VEON Ltd (VEON) 2006 Q4 法說會逐字稿

Good day, and welcome to this discussion on VimpelCom's fourth quarter and year end 2006 earnings results. Today's call is being recorded. Now at this time I'd like to turn the conference over to Peter Schmidt with FD, Mr. Schmidt please go ahead.

Thank you. Good morning and welcome to VimpelCom's conference call to discuss the Company's fourth quarter and annual 2006 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, two, market growth and the competitive environment in Russia and the CIS, and, three, projections related to the Company's cash position, capital expenditures and dividends.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including the risks detailed in, one, the Company's press release announcing fourth quarter and annual 2006 financial and operating results. Two, the Company's earnings presentation entitled Presentation of 4Q and Annual 2006 Financial and Operating Results. Three, the Company's Annual Report on Form 20-F for the year ended December 31, 2005 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 annual 2006 financial and operating results press release and Form 20-F are posted on the Securities and Exchange Commission's website at www.sec.com. VimpelCom disclaims any obligation to update developments 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 annual 2006 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 reconciliation's of non-GAAP financial measures presented on this conference call, can be downloaded from the VimpelCom's website.

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

Thank you. Hello 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 is in charge of operations in Russia, and Kent McNeley our Chief Marketing Officer.

Today's presentation will start with a general review of our performance in the fourth quarter and full year 2006. After that we will discuss developments in our key markets, and we will conclude with comments on evolution of our strategy.

Let me now ask Elena to present our consolidated financial results.

Thank you Alexander. Our fourth quarter results were very strong, with year on year growth rates and net revenues of over 60%. It is important to note that the top line growth rate has been supported by even faster OIBDA increase of 64%. This was the highest since --.

[Technical Difficulty]

Hello everybody again, and actually I have to apologize for our colleagues in the fixed telecommunications. As you can see that a mobile operator would work better at this stage. In any case we are very happy to repeat the part about our financials. And with my great pleasure I turn the floor over to Elena, Elena please.

Thank you. So, our fourth quarter results were very strong, with year on year growth rates in net revenues of over 50%. It is important to note that the top line growth rate has been supported by even faster OIBDA increase of 64%. This was the highest [Technical Difficulty]

Well, I guess, I have to apologize again. And that -- Friday 13 is tomorrow not today, so we though that it should work, but something is happening. In any case, with my great pleasure, for the third time, I hand it over to Elena with the quarterly results, Elena.

Thank you. Our fourth quarter results were very strong with year on year growth rates in net revenues of over 60%. It is important to note that the top line growth rate has been supported by even faster OIBDA increase of --.

[Technical Difficulty]

Thank you to all again, and we will make our fourth attempt. It's the fourth quarter, so four attempts, and it's still Thursday 12, not Friday 13. So, with all these introductions then hopefully it will work this time, Elena over to you.

Thank you Alexander. Our fourth quarter results were very strong with year on year growth rates and net revenues of over 60%. It is important to note that the top line growth rate has been supported by even faster OIBDA increase of 64%. This was the highest year on year OIBDA growth for the last three years. Although lower than in the first quarter, our OIBDA margin of 47.5% was the highest ever reported by the Company in the fourth quarter.

The strong quarter concluded really a great year for VimpelCom by every account. We have substantially improved all our financial numbers. Probably the most important ones are the 52% growth in revenue and [66%] in OIBDA. We've also reached our all time record in OIBDA margin 50.4%. And for the first time became free cash positive [inaudible].

Our cash generation increased year on year by approximately 53% while capital investment needs decreased by approximately 8%. As a result, our operating cash flow exceeded capital investment needs by approximately $460m. Hence, following our promise to start paying dividends when we reached cash flow positive territory, the Board of Directors has recommended to pay dividends based on the 2006 results. The proposed demand constitutes approximately 40% of our consolidated net income for 2006, or $1.60 per ADR.

Taking into account that during 2006 we spent approximately $735m in cash for acquisition, our needs in external funding was very limited. Going forward we assume that our current calculations will generate enough cash to maintain our current business and pay dividends. And we will be looking for debt financing in the case of significant business expansion.

Our balance sheet continues to be very strong. Liquidity ratios show improvements compared to previous periods. Debt to equity is 0.6, and debt to OIBDA ratio is close to 1, which gives us a strong capacity for debt raising if needed.

We are looking to strengthen our current debt portfolio in two dimensions. First, increasing maturity as it gives stability to our business and second reaching durable funding in order to minimize our current exposure in Russia.

Let me now turn the floor back to Alexander to discuss developments in our key markets.

Thank you Elena. Well, what's the two important elements in our success in 2006? The first is our great progress in Russia, where stable prices and increasing usage led to growth in ARPU and revenue ahead of market expectations.

The second element was our increasing strength in the CIS countries. It was less than three years ago when we made our first step outside of Russia. And now we operate in six countries, with the total population of more 100m. In 2006 almost half of our subscriber growth came from the CIS countries. And their contribution to our revenue growth was already at 18%. These figures underline the growing importance of the CIS in our business. And going forward we believe the positive impact of CIS operations will continue to rise.

We will discuss developments in each country where we operate. And let's start with Russia, our largest and most developed market. As developments in Russia define our overall performance, the fourth quarter results were expected with a special interest. We believe our fourth quarter results have confirmed that Russian mobile communications have entered a new more mature, but still a very vibrant development phase.

The average increase in Russia emerged as a result of both our marketing efforts and the growing economic confidence of Russian consumers. These usage dynamics coupled with price discipline resulted in ARPU growth in spite of the seasonal decline in roaming. Actually, it happened for the first time that both MOU and ARPU grew in the fourth quarter as compared with the third quarter. Going on the Russian consumer market continues to thrive, and we should see this translate into further growth of the Russian mobile market.

Following a positive ARPU trend, our operating revenue for the fourth quarter 2006 grew by approximately 4% quarter on quarter, and by almost 50% on a year on year basis.

OIBDA increase was even more pronounced, with a year on year growth of 60% and an OIBDA margin of 50.3% which was the highest every recorded by a company in Russia in the fourth quarter. OIBDA net income decreased as compared with the third quarter of last year. We do not think that this is a cause for concern. Most of that decrease was caused by a combination of seasonal factors, expansion of our business and one off expenses.

CapEx in Russia shows very good dynamics as well. We are in the final stage of our 2G network development in Russia. Accordingly, our CapEx to revenue ratio continued to decline. In 2006 it reached 24%, which is already not far from the maintenance level, which we conservatively defined between 15 and 20%.

