Mobile TeleSystems Public Joint Stock Company
Q3 2014 Earnings Call Transcript

Published: 26 Nov 2014

[Operator:]

Good day, and welcome to the Mobile TeleSystems’ Third Quarter 2014 Financial and Operating Results Announcement Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Joshua Tulgan. Please go ahead, sir.

[Joshua Tulgan:]

Ladies and gentlemen, thank you very much for joining us today on the conference call to discuss the Company’s financial and operating results for the third quarter 2014. Joining me today are of course Mr. Andrei Dubovskov, the President and Chief Executive Officer of MTS; Alexey Kornya Vice President. Before we begin our discussion today, I would like to remind everyone that except for any historical information, comments made during the call may constitute forward-looking statements. These may involve certain risks. They may relate to one of the following issues

[Andrei Dubovskov:]

Ladies and gentlemen, thank you for joining us on today’s conference call to discuss the Company’s financial and operating results for the third quarter 2014. Joining me today are Alexey Kornya, Vice President and Chief Financial Officer; and Vasyl Latsanych, our Vice President and Chief Marketing Officer. During the quarter we increased our Group revenues by 3.6% year-over-year to RUB107.1 billion. We witnessed revenue growth in Russia, Ukraine and Turkmenistan, but registered a slight decline in Armenia. As in Q2, hryvna devaluation and a weakening ruble impacted our Group performance. Third quarter is traditionally the strongest for MTS. During this quarter, we managed to stall the pace of growth in Russia by building upon the strength of our platform, improved quality of our data networks through the expansion of CGMLT, continued excellence in customer service, sensible commercial policies aimed at increasing usage, the [indiscernible] leading value proposition and integrated voice and data tariff plans and the strength of our retailer presence and activity to promote sales for the affordable smartphones. As our competitors have already reported their results for the period, we can mention that despite economic uncertainty and changes in the competitive landscape, MTS strengthened its leadership in the Russian market. However, we continue to see medium and long-term lift for our business based on the macroeconomic uncertainty, which I will address later in this call. Now Vasyl will discuss our business unit performance.

[Vasyl Latsanych:]

Good day, ladies and gentlemen. In Q3, we saw very strong growth in our Russian business unit with revenues improving by 8.4 percentage points year-over-year to RUB99.2 billion. The growth was attributable to exceptionally strong performance in our mobile operations where revenues grew 9.1% year-over-year. The growth was driven by

[Alexey Kornya:]

