenue market share, according to our estimates, they're losing. And we estimate that this [flat then] 10% overall revenue market share.

Inside these other operators there are two groups, clearly two groups of the company. Some of them have a strong position on the market, they are mainly owned by [svet invest] companies. So that means Europe [Smetinform] and Volga Telecom mainly. And some others we believe they have weaker methods, weak positions, and don't have a reliable strategy moving forward.

So we believe that because of other strong advantages like [national warming], good rates across the country, very strong brands, which is promoted, access to our capital, financial resources, these other operators will be losing their real market share in our favor.

Also important to say that there is still some room for consolidation and we will look actively to this opportunity in case it will be good business cases. We will look for some acquisitions and for some consolidation opportunities.

Coming to your second question about retention and value-added services, I would say that retention is right now our focus and mainly we'll focus on retaining and increasing loyalty of the high-end subscribers. And that way the services will help in this area. Our total revenues during 2005, we have 16% of the total service revenue coming from value-added services which we believe is one of the strongest results compared to the competition. And still we have there the very good opportunities to increase these revenues moving forward.

We want to make more easy access to the data services to connect to -– or most of our subscribers GPRS and access to Internet and different data services. We have a special good plan in terms of other small and big services both for [net] market and business segments and I think there is a great opportunity for growing revenues in this area.

Okay, thank you. I've only just one very quick follow-up question. What are your plans with regards to ruble tariffs? If I understand it, you're going to implement them in the second half this year. [inaudible] do you [inaudible] with this? What's your take on that?

We will shortly launch ruble tariffs and we will focus mostly on the ruble tariffs moving forward.

Okay, thank you.

To be precise, we're doing it the day after tomorrow, the first tariff, and unlikely we'll be introducing new dollar tariffs. And so it will be a question of speed with which will migrate our subscriber base into the ruble tariff rate.

Our next question will come from Nadejda Golubeva with Aton.

Good afternoon. This is Nadejda Golubeva from Aton. Congratulations on good results. My first question is on CapEx, so obviously your CapEx plan is linked to a certain assumption regarding subscribers growth. Could you identify what is the estimate on net additions which is linked to your CapEx plans in Russia for 2006?

And second question, if I may. Now we have most original Telecoms published a new interconnect rate and do you have any preliminary estimate on the impact on your business? And also I'm specifically interested in Moscow, so at [inaudible] a tariff look higher for alternative apparatus? And can you also elaborate where do you see some pressure on first quarter in Moscow or not in [ignoring it]? Thank you.

Let me take the first CapEx question and it actually allows me -– your question, thank you for asking it -– to stress a very important difference that if before we’ve been driving -- the key driver for CapEx was net additions of subscribers, now we are looking at additional traffic as much more important lever. And therefore you can take with only so much proxy or correlation subs and the CapEx. When we calculated this year's budget for Russia it was by far driven more in our anticipation of how successful we will be driving minutes of use up. So that's very important going forward to try to match the CapEx and the minutes.

If you still take subscribers as a proxy, we maintain the guidance of $100 per sub but that would be more relevant for all the new markets where we're developing network and where a strategic objective is to capture new subscribers as fast as possible.

As far as CPT and interconnect goes, I don't think --

Actually, [calling party paces] is not only one side agreement, meaning they effect on interconnect regime. So potentially yes, we think that we may see some increases in the rates, but on the other hand, we're definitely looking for fixed-line operators compensating us for terminating the traffic, which, you know right now we get practically zero compensation from [Low Gold, PSP and -- ] who are terminating the traffic they are sending to our network.

So, to this extent, looking maybe at just on a cost side, we may see some increase. But, on the other hand, we will see increase in the revenue side. So in general we think that it will be a balance where we will do at least our best not to get into the situation that it would dramatically effect on our margins.

Our next question comes from Jean-Charles Lemardeley with JP Morgan.

Yes, good afternoon. First, just to follow up on the -– one of the prior questions on your budget, the way you're billing it on usage. Could you provide us with an indication of how much you expect your traffic to increase this year? Is it roughly doubling the sales in fourth quarter of the last year, if you could give us a rough estimate of that, that would be great.