Regarding our Russian business, it is important to mention that in one week we expect the announcement of the 3G licenses. We provided all the necessary documents to the Licensing Commission, and we are included in the short list. And so we are eagerly awaiting the outcome of their deliberations.

We made great progress in Kazakhstan in 2006. Our network became the best in the country in terms of number of base stations, coverage and quality. We managed to make a complete turnaround to take leadership with almost 50% subscriber market share at the end of the year. The Kazak market continues to be in the phase of rapid growth, with penetration slightly above 50%. Growth rate may accelerate as the third GSM license has been issued. Consequently, speed of development is currently the single most important success factor in this market.

Our financial performance in Kazakhstan in the fourth quarter, and the full year of 2006, was very strong. During the year we essentially doubled our business, and even accelerated the growth in the fourth quarter.

As penetration in Kazakhstan is already over 50% it likely means that there remains no more than 15 to 18 months of rapid growth. To capture this growth we need to maintain momentum that we developed in 2006. It requires investment in growth which may temporarily drive profitability down. Essentially this is what happened in the fourth quarter along with usual seasonal effects.

Although we are still in the network build out phase in Kazakhstan, our CapEx, as a percentage of revenue, started to decline. In 2006 it fell to approximately 50% from 77% reported in 2005. We see our Kazakhstan operations as an increasingly important part of our business. We believe our strategy has been working very well. And we intend to continue to strengthen our leadership position even further.

Now turning to the Ukraine, we launched our operations in the Ukraine almost exactly a year ago today. We already have over 2.3m subscribers. We were especially successful during the fourth quarter of last year, when we more than doubled our subscriber base. We consider that subscriber growth in the Ukraine is currently our most important objective, and there we concentrate our efforts.

At the same time we refuse to inflate our subscriber base by giving away free SIM cards, which became very popular with the other operators. As a result, we have developed a healthy active subscriber base at a good level over 80% of the total base.

Maybe our success is even faster than others. Maybe there were other reasons, but in the fourth quarter we saw strong price reductions initiated by one of the incumbents, and followed by the others. This deteriorated market conditions, and had a negative impact on all mobile operators in the Ukraine. In our view, the price was overdone, and hurt the incumbents more than us. We only hope that common sense will eventually prevail in Ukraine, as it has done in Russia.

In spite of these drastic price reductions, we were able, unlike our competitors, to increase our net operating revenues in the fourth quarter in comparison with the third quarter by more than 24%, and continued to gain both subscriber and revenue market share in the Ukraine. Clearly, the challenging market dynamics which emerged in the fourth quarter can affect timing. But we are confident that we will fulfill our plans in the Ukraine.

Now moving to the Central Asia. Uzbekistan with its 26m people is the most populous in this region. The penetration rate in Uzbekistan is only about 10%. And we clearly are just at the beginning of a promising journey. We launched our brand in the middle of September last year, so the fourth quarter was the first full quarter of our own operations in Uzbekistan. At this stage, the key focus is on building our subscriber base and to that end we are pleased with our start.

Pretty much a similar story in Tajikistan. The difference is that it is a much smaller market where we started from a very low level. This enabled us to show spectacular growth already in the fourth quarter of 2006.

Now Armenia, it is a country of 3m people in the composite. VimpelCom completed its acquisition of 90% of ArmenTel on November 16, 2006. Beginning from that date we consolidate ArmenTel's results in our financial reporting. At the time of acquisition, ArmenTel was a fixed line monopoly and the second largest mobile operator in Armenia with a 38% market share. Hence, ArmenTel holds a very strong position in the Armenian market, both on the fixed and mobile sides. Mobile penetration in Armenia is 33%, while our ARPU of $15.8 is the highest ARPU that we have in our country in the CIS.

Going forward, we will work to enhance ArmenTel's position in the mobile market. And we will continue to operate the fixed line network, exploring the fixed to mobile convergence opportunities.

In addition to Armenia we have recently launched our operations in neighboring Georgia. We will elaborate on these operations in our first quarter reporting.

Now about strategy. We do not believe in radical shifts in strategic directions. The VimpelCom strategy has been evolving gradually, building on the Company's strength and adjusting to rapidly shifting market landscapes. The broadened strategy going forward follows the same pattern. The key assertion we probably need to make is that we still view ourselves as a growth Company. And therefore, our primary focus will remain on uncovering new growth opportunities, while improving total shareholder returns.

Inertia for the next two or three years, voice and messaging will remain our primary sources of growth. Hence we will continue to stimulate usage of basic voice as well as value added services, trying to maintain conservative pricing. We will also put more effort into segments where we are relatively weak, for example among corporate customers. On top of it we will be more open to consolidating opportunities, which would help both to maintain healthier market economics and to enhance our competitive position.

In the CIS we have created a good growth platform, which needs to be developed further. We still adhere to our uniform business model approach, involving common processes, common system and IT standards, as well as common branding. This approach served us well in Russia, but it might appear suboptimal in terms of the immediate cost impact and timing for the smaller countries in the CIS. It is our belief, however, that it will deliver strong competitive advantage and cost efficiencies in the longer run. We will also continue to seek entrance into the remaining countries of the CIS, which would be the most natural extension of our existing operations.

It is important to stress that we have received support from the Board to explore and pursue opportunities in new business areas. This applies to both new geographies outside the CIS and new lines of business. As the expansion into attractive Asian and Middle Eastern markets is probably on the agenda of every significant mobile operator, we will treat these possibilities in an opportunistic fashion, focusing on those options and transactions where we have a higher chance to succeed.

We also believe that extending our presence into adjacent business can create significant value to our shareholders. Relatively under-invested infrastructure throughout the CIS should allow us to leverage our organizational and financial strength. And to capture additional revenue streams in both wholesale, corporate date and residential broadband business.

To support these ambitious growth plans we clearly need to excel in two critical areas - efficiency and talent management. These two topics have already become permanent features on our agenda, but we currently and certainly need to achieve much more.

Well, on concluding our presentation I would like to say that we are proud of our achievements in 2006. Our business is developing successfully, and management is determined to continue to deliver good results for the Company and its shareholders. For the first time we will pay dividends in the forthcoming -- if the forthcoming General Shareholders Meeting approves that decision. We believe we have the right strategy to realize great opportunities to grow our business both in Russia with CIS, and in new areas.

Thank you for your attention. Again, apologies for what happened with the connections, happens sometimes. And let me now open the floor for questions.