Thank you, Vasyl. In third quarter 2014, adjusted OIBDA increased by 4.1% to RUB48.2 billion. Our growth in OIBDA reflects many factors, including top line revenue dynamics in each of our markets of operation, the effect of the steadily rising contribution from data revenues in Russia, the impact of hryvna and ruble depreciation on our operating expenses, increased taxes and spectrum fees in Ukraine, a decline in share of sales in marketing costs and rising G&A costs due to enhancement of our mobile and fixed network in Russia and inflationary pressure. On a quarterly basis, adjusted OIBDA grew by 11.5%, which was largely driven by seasonally higher roaming revenues and higher quality subscriber additions, while maintaining steady sales & marketing expenses and personnel costs. Overall, our adjusted OIBDA margin came at 45%. In Russia, OIBDA grew by 9.4% year-over-year to RUB45.4 billion. This reflects both strong growth in mobile service revenues and an increased contribution from high margin data revenues. On a quarterly basis, OIBDA increased by 12.7% due to seasonal factors, including high contribution from roaming. This translates into a margin of 45.8%, the highest number we have registered in our Russian business since early 2009. In Ukraine, OIBDA declined by 10.7% year-over-year to UAH1.21 billion. Profitability was under pressure due to increased taxes and frequency fees, higher payroll, electricity, site rental costs and the impact of the currency devaluation on the cost items, including roaming and SIM cards, denominated in foreign currencies. However, the biggest impact came from non-reimbursable value-added taxes which we were compelled to expense. For the quarter, we delivered an OIBDA margin of 42.9%. In Armenia, OIBDA fell by 1.6% year-over-year to AMD12.1 billion. As in previous quarters, the decline in OIBDA was related to the increase in termination rates with MTS Russia we implemented in the fourth quarter 2013. But on a quarterly basis, the OIBDA grew by 33% driven by traditionally higher roaming revenues and regulatory decision to increase termination rates on international calling from July 2014. The combination of these factors allowed us to deliver a strong OIBDA margin of 54.6%. In Turkmenistan, we delivered OIBDA of TMT29.9 million for a margin of 41.8%. Year-over-year, our OIBDA improved by 11.2% driven by our efforts to decrease costs, including network maintenance costs and changes in taxation policies. For the period, net income declined quarter-on quarter by 23.8% to RUB16.1 billion. In fourth quarter 2013, we registered a non-cash ForEx loss in the amount of RUB9.5 billion from a revaluation of the foreign currency denominated portion of debt portfolio after significant ruble depreciation. The quarterly decline in bottom line was more pronounced as in the second quarter we had a non-cash ForEx gain in the amount of RUB4.2 billion due to a strengthening of the ruble. Despite macroeconomic weakness across our markets, MTS continues to generate stable operating cash flows. Our free cash flows for the first nine months of 2014 declined by 11.7% compared to the previous period, but in second quarter 2013 we benefited from a one-off gain from the settlement over Bitel. Adjusted for this factor, our free cash flow was down just 7%, but this drop can be explained by higher CapEx spending in third quarter 2014. For the first nine months of 2014, CapEx was higher at over RUB53 billion, or at a base higher than in 2013. However, during the quarter, we prepaid for a high amount of non-ruble denominated equipment in anticipation of further weakening of the ruble. By the end of the period, our total debt amounted to RUB233.8 billion. Our net debt to last 12 months of OIBDA ratio was 0.9 and remained at a low level by industry standards. In October we signed an agreement with our longstanding partner Sberbank to open a non-revolving line of credit for a total amount of RUB50 billion and maturity in September 2021. We also amended an existing credit agreement with Sberbank in the amount of RUB20 billion by extending maturity until September 2017. Obviously, we consider it as a testament of our core financial strength and deep relations with our banking partners to be able to conclude financing agreements in this challenging environment. Overall, strong performance of our core mobile and fixed businesses limited debt repayments in the next quarters and our success in debt portfolio management allows us to face deterioration in modern macroeconomic environment and reduce liquidity in the capital market with confidence.

[Andrei Dubovskov:]

It's Andrei Dubovskov. Thank you, Alexey. In Q2, there were certain macroeconomic risks that we see in our markets. While we do not see interfering effects so far, we do continue to look at ways which the overall economy may impact our business going forward. It’s difficult to forecast what the ongoing trends may be in core markets of Russia and Ukraine, but we feel comfortable at this stage raising our guidance for 2014. As we detailed in the accompanying presentation, we expect strength in the Russian market and strong performances in Ukraine and Armenia to lift revenue by at least 2% for the year. Russia will see around 5% of growth to this figure based on strong performance in the mobile market. In spite of the volatility in the ruble we are seeing in Q4, we do expect group OIBDA to improve by approximately 1%. So as we have for years mitigated exposure portfolio and currency expenses in our OpEx, we continue to have 5% to 10% of expenses in foreign currency in our various markets. Likewise, CapEx remains on track at roughly RUB90 billion. However, this number could change due to the currency fluctuations. Next week we are on track to launch our operation in Uzbekistan. As we announced previously, we are resuming operations in the attractive market through a joint venture with some Uzbek government agency. We remain optimistic that we can recapture a piece of this attractive market. By the speed at which we are operating, coupled with the rush to launch prior to the holiday period, gives us cushion in providing any guidance for the future. We will elaborate on this more fully in our end of year disclosure next launch. And this is one of the important news on a technical matter. We have amended our reporting to show three months activity among our subscribers in Russia and our other markets. Historically, MTS has shown six months active subscriber numbers in calculating the subscriber base, ARPU, MOU and other metrics. This approach has matched our strong policy and reflected legacy issues in the marketplace. So overall for easy comparisons, we have also amended subscriber numbers in the related calculations from Q1 2013 to reflect this change. With that, we would like to open the call to questions.

