Mobile TeleSystems Public Joint Stock Company
Q4 2014 Earnings Call Transcript

Published: 17 Mar 2015

[Operator:]

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

[Joshua Tulgan:]

Thank you very much and welcome everyone to our conference call today to discuss our Fourth Quarter and Full-Year 2014 financial and operating results. As always before beginning this discussion, I need to remind anyone that except for any historical information, comments that are made during this call may constitute forward-looking statements which may involve certain risks. These statements 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 fourth quarter and full year 2014. Joining me today are Alexey Kornya, Vice President and Chief Financial Officer; and Vasyl Latsanych, Vice President, and Chief Marketing Officer. For the quarter, group revenues increased by 2.3% year-over-year to RUB 107.2 billion. We delivered strong revenue growth in our business units in Russia and Turkmenistan, but saw a slight decline in Armenia, and sustained weakness in our operations in Ukraine due to macroeconomic and political factors. Overall we saw a sign of strong macroeconomic headwinds, but for reasons we’ll discuss during this call, we remain cautiously optimistic in our markets and our outlook. In Russia, we continue to outperform the market and strengthen our leadership. In Q4, revenue grew 4.5% year-over-year. For the year Russia revenue increased 5.6%. The key drivers include network improvements through the build-out of LTE networks in 76 of the Russia's regions; development of our 3G networks and the roll-out of fiber-optic lines across the country; the market’s leading offerings in integrated voice and data tariff plans; and strong retail operations which allow us to promote sales of high quality, affordable smartphones and tablets. Though we delivered solid performance for the year, our business is not immune to macroeconomic developments in the region. So we remain cautiously optimistic based on the integrity of our markets, strategic approach, and financial policies. We can’t ignore the risks that sustained economic weakness may present to our financial and operating results. I’ll elaborate on these points later, but now Vasyl Latsanych will view our business unit performance.

[Vasyl Latsanych:]

Good day, ladies and gentlemen. In Q4, we continued to capitalize on trends we’ve seen from previous quarters. In Russia, revenues increased by 4.1% year-over-year to RUB 98 billion. Revenues in our core mobile business improved 4.5% year-over-year due to customer migration from feature phones to smartphones by focusing on data in our marketing communications and work closely with handsets, vendors and create unique products in the market. The success of our Smart family of tariffs which allows us to upsell existing subscribers of data plans with higher tariff allowances. The growth of messaging services due to increase of sales of SMS packages, strong subscriber additions as we increased our subscriber base by roughly 5 million subscribers year-over-year, and finally affecting high-quality subscribers as showcased by the lowest level of churn in the market. At the end of December 2014, we acquired three regional assets of SMARTS to strengthen our presence in the Penza Region, Ivanovo Region, and Bashkiria, and leverage ample frequency resources in 1800 MHz range in these regions. Sales of handsets and accessories increased by 16.8% year-over-year to RUB 9.1 billion. The growth was attributable to the expansion of our proprietary retail chain by over 200 point-of-sales. It was aided by a sharp uptick in Q4 2014 sales as customers purchased high-end models of smartphones due to ruble volatility. Fixed line revenues declined by 4.5% year-over-year and 1.2% for the year. A number of one-off projects in Moscow at our MGTS subsidiary in 2013 accounts for these weaker year-over-year performance. However if we neglect these B2G projects, we do see an organic increase in revenues driven by modernization and expansion of our networks in the regions as we replaced outdated ADSL lines with FTTB connections, growing penetration of double play and triple play products in our base, migration of pay TV subscribers from analogue to digital TV platform and migration of ADSL subscribers in Moscow to GPON, and additions of new GPON subscribers in B2C and B2B segments. Year-over-year, we delivered an increase in residential ARPU of 6.9%. We attribute this growth to network enhancements, improvements in customer service, and our focus on increasing the share of double and triple play customers in the base. In Q4, we again saw a decline in our subscriber base due to a defection of so-called social package and lower value subscribers in the region. In Ukraine, our revenues remained under pressure due to the problems of our business in Crimea and continued disruption of Eastern Ukraine. As we disclosed previously, we ceased business activity in Crimea which accounted for 10% of our business in Ukraine. Q4 was the first quarter during which this was truly visible. Overall, we saw a revenue decline of 6.7% to UAH 2.3 billion which implies significant organic revenue growth year-over-year. And in fact for the year, revenues grew by 1.1% to nearly UAH 10.1 billion. In Armenia, revenues declined slightly by 1% year-over-year to AMD 19.6 billion. The revenue dynamics were largely driven by a sustained decline in international calling due to macroeconomic factors. In Turkmenistan, revenues improved by 5.3% year-over-year to TMT 75.6 million. The growth was attributable to higher usage of data and content services. Our focus in this market has been to use the network enhancements to better monetize customers, improve customer experience, and introduce the same tariff concept that have been successful for us in Russia and Ukraine. On December 01 2014, we launched operations throughout the territory of Uzbekistan. By the end of the month, we’ve almost 200,000 subscribers on our network. We remain focused on offering reliable connectivity and quality service, but for now it is too early to offer a forecast for the market growth. Now Alexey Kornya will further discuss the group’s profitability and financial performance.