Very good. [OPERATOR INSTRUCTIONS]. Our first question is from Olga Bystrova with Credit Suisse.

Good evening. Congratulations on great results. Maybe three questions from me. In terms of acquisitions internationally, what kind of opportunities are you looking for? Are you looking for start-ups? Are you looking for existing assets, partnerships with the local players? And is there anything on the cards currently let's say more or less imminent?

The second question is the usage in Russia was very strong in the fourth quarter, and I was just wondering maybe you could elaborate a little bit more. Quantitatively first of all, what was driving that usage? Was it organic usage, was it maturity of the subscriber base, or basically the fact that you had very moderate net additions in the fourth quarter?

And the final question is on the dividend policy. If you have anyone established that would be great -- if you could elaborate on that it would be great, thank you very much?

Alright, let's start with the international expansion. I would say all of the above. One thing is probably unlikely to happen that you would see us going head to head on the big open tenders, and trying to outbid Vodafones of this world. Clearly, we are not belonging in that league, and therefore, we should look more creative ways to enter the market. That's why we don't believe that actually. It's Olympic Games and therefore that's where participation counts. Here, the result counts.

Hence, we will be exploring those opportunities going with the financial investors, and being tagged along as a technical expertise. And to our strength we can account for ability to build the network, technical knowledge, ability to build operations in the low price environment, and convert it into low cost environment, and therefore, extract good margins and so on.

Clearly, we will be looking for partnerships with the existing operations there, and entering maybe in the minority stakes and then increasing it gradually. So we will be open to all of it.

At this stage, of course, I cannot tell you that we have something imminent on our hands. We don't. But it was a very important discussion taking place at the Board meeting. And the decision was yes, go and explore. Find the opportunities, bring it back to the Board and we will discuss. And that's what we are going to do. And we believe that it is a prudent on our side, actually, to indicate that we start this work going forward. Hence, actually the changes we recently implemented at the top of the Company, and we created a special position among Vice Presidents who will be dealing with this direction.

Now with the rest to Nikolai.

On usage that's really a very good tendencies which we see. And I will list the three most important factors. First, the quality of our subscriber base and the quality of the sales which we have as the focus. So we don't have very aggressive promotions. We pay attention to the dealers and to the quality of the sales, and thus ensuring the quality of the total subscriber base in our total subscriber base.

Second factor is improved network, because we are investing to the network, and our network is becoming better and better. So we have wide coverage. We cover the whole all [near] roads, all areas where people go etc. So our traffic is growing because of the improved network.

And the third one is just effort, marketing efforts for traffic stimulation programs, the different new tariff plans stimulating usage etc. So, it's particular efforts of the management, and that's absolutely in accordance with our strategy and focus.

And talking about the dividend policy, just in brief. First the Company have to be free cash flow positive for the previous financial year. The aggregate amount of dividends will be calculated as a percentage of consolidated net income, generally between 25 and 100% under U.S. GAAP. And, of course, covenants or other restrictions and agreements to which the Company is a party shall be satisfied.

Okay, great. Thank you very much for the detailed answers. Just one clarification. On usage and pricing, is the development in the fourth quarter any indication of the potential elasticity that you see in the Russian market, meaning that the pricing more stable usage has increased? Or this is more less reflective of the specifics of the fourth quarter, and current changes in the market?

The amount that we decreased basically in the fourth quarter is very small. So I think what it is showing is that the economics of Russia are continuing -- and the maturing of our base are continuing to allow MOU to go forward. As we look to the future I think what we will probably see is more flattening of some of the seasonality. And in future quarters I think you can expect that.

Okay thank you very much.

And to allow everyone an opportunity to ask a question, we are asking everyone to limit themselves to one question then a follow up, then you are welcome to re-patch for additional questions. We will next go to Sean Gardiner with Morgan Stanley.

Yes okay, I have to keep it to one question then. In terms of the one off stock option, can you just quantify that in the fourth quarter? I haven't been able to find it in the material you put out today.

Looking about, actually the increase in G&A in the fourth quarter can be kind of divided on three blocks, three main blocks - seasonal increase, one time events and some outflows. Talking about one time events, we can mention such effect as we saw the increase in our accruals connected with stock option programs due to the fact that our share price increased quite substantially during the year. There was some additional expenses connected with researches which we need in preparation of our obligation for 3G license. There were some expenses, one-off expenses connected with the celebration of 10th anniversary of being listed in New York and so on. So that's --.

Is it -- does it say there is a possible --?

Sean we can say that if 40% is one off and on top of that about 30% is probably heavily seasonal. And the rest would be normal expansion of the business and probably affected by restricting of ruble as well, as most of our cost base now we are shifting to rubles following actually the ruble billing as well.

So 30 -- the 40% of the sequential increase?

Correct.

Okay, great thank you very much for that.

Our next question is from Alex Kazbegi with Renaissance Capital.

Good evening. I will actually get back to probably the first question asked, if you could just quantify in terms of the Russian increase in the ARPU which was about 3% that is quarter on quarter, how much was that if you break it down really, of this is some of that is down due to. Does that mean some of that was up due to traffic? If you can specifically talk about the fixed to mobile traffic as well that you've seen so that would be very helpful?

The, well if you need the follow up also maybe also on the previous one would be also to understand how much of the decrease in the margin in Kazakhstan is going to be carried on for 2007? So how much do think this can improve actually? Thanks a lot.

I will start with the first one. Roaming revenues decreased from 82m in the third quarter to 68m. So from the total revenues is roaming revenues were 6.7% in the third quarter. Now in the fourth it was only 5%. So there is some decline on -- in roaming revenues.

In terms of tariffs, already mentioned it was more or less flat tendencies from the third to the fourth, so it was a very stable tariff.

And then its MOU growth which resulted in ARPU growth. So it's a very clear picture.

Yes, could you just clarify on the fixed to mobile how much that increased in the quarter?

Yes, in terms of interconnect in total revenues 13% of Russian revenues was interconnect revenues. Out of that, 26% is fixed and the rest is mobile, from the mobile operators.

And how does that compare to the previous quarter, sorry to nag on this?

Let me, just one second.

Meanwhile, Alex what was your second question while Nikolai is calculating.

On Kazakhstan, you mentioned obviously having promotions due to --?

I think what's important to know about Kazakhstan as well sort of active marketing, but also we completed the migration, and all the platforms converged and all this stuff that was happening in the fourth quarter. And that's triggered quite a bit of expenses which went into G&A and probably can be considered, certainly can be considered as one off. So I believe that actually in your margin for Kazakhstan is much more representative than the fourth quarter. So that's what I would take as a -- going forward.