[Operator:]

Thank you. (Operator Instructions) We will now take our first question from JP Davids of Barclays. Please go ahead.

[JP Davids:]

I have got two questions, please. The first question is around Russia and specifically on LTE. Can you talk about whether you are seeing to what extent users that are adopting LTE are moving to higher data bundles? And if you can provide a little bit of color around how big the upgrades have been? Related to that, your drive to this point has been on less expensive smartphone handsets. Do you think you might shift more towards pushing 4G markets -- 4G handsets into the market? Separately, just to check on MTS Bank, you recently provided a little bit more capital into MTS Bank. Have you got any other funding commitments over the next 12 months?

[Andrei Dubovskov:]

It's Andrei Dubovskov to talk about the first question and the second question about the MTS Bank. Vasyl already talk about it. Speaking about our LTE network, first of all, I just want to remind you that we are going through really good coverage till the end of this year it will be approximately 600 cities across Russia, in all the Russian regions. This means that we are the number one speaking about the coverage and speaking about the quality in Russian LTE network. At the same time, as you know, we are going to increase smartphone penetration. And first of all, you’re absolutely right, it will be LTE handsets. But, it's a little bit some tricky question because right now LTE handsets are so expensive for the Russian market and at the same time 3G handsets can be, speaking about the price of 3G handsets, can be less than USD100. And that’s a good situation for us, because we can hold the stability to increase the presence of 3G smartphones in our monobrand shops. But at the same time, we have no possibility to radically increase LTE smartphones in our network. But, I mentioned it’s sure that in the near future, maybe till the summer next year, we will see a lot of new smartphones will be approximately the same speaking about the price like 3G smartphones. It can increase the smartphone penetration first of all LTE smartphones from current level of 6%-7% to 30%-40%. And at the end of the day, I think that 3G smartphone penetration will be approximately 70%-80% till the next year, till the end of next year and LTE smartphone penetration will be approximately 20%-25% at the same period. But of course, the key problem -- not key problem, but the key message for us, it's data bundle tariffs. We are going to substitute our current tariffs aimed at zero [indiscernible] by voice and data tariffs with very higher smartphone penetration which we aim at. We hope that the data revenue in next year will be not less than in current year despite the macroeconomic factors and other challenges. Maybe they can support approximately the same growth of data revenue like in this year. And the next question about MTS Bank, Vasyl, please?

[Vasyl Latsanych:]

That’s a simple question. We don’t have any commitments for the next upcoming periods. What we did was supplement for the liquidity of the Bank in the current period. But there are no other commitments that we would be putting into our plans for the next long period.

[Operator:]

Thank you. Our next question comes from Alexander Vengranovich of Otkritie Capital. Please go ahead.

[Alexander Vengranovich:]

Two questions from my side. First on the high usage of voice, so we see that third quarter was really strong probably and usually strong. So can you please elaborate what exactly was driving the high yield this quarter? And second question here, after the second quarter you actually downgraded your guidance. Now we see that you are improving your guidance once again. I mean what really happened in the third quarter which made you change your mind? So it looks like something unexpected happened and which dramatically improved your results and probably your vision till the end of the year. So can you please elaborate on this?

[Vasyl Latsanych:]

This is Vasyl. The first question is relatively simple. The sharp increase in MOU and ARPU is the direct results of the six-month to three-month base calculation migration. So before we have reported six months and now we report three months base. That has changed the base for calculation of minutes of use and ARPUs. The second question is about the guidance. Well first of all, the guidance, the whole market is volatile, so the guidance in the beginning of the year we have made was really a pessimistic one. Now we have some more optimism after the results of the third quarter. That’s why we’re slightly improving the guidance. But as you can see, there are mostly the results of the third quarter that improved the overall yearly performance which we guide to.