And also if you could give us an indication of where you are, your more mostly mature markets on metrics such as subscriber acquisition costs, EBITDA margin and CapEx of sales ratios. Let's see if we can get a read-across for where you can go on a consolidated basis in Russia on those key metrics.

Yes, it seems to me that we roughly touched some of these questions before, but in general we are never giving guidance in very particular specific matters, especially when we're talking about traffic increase and such things in -– so to this extent we think that what we've already said, that our major intention is to maintain our margins in high 40s is the major indicator of our -– of the rating target and key performance indicators indicators.

In terms of CapEx and sales ratio in Russia, again it seems to me that we have discussed that our CapEx guidance is, for Russia, $1.2b and of course we are not investing just for the sake of investment. Of course we are looking for generating more cash that will cover this capital need.

And I would like to add that of course when we develop two different markets we have specific targets when we are getting to EBITDA positive, when we're getting to free cash flow positive. As an example I can mention our Moscow market which is delivering very strong free cash flow during all last year, so was helping our regional operations.

This year we will be free cash flow positive in Russia overall and in the long term in all markets we'll target CapEx not higher than [15%] of the revenues.

Okay, and can you give us some indication of EBITDA margin in Moscow, a rough indication?

I have to step in here and we do not give indication of elements of the P&L broken down on such detail as Moscow and the regions, so unfortunately you will have to deal with the information which we currently provide. But I can say only directionally that is significantly higher than the average of the Company.

So there's actually [less] if you look at the long term -- maybe high 40s is an intermediate target and you could exceed that in subsequent years?

That is speculation because you never know what's going to happen on the market an how competitive intensity will change. If you look at the European example, the appearance of an operator like [Stroid] changed the whole competitive dynamics and the pricing level. Therefore it would be a very far-reaching statement to say that, okay margins will go up. We're comfortable to say that in the mid-term we'll stay with this margin level.

Thank you very much.

Our next question comes from [Constantina Shuranshev] with [inaudible].

Hello. Two questions. First of all, what are your plans of utilization of long-distance license which VimpelCom obtained recently?

And second one is what were the [inaudible] [Ukraines] for the fourth and third quarter of the previous year? Thank you.

With the long-distance licenses, as we already mentioned, that recently we have plans of building our own transport network which should help us to mitigate potential risks which we discussed in terms of some growth of certain elements. Of course -– so we would like to decrease the elements which are connected with the risk lines and so we see that long-distance license is a part of our intention to improve our cost structure.

In terms of roaming revenues we have 7% of our service revenues coming from roaming during the whole year, and 6% during the fourth quarter, equally split between visitors and our subscribers going to other networks.

Okay, thank you.

Our next question comes from [Paulinea Perdesco] with -– is it Dialog?

Hello guys. It's [Paulinea Kordesco] from Bluebase Management. I have two questions. One is a clarification. You mentioned in your press release that the CapEx was $1.6b for purchase of PPE. And then in the cash flow statement there is a CapEx of $1.78b I believe -– $1.178 for purchase of PPE. Could you just reconcile these two numbers for me? And I'll ask my second question afterwards. Thank you.

Yes, definitely in the press release we are showing a Group capital investment, meaning that we have received this equipment but not necessarily paid for it. And in the cash flow statement you see what's real cash outflow was reflected during that time period.

Okay, and for indication going forward, should we expect this difference to be there in '06 and in the next quarters?

No, definitely they will be the same so there will be some difference.

But as -- yes the Group CapEx of your report will always look at the cash paid effectually. That's what I just wanted to double-check.

Yes, if – so there will be no such an instance that we paid for something in advance we take it [inaudible].

Okay. And on the Kyivstar case, just coming back to it, it's as far as we recall adjusted to do an equity-financed transaction while [Kalan] have proposed a cash purchase of Kyivstar. Did you –- have you reviewed the option of cash purchase of Kyivstar and, if you have, to what level would you be comfortable [inaudible] to increase the leverage as a result of this purchase? Thank you.

Actually it seems to me that it was already discussed as our General Director, Alexander Izosimov, mentioned that we -- definitely we are not looking for 100% funding of net transactions for cash. Definitely there should be -– basically for us of course that should be equity-based, but there could be a combination between cash and equity.