The growth of interconnect revenues in Russia was 25.7% quarter on quarter.

Okay, great. Thank you very much.

Our next question is from Sergei Arsenyev with Goldman Sachs.

Good afternoon, just one question from me. I am just wondering if you can comment on some [perhaps with] what you are intending to increase termination rates in Russia to RUB1.1 from the second half of 2007. I am just wondering what you think the Regulator's reaction is going to be to that?

First of all we have said before that we believe that the rates need to be higher. And we've talked about roughly $0.05 as the appropriate rate for this. And the first step really is to talk among the non-regulated players in the market about raising the rates, at least in a positive step towards that number. And we have already, in fact, begun some of those conversations.

Depending on how successful they are there may be an opportunity to follow up with the regulators to raise the regulated rate. So, that would be our plan of attack as we go forward. And at this point it's difficult to speculate what the odds of success in those will be.

And I think probably to add to that Megaphone already managed to raise everybody to RUB10. And MTS and most of their countries actually went to RUB2. So we are at the moment lagging behind in that sense. And, therefore, from the Regulator standpoint it shouldn't be much of a concern that the third operator was a certain lag during this week.

Okay, thank you.

Our next question is from Alex Kuznetsov with Bear Stearns.

Good afternoon, its Alex Kuznetsov from Bear Stearns. I would like to congratulate you on very strong operating results, and ask you a couple of questions. First of all we noted that also MOU usually declines in the fourth quarter. MOU in Russia went up by 5.2% last quarter. I know you touched upon this issue, but maybe you can highlight the major reasons for such a dramatic change in the quarterly trend?

And secondly, as far as I know, Far Eastern Telecom is currently considering selling its mobile business. Could you let us know if you may be interested in acquiring this business and maybe a major outlook on developing it up on that position?

Well very good that everybody knows that MOU growth. We also agreed that that's really good news. I will list the factors once again. First it's improved -- continues to improve the quality of the base. Second is more expanded network. So we invest to the network, and the coverage is bigger and better. And this brings us additional traffic. Thirdly it's traffic stimulating programs, including our active position in target marketing, when we offer to the subscriber different proposals, and increase the traffic by deductions. And fourthly, it's overall maturity of the base, which also, of course, helps.

Thank you.

And on Far East, naturally we are interested in it, and we will be participating in whatever it will be the format, the tender, the auction. We are preparing now our bid. So, unfortunately it is not a big business, and it only covers two of the eight missing areas Vladivostok and Magadan. And we will be developing if we acquire it. We will be developing it in the normal fashion as we developed the other businesses, which we acquired, for example in Far Eastern in [inaudible]. So it's a pretty standard path in that sense for us.

Thank you very much. And one more follow up question, if I may? According to my calculations the effective tax rate rose to approximately 40% in fourth quarter from 27% in the previous quarter. Could you explain such a significant increase in the effective tax rate please?

Yes you are right, effective tax rate in the fourth quarter was close to 40%. And this is a combination of the facts of certain losses which were recognized in some countries of CIS, and of course, which cannot be offset by income in other countries and the taxes which were put in Russia. If we look on Russia just standalone, effective tax rate is close to 35%, and if we will exclude this 26.6m of reserve, which was put due to our litigation with tax inspector rate, in the fourth quarter. So effective tax rate will come to a normal level of approximately 28%.

Thank you very much.

Our next question is from Nadia Golubeva with Aton.

Good afternoon this is Nadia Golubeva from Aton. Congratulations on great results. So my first question relates to the traffic. MTS reported substantial growth of 2N traffic in fourth quarter, like -- for about 70% quarter on quarter. And I wonder what is the same trend?

And so it's true -- is it correct that we are seeing some sort of cannibalization of traffic by end to end which is of less margin to you? And so provided this is true, is it correct that as end to end traffic stabilizes as a percentage of total you should see some support of the margins. So am I correct? Can you elaborate on this? And could you possibly provide some guidance on the traffic trends in 2007? This is the first question.

And second question, I didn't quite follow about the one off charges to EBITDA in fourth quarter. Could you please quantify how much was the one off in fourth quarter? And could you possibly also quantify the additional growth associated with the employee stock options?

And finally, if possible, what's happened to the operating cash flow? It was down 16% quarter on quarter in fourth quarter. So this increased I believe in the last 18 months? Thank you.

Let me start with that traffic. So if you take the total traffic in Russia, roughly we can say that 60% is Beeline/Beeline, 30% is Beeline to other mobile operators, 10% is Beeline with fixed. In general, it's equally split with one exception. If you take fixed to Beeline traffic, incoming calls to us are more a percentage of income because they are higher than outgoing. We've got 3% of total traffic as outgoing Beeline to fixed, and 7% of fixed line operators to Beeline and this portion of traffic was growing.

So that clearly after the introduction of calling party fees. There it was growing from approximately 4% of the total traffic to 7%. And that was one of the concerns. But right now we are not such concerned because it stops right now on this level of 7% and not growing. But still the issue of trying to raise their charge from the fixed line operators we believe is still important for us.

And talking about our increase in G&A in Russia in the fourth quarter compared to the first quarter. This increase is approximately $50m. And it can be divided, as we discussed, by three blocks. This has now increased one time events and severance costs. Several costs such as rental fees, base stations, maintenance, property tax represents approximately 30% of the growth. Another 14% as Alexander mentioned, was this one off, and which we have already discussed.

And the rest 30% increase relates to seasonal tax and mainly marketing activities such as New Year campaign, you cannot escape from the gift, where it's written off as materials, and thus are reflected in G&A. And so some other advertising materials which were actively used in the end and so on.

And on top of this, as Alexander also mentioned, that we have to keep in mind the switch to rubles, and major portion of our expense as well was switched to rubles. And as long as ruble appreciation in the fourth quarter was approximately 1.7% we can assume that approximately $2, $3m appeared additional in G&A due to this factor.

Okay, my other part of my question, first of all is it possible to quantify the, of course associated with the employee stock options? And also can we expect some increase in such costs in third quarter? Can you share your plans regarding the number of options outstanding will it happen in first quarter, and whether you are going to increase it going forward in 2007?