[Alexey Kornya:]

Thank you, Vasyl. In fourth quarter of 2014, we witnessed both seasonal weakness and a number of one-off factors in our operating income. For the quarter, our Adjusted OIBDA declined 5.3% to RUB 42.6 billion. As Andrei suggested earlier, we see a number of negative factors threaten our profitability. The negative dynamics [affect] our markets of operation including higher sales of handsets in Russia during the period; the impact of hryvna and ruble volatility on our operating expenses, including international roaming and calling; increased taxes and spectrum fees in Ukraine; the effects of a planned salary increase implemented in September 2014; rising G&A costs due to the enhancement of our mobile and fixed networks in Russia and inflationary pressure; and costs related to the launch of our operations in Uzbekistan. Overall, this translated to an OIBDA margin of 39.7% for the quarter. Nevertheless for the year, group Adjusted OIBDA was up slightly to RUB 175.5 billion, a strong sign of the strength and efficiency of the organization and our market. In Russia, the fourth quarter OIBDA year-over-year increased by 0.5% to RUB 41.3 billion. We continue to benefit from sustained growth in mobile service revenues, and increased contribution from high-margin data revenues. Positive trends were offset by inflationary pressure, and the impact of ruble devaluation on costs denominated in foreign currencies, primarily related to international roaming and international calling. High handset sales too drove our margin lower. On a quarterly basis, OIBDA fell by 9% due to seasonal factors, including lower revenues from roaming, and the impact of few working days and the periodic increase in payroll. The OIBDA margin came in at 42.1%. In Ukraine, we saw Adjusted OIBDA decline by 24.5% year-over-year to UAH 964 million with the margin of 42.3%. This figure excludes the results that were booked due to the insolvency of Delta Bank. The decline in OIBDA reflected revenue trends, increased taxes and frequency fees, higher payroll, electricity and site rental costs, and the impact of the currency devaluation on the cost items including roaming and SIM cards denominated in foreign currencies. In Armenia, OIBDA surged to -- by 72% year-over-year to AMD 9.1 billion with a margin of 46.6%. The growth can be counted for by an increase in termination rates with MTS Russia in December 2013 which negatively impacted the OIBDA in the fourth quarter of 2013, and the impact of regulatory decision to hike termination rates for international calling starting from the third quarter of 2014. In Turkmenistan, OIBDA fell by 30% year-over-year to TMT 30.4 million with an OIBDA margin of 40%. This decline in OIBDA reflects one-off increase in OIBDA in the fourth quarter of 2013 related to the cancellation of reserves due to liquidation of BCTI, a former MTS subsidiary in Turkmenistan. For the period, net income fell year-on-year to RUB 1.6 billion. Beyond trends our adjusted OIBDA, as Alexey elaborated earlier, we see some other extraordinary factors influencing our bottom line. We booked a reserve for RUB 5.1 billion based on UAH 1.4 billion held in DeltaBank, which was declared insolvent in early March. We also recognized an impairment of our stake in MTS Bank in the amount of RUB 3.1 billion in the fourth quarter of 2014. And we realized a gain in the amount of RUB 3.2 billion from a reentrance into Uzbekistan in the fourth quarter of 2014. For the period, we recognized a Forex loss of roughly RUB 9 billion due to the impact of ruble depreciation of our non-ruble debt portfolio. Many expected a higher figure, but we realized the RUB 15 billion gain from a fully-hedged US-denominated debt facility of about $700 million. And we prudently made a few long-term hard currency deposits that offset us about another RUB 10 billion of losses. Additional factors impacting our net income include the performance of our associates. Despite the operating challenges through our operations, MTS continues to generate significant operating cash flows. Exclusive of one-offs, as well as investments in associates and acquisitions of subsidiaries, operating cash flow from continuing operations improved 1.8% compared to 2013. This led to a strong free cash flow of RUB 57.0 billion which on the surface represents a decline from 2014, but in fact on an organic basis comes in roughly stable. In the second half of 2014, we [estimated] the significant demand of CapEx for 2015 which will deliver us a cash expense that is accounted for in 2014 free cash flow. We also had great M&A activity than in 2013 with the purchase of a stake in OZON, the acquisition of regional assets from Smart, and our participation in additional share issuance of MTS Bank. For the year, total debt increased by 33% and amounted to RUB 292 billion. We did draw an additional RUB 25 million from a non-revolving line of credit opened with Sberbank in the fourth quarter. But the primary factor for the increase in the value of our debt portfolio is the reevaluation of the US-denominated and euro-denominated portion of debt due to a ruble devaluation at the end of the year. I remind you that MTS has [indiscernible] bonds, our 2020 lots and 2023 lots which have long-term maturities, while in other about $700 million US-denominated debt has been hedged into rubles since 2013. Combining both the drawings and reevaluations, our net debt to last 12-months OIBDA ratio rose from under 0.9 in the third quarter of 2014 to 1.1 in the fourth quarter of 2014. However this ratio still remains low by industry standards beyond amortized debt and coupon payments, our only principal obligation for 2015 is a put option on a RUB 15 billion bond that comes due November. Even in this challenging environment, we still retained significant balance sheet flexibility and do not foresee any risks on our balance sheet for the year.