[Alexander Vengranovich:]

So as far as I understand, I mean the improvement came not only because you changed your -- I mean not only the revenue terms that didn’t have any effect, I mean the methodology of the calculation in terms of subscribers obviously didn’t have any effect on your revenues and we see that there is definitely an improvement of the voice revenues. I mean what was driving that improvement? So was that purely additions? So we also see that ARPU is growing, so this should definitely be explained not only by the changes of the methodologies. So I just don’t get it.

[Vasyl Latsanych:]

Alexander, I will try to then elaborate a little more on that question. We have seen the base growth, the annual base growth of almost 6 million customers Q3-over-Q3 previous year. At the same time, we did see an uplift in the usage. So therefore, these two factors have concluded to the growth of the overall minutes sold to the customers. And respectively the ARPU plus, it was also under effect of six-month to three-month base calculation migration. But in fact we did sell more minutes and we did have more customers in that period of time. So the third quarter came up strong in the voice revenue and also respectively strong in the interconnect revenues and even roaming revenues were strong in the Q3.

[Alexander Vengranovich:]

So basically third quarter was better than you expected after the end of the second quarter, correct?

[Vasyl Latsanych:]

Well, pretty much obviously. If you can see our guidance for the whole year, we did not expect Q3 to be that strong and that results into slight overview of our guidance for the rest of the year.

[Operator:]

Our next question comes from Alex Balakhnin of Goldman Sachs. Please go ahead.

[Alex Balakhnin:]

Two questions from me. One is on the fixed line business performance. I recall in the Investor Day in the beginning of the year you mentioned that you expected quite a good dynamics for MGTS between 2013 and 2016 and so far the fixed line business is stagnating, I would say. Is this temporary under-performance and you expect to turn around any time soon or you may update us on your expectations on MGTS? And my second question to the extent you can share is, well you mentioned the new borrowings and renewals of the debt facilities, can you update us, probably if not necessarily quantitatively, but qualitatively on the borrower rates you agreed with the banks?

[Andrei Dubovskov:]

On the first question, MGTS, what we see is a continuous trend of decrease of the voice line usage throughout Moscow. Basically that’s the overall trend for Russia. But we operate in Moscow, so we know that plan for Moscow, which we try hard to replace by broadband and TV sales. In fact we have seen both broadband and specifically TV sales increase in Moscow during the last couple of quarters and we managed to replace the loss of the voice revenue with the new revenue coming from these two new services. Overall, we do not expect voice revenue to increase in MGTS and the future of MGTS revenue increase is totally factor of the GPON network, aggressive sales and more customers connecting to broadband and to see the offerings of MGTS.

[Alexey Kornya:]

As far as the debt rates and the terms of our borrowings are concerned, we’re not disclosing the exact parameters, although you might see it later when we do 20-F. I just can say that on one side, that reflects the changed macroeconomic environment, on the other side we believe we achieved very strong results initiation and in timely kind of setting the deal with our bank partners.

[Alex Balakhnin:]

And just a very quick follow-up on my first question. So at the Investor Day you mentioned in a presentation that you plan to add something like RUB10 billion incremental revenues between 2013 and 2016 in MGTS. Does this plan stay? Or given the path of the voice -- of traditional voice revenue erosion, do you think it may be a little bit ambitious?

[Andrei Dubovskov:]

Well, do recall that we had very strong expectations from MGTS business growth, which consisted of several factors, including the ones that I’ve mentioned before and also some of the B2B and B2G contracts that we expected to be available for us throughout the next couple of years. Well, we probably have to admit that due to volatility of the market and weakening of the overall economy, some of the B2B and B2G businesses would not be available or would be delayed to our business. So potentially the growth that was projected will not come or turn out as high as it was expected. But we do still managed to grow that business mostly due to B2C business offerings and unfold of our GPON network.

[Alexey Kornya:]

And Alex, so let me remind you, I just wanted to attract your attention to the fact that right now we have very big differences between the current capacity of our GPON network in Moscow and our current subscriber base, more than five times. Approximately 3 million households they are covered right now and no more than 0.5 million subscribers, broadband subscribers. It means that we have all possibilities to increase the penetration of our current network. It lead us to increase our revenue growth of course.