No that is -- we do not disclose this information on such a granularity level. But as you know logic is that we increase dramatically the number of stock options; simply our shares soared in the fourth quarter. And that's how the P&L impact is calculated on the [Blackshore] formula, so that's the increase. So it's basically a straight reflection into the volatility of our shares, and increase of the share price.

So clearly that --.

Thank you.

As we expect our shares to continue to rise, we will see some impact on the P&L as well.

Okay thank you. What about the operating cash flow?

I am sorry; we would need to -- what was the question about operating cash flow?

If I take out the nine months from the full year I see that in the fourth quarter, the operating cash flow was down 16% quarter on quarter. And this is the sharpest decrease in the last, I believe, six quarters.

Oh, of course if the trend goes down the operating cash flow also will go down.

But you didn't see such a drop in fourth quarter last year. It was about 4% I believe.

No, of course, it's maybe connected with some fluctuations in the EP which we pay in the catchments and then returns. So -- but generally speaking, operating cash flow is rather close to OIBDA development. But of course with some fluctuations from assets, mainly with other effects that are not reflected, I would say, on the P&L, but on the balance sheet.

Okay, thank you very much.

Our next question is from Alexei Yakovitsky with Deutsche Bank.

Good evening. Congratulations on the fantastic results. I have a question on usage. I think you mentioned that you do believe that given that the market has matured, and there is maturity in the subscriber base you will see some flattening of the seasonality fluctuations between the quarters in Russian usage I understand.

Is that something you already have some visibility on? Is there something we are going to see first indications of already in the first quarter? Any color that you could give us essentially on what is going on in the first quarter? Is that going to be the same as all the previous ones? Or again the saturation has brought some new dimension, and we will see more confirmation of the stability that we've seen in the previous two quarters? That's my main question.

And then a believe a follow up. I think you gave a breakdown of the incremental cost increase. 40% is one off, 30% is heavy seasonality, as you said. Is that SG&A or as total of [inaudible] cost? I am assuming that that is SG&A. Can you please confirm that? Thank you.

On your second one yes, it's SG&A sequential quarter on quarter increase, which we may take it that way.

Okay, thank you.

On your question on usage, if you compared for example the drop in MOU between the fourth quarter and the first, as an example, it was a more marked decrease. And as we go forward we wouldn't expect to see fluctuations up or down nearly to the degree. So you'll see, I think, more of a flattening in the quarter on quarter drops or gain, and more of a continual growth as we go forward.

Alright that's clear enough. Thank you.

Our next question is from [Leyla Govey, Edgerton].

Hi. Just a question about the first quarter since we are in April at the moment. If you can just say some general comments about how the quarter has been looking probably in terms of competitive behavior, pricing dynamics, any kind of comments you could make would be helpful, thanks?

I guess as now we are looking at multiple countries right, it's very difficult to say. I think that --.

Do you think Russia especially, sorry.

It's alright I just wanted to escape. But actually in the Ukraine we see very strong pricing. Still seriously talking about it, in the Ukraine we still see strong pricing moves, and ongoing bloodshed in terms of pricing behavior. So I wouldn't expect much in that sense improvement in the Ukraine. In Russia, probably I will let Nikolai to comment, but it's pretty much benign.

Yes, in Russia we've got good mature behavior of the big player, so we are very satisfied by that. It's kind of disciplined behavior. The only, of course, threat is small local operators which are, of course, trying to work with local tariffs. But fortunately they have relatively small amount of presence, so they are present only in a few regions. That's why we believe that this exposure is limited.

The only thing what's important to mention in regard to first quarter is that in Russia, of course, seasonally in the first quarter is definitely not the best time, because January, half of January is holidays in Russia then in February 28 days and every day brings us traffic landmarks which is more normal good month. So seasonal of course. We need to prepare that it's not the best quarter in the year.

And have you guys also, have you signed all of your interconnect agreements now, even with the small players at the end of '06? Is that all pretty much done?

Yes, all interconnect agreements are done with the existing terms. And right now we are preparing, as mentioned earlier, to try to increase them to the new terms from the second half of the year.

Yes it will be third quarter actually.

Yes in the third. It will start from the third quarter.

And, sorry, just one last clarification, again just those one off's and the -- that is referencing just Russia SG&A? Because there was a comment before about a $50m quarter on quarter increase. But SG&A is more than that.

Right, the percentage is yes. But we mentioned, as well, in Kazakhstan we have a number of those which are related to the launch of the platforms and migration of the base.

Yes.

It was a quite significant expense, one-off expense related to that as well.

So, do you mean on a Group SG&A trend quarter on quarter? Or were you --?

No. What we discussed previously, about $60m, that relates only to Russia. Well, the rest, on the Group level, of course, SG&A factors but also start-up expenses in Georgia, in Tajikistan and of course in all other countries. And, of course, we have to take into account that this addition of Armenia also looked as increase in cost.

Okay. Thank you.

Our next question is from Will Milner with Arete Research.

Thanks. Sorry to keep going on about Russian usage growth, but I'll try and keep it simple. In 2006, you basically -- your usage grew in Russia by 16%. And I guess the two follow-on questions from this are really what level of that 16% growth do you attribute to one-offs associated with CPP introduction and traffic increases and new interconnect agreements, etc., etc.?

I'm assuming there is a level of one-offs in there, what is a realistic hope, going forward, for usage growth within Russia in terms of a long term usage growth assumption? What are you working towards within the business? And that's assuming you are able to keep prices stable, which, it looks like you have been doing so far in 2006?

As for minutes, minutes increased without any link to new interconnect regime. Interconnect regime help us to increase total revenues as kind of was attracting there the total ARPUs. But this minute growth is really healthy, a very healthy tendencies which are showing that our strategy which our client is working.

Of course, we should say that it's not that easy to prolong this tendency because it was a very big factor that, previous years, were the faster growth rate. And, right now, when the growth rate declined, of course this improvement of the quality of the [beat] improved minutes of use. But still we believe that in the Russian market, minutes of use per subscriber is still not so high, and there is definitely possibility to keep growing this parameter and that's our force.

Okay. Thank you.

Thank you.

Our next question is from Andrei Bogdanov with [Androika Dialog].

Yes, good evening. I have two questions, one on Russia, one on Ukraine. With Russia, obviously great performance of ARPU. My question really is that what proportion would you attribute to the exchange rate? Obviously the dollar is going down quite sharply. And, in ruble terms, do you expect any improvement in ARPU going forward? And, if you do, what proportion? At what level, sorry?