But what we are looking for is that we will not exceed our, I would say, self-imposed ratios which we communicated earlier, that our debt equity should not exceed 1. And, to this extent, we think that any kind of combination between cash and equity, talking about such kind of transaction, should still lead us to maintaining the same ratio.

So basically completing this answer, we are prepared to discuss structures, different structures and combinations of cash and equity, and whatever sort of different sellers get in different proportions and different instruments. So far the response was that the problem is not [debt], but actually how we pay. But more on agreeing between Telenor and Alfa. So we're waiting for some progress on that front before we engage or Telenor will engage with us into a discussion on how to structure the transaction. But clearly, going all cash is simply not feasible. We cannot even contemplate borrowing $5b against a $6b asset balance sheet.

Our next question comes from Evgeny Golossnov with Troika Dialog.

Hello. I just wanted to go back to the issue of ARPU, net customer additions and the expectations for 2006. Basically what you have implied is that this year you expect the ARPU to be flat, right? And, at the same time, you do not exclude that your customer base will continue to grow. Given that basically people that come today to everybody's network are people from the lower mass market, that might mean that you either expect your incremental customer additions to be very low, or you do expect these people to talk much more or to be of much better quality than your competitors are getting? Am I right or am I wrong?

And then secondly, do you, based on this, really expect that we have come to a point when the market is saturated and that -- the example that you referred to, over the next two years we will be expecting 10% increase in ARPU. Is that correct?

Well, let me start with exactly the last point. Yes, we do believe that the market arrived to a saturation point and numerous indications that that's the case. If you look at the net additions which companies reported during the first quarter of 2006, they're between half and a third of what it was last year. So it clearly indicates that the size of net additions has shrunk dramatically.

Also our research shows that those net additions have much fewer first-time users in the category, which means that we see a lot of [growth tumble] going between the different [activators] and even within the activators subscriber base when we're basically recycling our subscriber base. And from that perspective actually number of net additions stop being your primary proxy for the growth of the Company.

And here as a front lever comes ability of the companies to extract additional minutes from the subscriber base. And therefore the logic here is a bit different. It's not that the new subscribers will be of better quality or who are thinking differently from our competition.

What we're saying is that it's absolutely a natural factor, and we've been saying it on the previous earnings calls, to see that those who stay with us for a longer period of time, when we do this corporate analysis we clearly see growth in their usage. So nobody comes with the maximum usage level as of day one. People grow more comfortable with the handsets, with the category, with the service itself, and this trend has been observed everywhere in the world, and Russia is not an exception.

Okay, and you still don't have, or don't give any guidance for the ARPU at the end of 2006?

No, we don't.

Okay, thank you.

Our next question comes from Anna Bossong with CAIB.

Yes, good afternoon. I just wondered if you could give us some thoughts on market shares in the higher-value segment? You've been focusing on that a lot in Moscow over the last year and I just wanted to get a feeling as to where you've progressed from the start to the end of the year please.

Well, of course the difficulty is some precise data because nobody from operators is giving exact numbers of their business segment. But we believe that we’ve had a number of efforts in this direction, in particular I would mention our successful program of factoring in SME customers and we have a very strong growth of subscribers and revenues in this area.

Expanding on this I would like to mention that we will launch the same programs in the region where our share of -- market share of the business segment is still very low and -– because we will be second, third or fourth operating in this region. And that's also our opportunity to increase our revenues because right now we are leading in mass markets in the region, having a very big acceptance of bringing quality subscribers on the mass market. But on the business segment there is clearly opportunity in all our successful results in Moscow we will translate to the end-user in the region.

That’s very helpful, thank you. Also just on your growth margin, which increased in the fourth quarter, was that perhaps due to your packages which were encouraging more on net usage perhaps?

Yes, of course our net usage is increasing and improving the margins as well as, again we've mentioned it, our own transport network construction.

Excellent, thank you very much.

We do have a few more follow-ups in the queue. We'll first take a follow-up from Alex Kuznezov with Bear Stearns.

Good afternoon. I have two more questions, if I may. The first question, do you have any guidance for Russian and consolidated revenue growth this year?