[Operator:]

Our next question, ladies and gentlemen, comes from Herve Drouet of HSBC. Please go ahead.

[Herve Drouet:]

Two questions as well from my side. The first one is on the margins. I've been surprised in Russia how healthy your margins have remained despite the currency weakness of the ruble. I was wondering, do you expect those margins to stay at those levels looking forward? At the moment, is there not any inflationary pressure you see either on wages, either on costs which are in foreign currency? I'm quite surprised by the very healthy margins you've disclosed in third quarter in Russia in the current macro environment. So just wanted to get a bit of maybe more color on that. And on the other side, in Ukraine, where we've seen some kind of margins pressure, do you think there could be some stabilization on the other side in Ukraine from now compared with relatively weaker margins we've seen in Ukraine? And my second question is on the roaming and the impact on roaming and the international roaming. I was wondering if you can disclose any figures of how much the international roaming was this quarter and how it compared before with last year if you seasonally adjust it? Have you seen a higher portion of the international roaming coming through compared with Q3 last year?

[Alexey Kornya:]

I think while analyzing margins, one should differentiate the trends which we expect to see and which we will see in Ukraine and in Russia. In Ukraine, we had in the third quarter one more factor related to tax effect and which we might not probably see further on. However, generally, we will see pressure coming on Ukraine margin coming from devaluation, coming general macroeconomic weak situation and instability in the environment. While in Russia we expect to see more kind of stable cost environment, although costs we’ll see and realize also a strong devaluation effect coming through the fourth quarter in particularly on our margin. And one should also remember that third quarter is seasonally the highest period of margins. That is why while the fourth quarter and the first quarter are usually weaker, both in revenue terms and in margins, that is why we would see some decline clearly and we expect to see in the fourth quarter some decline on year-on-year basis on the Group level which should reflect partially now on guidance. Looking forward in the midterm perspective, I would say we will see in Russia more kind of stable margin, some variation within one percentage point probably, but not strong decline, while in Ukraine we’ll see more pressure on the margins which will put pressure on the Group for the four months.

[Vasyl Latsanych:]

And here is Vasyl on the question of international roaming. Well, I can disclosed the numbers right now, but the roaming both in terms of users and usage and charges this year in Q3 was higher than in Q3 2013. So overall, we did have more revenue coming from that side. But please remember that 2013 Q3 was relatively high and 2014 Q3 was again the peak of the roaming season due to tourism and migration. So in fact, we did see that high peak in 2014 Q3, which is not sustainable throughout the year because this is seasonal. And the season this year obviously was a bit higher than the previous year. So we did see an increase in these charges. The numbers I don’t have with me at the moment.

[Alexey Kornya:]

If I may just follow up on the margin question, quick one. I want to stress that while looking and analyzing our margin performance, we of course focusing on absolute OIBDA dynamics. Yes, we believe what is important is dynamic and growth in absolute terms of our OIBDA. It is our predominant focus and we are guiding this year that we, despite the high volatility in the markets and devaluation, we'll be able to provide growth in absolute OIBDA and the same target for us would be midterm going forward.

[Herve Drouet:]

And just a quick follow up. Could you tell us a bit, this one-off in Ukraine that happened in Q3, by how much was the amount on the OIBDA?

[Alexey Kornya:]

Pardon?

[Herve Drouet:]

The one-off you mentioned for Ukraine in Q3, could you give us a bit of more -- what the size it was for just this one-off in Ukraine on the OIBDA, on the tax?

[Alexey Kornya:]

Our tax expense went up by four times in the third quarter comparatively to the second quarter. So it was quite sizable. It was a few percentage points in terms of margin impact.

[Operator:]

Our next question comes from Dalibor Vavruska of Citi. Please go ahead.