And second one is on Ukraine. Obviously, I mean you describe it really well that the market is very competitive. The large players and the new players are going to the price wars and everything. But, still, if the situation will continue to be like that, do you believe that current ARPU of $3.8 is not possible to grow, given that up to 80% of your customers there are active so it's difficult to get probably more usage from existing customers? So if the market will continue to be as strong -- as competitive as it is now, do you think that there is any possibility to grow ARPU at more this level? Thank you.

I will start with the ruble to dollar. Of course, a stronger ruble helps us. But, in my view, the -- it was still the management top culture or usage, because we introduced during the last year, we introduced ruble tariffs. And we made them specifically looking very competitive for their subscribers, but still of their relatively high [RPPM]. And that's worked. The customers were preferring that. The customer was buying this new tariff and switching to this ruble tariff. And that's helped our ARPU growth. That was the really main, main factor.

In referring to Ukraine, I begin by just focusing again the key objective we have in Ukraine is to build our subscriber base as we move toward a critical mass. And, as we do that, the biggest priority we will be focusing on won't be ARPU. But, in the long term, we certainly believe that there are opportunities to increase ARPU, and that will happen sooner if the -- some of the, as Alexander said, some of the overdone pricing pressure from some of our competitors begins to ease.

Okay.

Our next question is from Ben Joseph with [Net V Capital].

Hello. Thank you for the call. My first question is just on depreciation and amortization. Are there any one-offs costs in there? I am just noting that it's picked up again quarter over quarter, and if you can provide a little bit of color that would be helpful please?

And, then, second question is on the Kazak ARPU. It's been very volatile but finished the year very strongly. I appreciate that it's impacted I think by the exchange rate. Can you add a little bit more color there as to how the market is and exactly why ARPU was so strong at the end of the year? Thank you.

In depreciation, actually, there is of course normal growth in connection with the additional equipment. But, also what you can see is a one-time addition is the addition of ArmenTel So, as long as we add the ArmenTel only in the fourth quarter, we added approximately $10m of depreciation for ArmenTel. And so it looks like increase compared to the first quarter.

Okay. Thank you.

In terms of Kazakhstan ARPU, again, in Kazakhstan we feel very good about the development of the base. And we see some of the same kind of seasonality that we saw in Russia a few years ago. So we see lowest in the first quarter and then, typically, a little bit of a drop as we go into third quarter, fourth. But, long term, we see the trends developing more like they are in Russia and it's just a couple of years behind.

Okay, great. Thanks. And if I could just follow up. Sorry to harp back to the one-offs in SG&A, but I just wanted to really confirm it myself. The increase in sequential SG&A, you mentioned that 40% of this was one-off. Is that 40% of the sequential increase in Russian SG&A or Group SG&A?

Russia.

Thanks very much.

Our next question is from Frank Maao with DnB Norske Markets

Yes, hello. Can you hear me?

Yes.

Yes. Congratulations for the strong results. And my questions, most of them have been answered at this point, but I have one add-on regarding the CapEx. If you can make any comments as to the trend going forward in the -- with the declining CapEx to sales ratio?

And, also from an absolute perspective, we now saw CapEx was not up in the fourth quarter, which it usually is. Is that due to any delays or is there any meaning that we could see CapEx higher than normal in the first quarter? Or is it more of an underlying trend of a declining ARPU? I mean is that you would perhaps see a CapEx to sales ratio is below or in line with 20% being reached over the next four quarters?

Let's start from general CapEx picture. So, our guidance for 2006 was about $1.6b. We ended lower than that and that's predominantly because of reduction in Russia. Originally we intended to spend about $1.2b and we ended up spending $1b. Clearly, some would have been simply captured of the savings through better initiation reduction in prices and so on.

But, also, we are keeping a very tight leash on where we put, how we put, when we put, and I mentioned on the previous calls that we very often monitor actually return as low as sector in the base station. So we are sometimes monitoring over 40,000 data-points, calculating the workload on the network. So that was part of it.

I would be very careful, of course, and you're rightly picking it up, projecting single quarter CapEx and taking it from there. It's much more reliable to look on the last 12 months basis, and that's what charts actually show. And 23% is calculated on the rolling 12 month performance, and that curve supposed to go down going forward.

Whether we will break down below 20% or not, that remains to be seen because it's a subject to what happens to the Far East licenses. If we're given Far East licenses, and they -- actually the tender should be announced shortly, following Russian legislation, that will require additional CapEx. It depends on 3G and so on.

So, in that sense, to give currently the guidance of whether we will be below in the next four quarters or not, probably premature. In general, where we want to end up, as we said, that's probably somewhere in the ballpark of 15%. Average, or more common number which is quoted by the operators was about 12% in Western Europe. But, one shouldn't forget that we operate in a much lower pricing. So pretty much the same volume of traffic with much lower pricing and, therefore, our CapEx to turnover ratio would be somewhat higher. So, and we estimate it at about 15%.

Some people think it's challenging. We also think it's challenging but, on the other hand, we have even better performance in Moscow than that.

Thank you. One follow-up please regarding the CapEx to sales ratio. Do you think, now that you have been -- since you gave the original guidance, starting to report interconnect revenues with some significance, raising the denominator here in the ratio you're giving a guidance on, do you think that will have any effect on where you're going to end up in the interval or --?

Not really. Because I mean we can keep those below margin traffic increasing actually so that the revenue brings the lower margin. So, not necessarily that it will drive dramatically the ratio down. Frankly speaking, we haven't, I don't have in front of me this analysis. We probably should come back to you on that one. I don't think that a lot of thought has been put into it whether it will affect really our ratio, because the gap or the spread between 15 and 20% is so large that I think it will comfortably accommodate any divisions related to the interconnect.

Thank you very much.

We do have a follow-up with Alex Kazbegi with Renaissance Capital.

Yes, I was wondering if you could first discuss maybe a bit more on the 3G expectations. I mean, first of all you have six companies listed. Two of them, let me put it in a politically correct way, probably fairly obscure. So what do you have to say about that?

Secondly, what would you probably expect in terms of the requirement which the license can carry? And what is your general expectations of the level of the CapEx level of the -- and the level of the timing when you can be actually able to do something, given that the frequencies which you're going to be given probably are going to be occupied by the military and it will probably some time to clean them up.

And the secondly, probably also, given that Armenia is probably your first experience of having for the mobile and fixed a -- what are your current satisfaction levels? How you're running the single business and how do these two fit, if you wish, together? And, together with them, as far as I understand, your new initiatives could be also looking at the fixed line opportunities as well in the VAS. And maybe you can elaborate on that as well? Thank you.