And also you have emphasized growth in [some] subscriber usage. Could you provide us with the growth rate in traffic and ARPU terms, if you can?

No, we are not giving guidance on any kind of indication of our profit and loss statement for year 2006.

But do you expect to grow ahead of market or do you expect to grow at the same rate?

Alex, it's just general trends for any company. I guess it would be [analogy] to say. Of course we intend to win. That's the general inclination and that's what we're working for. Nobody I'm sure, is there is no management team which sits around the table and says we are here to lose market share. Of course we are focusing on winning. The question is whether and how we will be doing it and to what extent. That's where we are reluctant to give any guidance.

Maybe I will just add that I believe that right now VimpelCom is very well positioned in Russia because we constructed a very good unified business model in all regions. We have unified building system, unified prepaid platform, [buying] chips, so the Company is very efficient and with one set of products across the Company. And that's [valuable point]. So I believe that continuing moving in this direction there is all chances for us to continue to grow our market share in terms of revenue, although the competitive landscape will be of course not easy.

And do you have any comments on [seeing] subscriber usage growth?

Well, we said on the previous one, so when we, again,it’s very dangerous to extrapolate. It's -- probably suffice to say that when we look at the corporate analysis and we see that 10%-plus usage growth usually for the next –- for the first couple of years. But I would be very careful extrapolating it on the full base and how far it will go. We ourselves don't have sufficient information actually to predict it. [The usage] will go up. By how much remains to be seen.

And could you disclose numbers for 2005, how much growth for the reported in 2005, for same [inaudible] subscribers?

No, that kind of level of detail we consider to be tactical and we don't disclose it.

We will next go then for a follow-up from John Gardner with Morgan Stanley.

Thank you. Just maybe to end off on the CapEx story, I suppose one of the issues for last year there's just been that CapEx has come in ahead of your expectations, the market expectations. So when you look at 2006 can you help us understand what sort of backbone you've built into your CapEx in terms of maybe if you could give us the indication of the CapEx [technical difficulty], the utilization rates you have at the moment, what you're planning to get at the end of the year? So is there any sort of leeway there to give some movement within your CapEx [technical difficulty] do see higher CapEx --?

Well, I guess we don't budget with significant buffers. Instead we're saying that okay, if we're seeing that the growth is slower –- don't forget that the history of the Company is that the Company has always been chasing the capacity. That was [the only building] we had, and that's already kind of DNA which we're having. And therefore we're budgeting our CapEx slightly behind of what we're projecting in terms of growth of our traffic usage and so on.

So from that perspective there is no real buffer and the difference here comes, and I don't know how to help you to reconcile it, that in Russia it goes down by 20%, and how we allocate in the other countries, that's probably new information for the market and here we can only say that here we rely on the new markets actually to our proven strategy of invest as we grow and taking it again at $100 per sub, which we [can generate]. I don't see how I can help you to build more comfort around that.

I suppose one of the issues in 2006 is that it's a retention-based environment, quality of service has become increasingly important. Is there a respect we have to take your 40% of [inaudible] usage down to 20% on the network and that could result –- or CapEx [based] [technical difficulty]?

I don't think that we will manage our CapEx from the perspective that we invest in order to take the half-rate down. We invest to accommodate the growing traffic and clearly, if you look at our cumulative CapEx, [hide it] for a minute, all per subscriber, it was going down dramatically during the last few years, whatever way you choose to match it to the network growth.

And with the [patented development] most likely we have some [with] and they invest it and therefore this year is a bit of catch-up as well. To what extent it will be happening depends on how much of traffic growth we will see coming to the network. So far we view it as balanced and $1.2b will allow us to accommodate the new traffic and somewhat to improve quality. But believe me that we're not trying to grow [operate] here [in effect], so it's barely moving from [should we be] 2001 model [to equally] 2005 model are the best. And so from CapEx standpoint we are very prudent in Russia.

With that, this does conclude today's question and answer session. I'd like to turn the conference back to the speakers for any additional or closing remarks.

Well, thank you all and thank you for participating in our call. And if you have more questions please do not hesitate to contact our Investor Relations department. You know Valery and his team they will be happy to give you further details. So goodbye and have a nice day.