[Dalibor Vavruska:]

I have two questions, if I may. One is, just could you remind us about the management performance KPIs and in particular, whether the Russian business KPIs also matter for the top management or whether it's just the group numbers? And the second question is on CapEx. I think you talked in the past periods that there are reasons not to increase CapEx or we get this impression that investors may be becoming a little bit more rational on CapEx. I'm just wondering if you can give us an update this quarter on how you see the CapEx going forward and whether you see maybe that situation, competition on the CapEx front coming down given the economic uncertainties?

[Andrei Dubovskov:]

It's Andrei Dubovskov. So speaking about our KPIs, it’s a very stable situation and our management team first of all that our leadership position at the same time a really big share of our KPIs it’s free cash flow because it’s related to our possibilities to pay a dividend. You know that approximately one year ago we changed our dividend policy. Right now our dividend based is based on our free cash flow and that’s the reason why one of the important KPIs in management team is free cash flow. Talking about our CapEx, this is no changes in our forecast. We are going to spend approximately RUB80 billion to RUB85 billion in 2015. As you know, we made the prepayment to our vendors for the next year development and that means that in 2015 we are going to spend our financial resources just for construction, not for new equipment. It means that in natural numbers, we are going to construct in 2015 approximately the same network, same development like we planned earlier. But it lead us to slightly less capital expenditure than in 2014.

[Operator:]

Thank you. Our next question comes from Ksenia Mishankina of UBS. Please go ahead.

[Ksenia Mishankina:]

I have several questions. There were rumors in the press about potential sale of 15% stake in MTS by Sistema. Could you please comment on that? And also, could you please outline your borrowing plans for next year?

[Alexey Kornya:]

Well, we cannot comment on rumors and then particularly related not to us, but to our shareholders. We don’t know anything about it.

[Ksenia Mishankina:]

And could you please outline your borrowing plan for next year?

[Alexey Kornya:]

For the next year, we have about 20 billion for refinancing thanks to the restructuring which we have earlier this year we reduced the overall amount due for refinancing in the next year. That gives us some flexibility. So in 2015, out of those 20 billion, we have either prolonged the debt agreements or refinanced them. There are different options possible. And we have quite strong cash flow, including free cash flow, in order to ensure our financial stability in the next year.

[Operator:]

(Operator Instructions) We will now take our next question from Anna Lepetukhina of Sberbank. Please go ahead.

[Anna Lepetukhina:]

I have several questions. My first question is on CapEx. I just want to understand, given that you are prepaying for 2015 and you guide the same RUB90 billion CapEx for this year, it implies that you intend to spend less, especially given that, even if we look year-to-date to third quarter, ruble already witnessed weakness. So I'm just trying to understand where exactly you are scaling down investments, whether it is only in Ukraine, or you are kind of postponing some projects also in Russia? My second question is on inter-company eliminations. In the third quarter, they increased quite substantially and so as far as I understand, it can be driven by increase in calling volume between countries. So can you please explain what exactly was the reason for this? And my third and last question is, you mentioned that in Ukraine you saw boost as a result of international calling and roaming revenues. APPM we can see increased substantially in Ukraine. So do you think -- for how long do you think this situation is sustainable and it can support revenues in Ukraine?

[Andrei Dubovskov:]

it's Andrei Dubovskov. And talking about our CapEx, as we described it earlier, you know that we have three main areas which we spend in our financial resources. First of all it's our usual development into the 3G networks and data; secondary, it’s new area for us, it's LTE development; and third area, you know that during last, more than two last years we have developing now GPON network in Moscow. And according to this situation, in order to -- we are going to finalize our 2G and 3G development till the end of this year, we are going to finalize our LTE network at least just until the summer next year. And as you know, right now we have approximately 3 million households in Moscow covered by GPON technology. It means that in near future, maybe in two or three quarters, we can finalize -- we are going to finalize our GPON development in Moscow. It means that we have all possibilities to decrease not radically, but slightly decrease our capital expenditure in Russia. At the same time, you know that right now we have no 3G license in Ukraine. It means that we are not going to spend a lot of money to Ukraine’s network. Maybe we will some have expenses in Uzbekistan, but of course it's not be a very big size. It will be not very sizable impact.