Let's start with Armenia and then I'll come to 3G. I mean it's actually probably a bit premature for us to comment on satisfaction or dissatisfaction of how it is. One thing is clear that it takes a hell of a lot more people to run fixed, and we've inherited about 4,700 employees in the Armenian business, and that's compared to just over 16,000 in total Group of VimpelCom. So you can see that the ratio is completely different, so we need to sort out that problem.

In general, how we tackle on this is to maintain it at arms length for the time being. And we are discussing, actually we are very close to resolving it, to move ahead with the revamping the [digitine] network, increase level of digitization of the network up to 100, building very modern NGN infrastructure there. And then, on the basis of it, we'll start looking for business models and business opportunities, how to attack with more elaborate convergent proposals. The simplest way, of course, is to bundle and that's what we're doing, and we've been doing it in Russia with Golden Telecom for a long time.

So it's yet -- it remains to be seen. So, currently, we maintain certain distance between them. First, we need to fix it, the fixed line, and then we'll start working on the convergence.

Now coming back to 3G. Well, the good news is that we made a shortlist, because the big risk was that we would be eliminated at that stage on the technical grounds or something like that. In terms of companies which are on the list, actually two out of three smaller players are well familiar to us. One of them Tele2. Actually it's -- the name of it is looks obscure, but it is Tele2, and so we know them well. And one is truly obscure. Nobody understands what is the company, how they got there and so what do they do, very little knowledge about them.

And can we expect surprises? You always can expect surprises and nobody is moving short here. But the effort which we've put in making sure that the process is excessively scrutinized by the government, outside of the Ministry, excessively scrutinized by the press, and raising awareness among different stakeholders, so to speak, allowed us actually to, we believe, influence the way the Commission is informed and the way the whole process has been orchestrated.

To that end, I think that we have a pretty good chance that the process will be fair. And, if the process is fair, we should get a license because this current system is fairly rigid and it doesn't allow any surprises essentially to happen. Everything is predictable. As the investment level is capped at 2,000 base stations, to put things into perspective, any will build about 4,000 base stations. Here the max points are given if you're committed to build 2,000 base stations over three years. Virtually any company can do it.

So if, from the beauty contest, in terms of investment profile, it becomes a beauty contest of the historical [technical difficulty] profile, how much of a license and [accurations] you have historically [and it's all given]. So, from that perspective, if things are done -- if we take actually at the face value, everything should be without surprises.

In terms of our plans, as we said, that our initial budget is at about 300, $350m on 3G, but it's not entirely on top of our 2G budget right It's -- because there will be some replacement done and some of the capacity which we intend to build in the big cities simply will be built in terms of 3G capacity and we will migrate traffic there. To say exactly at this point in time how long will it take, what sort of spectrum we're going to get, how much money will we spend cleaning it up, is probably difficult. One thing that our analysis shows that it's not an exorbitant sum of money to clean spectrum and probably shouldn't take us that long. We've done that exercise already in 900 and 1800, so we're well familiar with the process. And, hopefully, we'll do it fast.

In our own plans, we intend to have operations up and running in some parts of Moscow and St. Peters probably all ready by the end of the year to start building our experience there. And full operation in the targeted cities we'll have by the end of 2008.

Right. Can you just give us a guess in terms of this cleaning up not an exorbitant number, what does that sort of mean?

It depends on what we get and our estimates were anywhere between $10 and $15m.

That low?

Yes.

Okay. Thank you.

Our next question is from Sean Gardiner with Morgan Stanley.

Yes, just following up on your comments on the last question first. Your spending of $10 or $15m investment in 3G, is that over a 12 month period your initial investment? Or does that get up to the end of 2008?

By the end of 2008.

Okay. Okay great. [Inaudible -- technical difficulty]

I have to qualify here, that if we see, that's an initial investment to put the first layer in, right? And, even in Europe, it's very hard to take Europe as a benchmark because of the story of UMTS migration versus the PDA, the appearance of new handsets, and, only recently actually the adoption curve from the handset accelerated.

So it's very difficult for us to project what would be the speed with which our subscriber base will be migrating into 3G services. If we see that it accelerates, and we see that is happening faster, of course we will be building, as always, invest as we grow, we will be shifting more investments into that area. But, currently, sort of initial layer, operational layer, we estimate at $350m.

Okay great. And, then, the question I had was just on the Ukraine. Can you just update us on where you are in terms of your CapEx plans for that market next year? I think your original plans were for $500m. Are you still on track for that [inaudible -- technical difficulty] below that?

Yes. If we talk about CapEx guidance in general for 2007, we actually see it. I'm surprised nobody's asking. We see that 1.6b as well, just under. And, out of that, 1b roughly is Russia, the rest is the CIS. And, out of that, to Ukraine we plan at about $150m in 2007. Last year expenditures were $200m but that includes actually [sworl] which had been done by Ericsson when we swapped [WhoAreWe] for Ericsson, and that was in the value of about 50m. So real cash outlay, in that sense, is at the same level, $150m.

Okay great. Thanks very much.

We have a follow-up again with Alex Kuznetsov with Bear Stearns.

Good afternoon. Alex Kuznetsov again from Bear Stearns. I just wanted to enquire if you can help me to analyze your traffic data. Could you provide me the breakdown between your incoming and outgoing traffic? It was probably not so significant before CPP introduction, but now, obviously, charges for outgoing traffic are significantly higher than for incoming traffic?

And, secondly, could you probably provide us with some guidance for 2007 related to revenue, EBITDA and CapEx that you just provided? But it would be very helpful to learn your outlook on the revenue and ARPU expansion in the current year.

Let me start with this one. Unfortunately, I have to disappoint you that we never guide revenue, EBITDA and ARPU targets. In that sense, we can talk only about where we see ourselves, EBITDA in the longer run, and I would insist on the corridor between 45 and 50, as I always do. Probably now I'm more comfortable to say that it will upper part of that corridor and hovering just under or just over 50%.

And, in terms of ARPU, probably general trends which we observe in the course of 2006, in terms of growing new, this will continue. One has to actually throw and qualify. We do not know where the growth of usage will slow down. We see that this level of flattening in terms of usage is quite different because different European countries, for example. And, at this stage, it's very difficult to predict whether we will be similar to Germany or we'll be similar to the U.K., or we'll be similar to Italy in terms of amount of minutes being used. But, so far, we hope that the growth will continue in terms of usage in 2007.

In terms of traffic, 55% approximately comes of incoming traffic, and 45 as outgoing? And, of course, the main difference is with this fixed to mobile calls, because after there is so relatively low charge for the fixed subscribers to call to mobile, some of the subscribers are preferring to call from fixed to mobile and to save a bit of money. And that's what I mentioned when I said that, yes, it was growing from 4% of the total traffic to 7% this particular traffic from fixed to mobile. That's the main difference.

My I clarify one issue? I was under the impression that termination rates of -- for phone calls from other mobile operators to your network are just slightly higher than the termination for fixed to mobile calls. So why is it so important?

No, no, it's -- there our interconnect charges are the same right now for all operators. All fixed and mobile operators we charge right now 95 kopeks, which is $0.0357 approximately. So it's the same interconnect charges.

The issue is that fixed operators are obliged to charge the only RUB1.5 per minute of a call for the fixed line subscriber, and that's lower than usual mobile charges. That's why some of that very extremely elastic customers prefer to call from fixed to mobile, and that's driving PP usage. We hope that in some period of time we will be able to prove to Regulator that we can increase slightly the tariffs and then it will be, we believe, no this different negative tendencies for us. And, although I need to mention that still this exposure is pretty small because it's only 3% of the total traffic.

I understand. So there is a risk of traffic migration but it's very marginal.

And, also, I -- it's probably not too significant, but could you comment on report of pool expansion in Tajikistan please? Because there are -- there was I think 500% expansion in ARPU, and what was the reason for that change trend?

I think, overall, the key is that before we launched the brand, which, we launched the brand in Tajikistan in September, we really had a sort of a residual base that was very small. When we've launched the brand we've seen what we often see in low developed markets. We get some of the highest, best customers first, and that influx of new customers that are more affluent, that's what tended to drive the base up.

I see. And the -- since I was unable to receive the guidance, maybe you can tell us the potential rebalancing in the interconnect trade that you highlighted. Do you expect rebalancing of interconnect rates in the third quarter? Could you tell us what kind of rates you are trying to achieve and whether they will be symmetrical?

Yes, the interconnect rates are always symmetrical. So that's the whole system is that how much we charge the same amount per minute we are happy. With mobile, of course, we are talking about with mobile operator. Our intention is to try to increase it from 95 kopeks to RUB10 because that's, we believe, a logical and economics proofs for that there. This increase is 16% approximately, 16% increase, so it's not huge amounts. And, of course, it will help us to increase the revenues but also will increase costs.

So it will give some positive marginal effect but it will be not very much seen in the P&L. For us, it's more important to have that more disciplined price behavior on the market. That's why we believe correct interconnect charges are important.

Thank you very much.

Our next question is from [Osmond Dekkai] with Merrill Lynch.

Yes, good afternoon. I have a question on Kazakhstan. I missed your explanation for the lower margin in Q4. Can you please repeat that? And, also, the outlook for the margin in that country and if you're seeing anything there from the third operator? Thanks.

The reason is a standard seasonal effect first, because we saw increase in subscribers, and, of course, when you have a surge in subscribers, you spend more on subscriber acquisition cost and that tends to depress the margin.

Second, we put quite a bit of effort in migrating our subscriber base from the legacy platforms into our standard bidding platforms, and bulk of that cost actually fell into the fourth quarter. So that was a second reason.

In terms of what to expect, I would take any old margin probably more as a level where we would like to be, and more robust proxy for where the real margin lies. So that's about Kazakhstan.

Yes.

And the third operator, so far, just started their operations. They present in a very kind of candid way in terms of presence. They occupy mainly [Mischus] and two largest cities and developed presence in the smaller cities. So far, they do take some subscribers but we don't really feel significant pricing pressure.

In general, it's very important to note that in Kazakhstan structural ARPU is quite different to that of Uzbekistan, Tajikistan and so on. There, we started already with relatively low prices. In Kazakhstan, if you calculate APPMs actually just short of $0.20, so we have actually different structure when we have relatively low MRU and extremely high pricing. And, therefore, that shows you that there is, apart from subscriber growth, quite a bit yet to be captured in terms of elastic demand in terms of stimulating usage.

Great. Thank you.

And we'll take our last question from Olga Bystrova with Credit Suisse.

Hello. Just a follow-up question. On paid ARPU, how, if you can provide the information, how much is none was ARPU currently, what percentage is SMS and how it has changed over the year than by quarters?

And my second question is if, I don't know if you can talk about it, but depreciation is, if you compare depreciation and your CapEx potential targets, depreciation is more than 20% of revenues. In a way, it is your own procurement is used as a representative for maintenance CapEx, but you're thinking that the maintenance CapEx should be between 15 and 20. Are you -- is there any caveat on the depreciation or you will be perhaps changing depreciation wise, asset wise, etc.? Thank you very much.

Okay. I can start with the first one on VAS ARPU. VAS represented about 16% in the fourth quarter of our total service revenue. And that's a little bit higher than our total average for 2006, which is -- was about 15%. Of that, a little more than 9% in the fourth quarter was SMS and a little less than 9% for the year was SMS. And data which you asked about was between 3.5 and 4% of the quantity.

Okay. Thank you.

And talking about depreciation, we still think that this 21% revenue is kind of temporary thing which we see because, of course, when we start operations in different markets, of course our investments goes ahead of the revenue generation. And so that changes a little bit the normal structure of depreciation to revenue which you can see on the developed markets.

And, actually, if we will look on, for example, the first quarter of year 2006, our depreciation to revenue was 22.7%, in the fourth quarter 21.7. So, going further, as long as we will see the growth in revenue, we're seeing that depreciation will also come to the same level as we say the level of maintenance, so to cover the capital investment for maintenance for the network.

Okay, thank you very much. And just maybe one last question. I'm sorry for all the questions but these tax provisions, you're mentioning about income tax and also VAT. What is the probability let's say that you will have to -- you will not win the appeals? As far as I understand that you're appealing the tax inspection decisions.

No, unfortunately, that's absolutely unpredictable. We were kind of very sure that we will win the appeal, but we lost. So taxation hearing will be quite soon. We'll see the result.

Thank you very much.

At this time, I'd like to turn the conference back to management for closing remarks.

Well, thank you very much for your attention. And, of course, if you have more questions, please do not hesitate to contact us and we will be very happy to give you all necessary clarifications and explanations. And, particularly thank you for your patience today and, again, we apologize for the technical glitches. And, with this, thank you very much and goodbye. Have a nice day.