[Alexey Kornya:]

Let me take the second one in inter-company eliminations. Yes, you are right, we saw an increased volume of traffic between countries constituting our group, which drove an increase in inter-company eliminations.

[Anna Lepetukhina:]

Just wanted to follow up. But between which countries and to which extent it boosted revenues of which country?

[Alexey Kornya:]

Well, I think it's just overall volume which grew across our board depending on the materiality of our businesses. Clearly like 80% or more than 80% of our business, 90% of our business is Russia, so like the rest is other countries. So you can imagine that these volumes are pretty much distributed among other countries of our operations.

[Vasyl Latsanych:]

I’ll take the third question. So yes, we did see a certain impact of the international calling and that is reflected in overall performance of Ukraine and specifically you can see it in APPM increase. That was in Q3 which was partially relatively normal operations and partially impacted by the political turbulence operations in the end of Q3 in August and September. We cannot call these results totally sustainable, because we understand that since August the situation in the Eastern part of Ukraine where we yield very significant revenues has worsened for us and both calling pattern, MOUs and the subscriber base have deteriorated. We believe that this will be resulting in weaker results of the future periods in the specific territory of Ukraine, which is in the East, and that will make the results of the growth that we have achieved in the Q3 unsustainable for the future periods.

[Operator:]

(Operator Instructions) We’ll now take our next question from Alexandra Serova of Renaissance Capital. Please go ahead.

[Alexandra Serova:]

Two questions from my side, first on Ukraine. Can you please give us the amount of cash you currently have on MTS Ukraine? And do you have any understanding when MTS will be able to resume dividends from Ukraine band in late September? And my second question about subscriber growth in Russia, quite a substantial number in third quarter. Do you think it’s sustainable maybe you see subscribers coming on your network from VimpelCom or Tele2?

[Alexey Kornya:]

Let me take the first one. We have approximately US$200 million US$300 million in Ukraine and that we are not planning to raise those money in the anticipation of 3G auctions. And depending on the terms of this auctions and success and further regulatory environment, we'll consider further steps.

[Andrei Dubovskov:]

I will take question on the subscriber growth in Russia. While this is sustainable, this growth has happened for a prolonged period of time. As you can see, this almost 6 million growth comes from year-over-year results. And the sources of this growth is very versatile, so we cannot say that we have picked up majority of customers from Rostelecom or Tele2. And if we take a look at our MNP port-ins, we do not see a single source of the growth. The growth comes from the market. We believe that our products and services are uniquely positioned to be attractive for the mass customer in Russia throughout the regions and throughout different carriers basis.

[Operator:]

Now our next question comes from Igor Semenov of Deutsche Bank.

[Igor Semenov:]

Just quickly, what trends outside of this perhaps some sustainable growth in Q3 from a major boost in the subscribers that, I don’t know, my impression is that it is definitely not sustainable. But in a normal circumstances, what do you see from your existing subscribers? What kind of volumes do they generate? Do they continue to operate as normal or do you detect signs of a declining calling activity and volumes and perhaps less predisposition to take up bundles? Basically are corporates and consumers starting to save? Can you comment on that?

[Andrei Dubovskov:]

Igor, we do not see the tendencies or trends for savings or for decline in usage or for short cuts of the existing services by our customers, consumption by our customers. So we think that the consumption is sustainable. We believe that the base growth is relatively sustainable as well because we do not see any slowdown in the market in terms of sales even after the closing period of Q3. And we think in fact the macro situation might have an effect on roaming on some premium services, but the basic service where we make most of our money will be sustainable and we believe will be growing. By how much? Well, this is reflected in our guidance for the year-end 2014. We do not believe in some increase in growth, but we believe that the market will still be growing.

[Operator:]

(Operator Instructions) There are no further questions at this time.

[Joshua Tulgan:]

Okay. Then everyone, thank you very much for joining us on the call. We welcome you at anytime to contact our Investor Relations department for any further questions or clarifications. A webcast of this discussion will be available on our website if you wish to replay the call. In the mean time, we appreciate everyone’s interest and wish everyone a pleasant evening. Thank you.

[Operator:]

Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.