[Andrei Dubovskov:]

Thanks, Alexey. In February, we successfully bid on the MTS license which will allow us to finally launch 3G services in Ukraine. As we disclosed earlier, the price we paid was UAH 2.7 billion. We’re not yet ready to announce investment plans, but as we indicated to the media, license requirements dictate that we anticipate spending to be in the hundreds of millions of dollars. This is a one of a number of challenges we’ve been presented over the past year. Perhaps, no other company has faced at one time so many broad challenges

[Operator:]

[Operator Instructions]. We’ll take our first question from Alex Kazbegi from Renaissance Capital. Please go ahead.

[Alex Kazbegi:]

The first question would be maybe on the CapEx and its relevance also to, if you could basically just give us a bit of a color in terms of where do you plan to spend it, most of it? And as far as I understand, the Ukraine you mentioned that it's not yet to say the investments in Ukraine on a CapEx side has not been yet formalized. Does it mean that the CapEx guidance is at the moment, then it can actually increase once you decide how much you want to invest so to say in Ukraine. And maybe you can give us a bit more color on the whole 3G, so the CEO, your sort of say vision of when and how to launch 3G in Ukraine? And my second question would be just on the general so to say your outlook in terms of, where do you see potential increases in revenues in Russia? Is it still continued subscriber growth? Is there a room for a tariff increase? Do you see growth from the data usage as you can see now? And maybe you can give us also some idea of what’s happening with the smartphone sales at the moment in terms of units or price per unit as well would be great. Thank you very much.

[Alexey Kornya:]

Thank you, Alex for the question. As far as CapEx is concerned, we mostly invest of course predominantly now in the development of our data networks and in particular, we’ll have [2G] and 3G investments dominating in our CapEx. Also we’re finalizing our GPON projects in Moscow. But most of that already is related to the customer equipment or ending equipment. So that will have to be a direct translation in revenues. And also some limited investments in [transfers] network. However about 80% of our CapEx will be in data networks through our geographical presence. And we do indeed note that our CapEx guidance does not include yet the 3G project from Ukraine. We’re finalizing that one. We’re looking at options for the vendor financing in respect of this particular investment. That is why we believe that it will have a limited impact in our 2015 figures. However as soon as we’ll finalize our plans in respect of 3G investments in Ukraine, we’ll specify our guidance for the CapEx overall. Yet this does not mean that we anyhow will delay our launch of 3G in Ukraine. We’ll fully launch that in building up and rolling out 3G products and networks in Ukraine in order to provide you know the data services to our customers.

[Alex Kazbegi:]

Sorry, just on the timing on the Ukraine. I mean do you have a timing in mind, when do you launch you know 3G?

[Alexey Kornya:]

Well, I think we’ll have to yet you know finalize our plans for the project and not at this point of time.

[Alex Kazbegi:]

But it’s still for this year?

[Alexey Kornya:]

Yes.

[Alex Kazbegi:]

Yes, Vasyl Sorry.

[Vasyl Latsanych:]

Your second question was regarding the markets in Russia and the foreseeable development of it. Well first of all, the tariff increase matter is a very sensible matter in any markets, and in Russian market as well. So we’re very cautious about doing anything radical to the tariffs, even non-radical is a question mark. Meanwhile we do believe that we’ve collected a very good bundle of sources of potential growth even in the weaker economy which we’ll face throughout 2015. First of all, this is LTE services. At the moment, we have built most of our LTE network of about 15,000 base stations in 3G high speed and 4G network. And that means that the base stations just rolled out. And we’ve seen the 50-fold increase in our traffic throughout 2014 which was just the pipeline effect. And we’re expecting relatively quick filling in of these pipes in the LTE. So eventually our LTE utilization of the network is very well at the moment, and we’ll see increase of the utilization of the traffic throughput and respectively the increase of the bundles and the ARPUs of our customers. The smartphone sales, you’ve seen in the reports and I’ve mentioned the high smartphone sales in Q4 of 2014, which was rather a bounce back from the macro economy, when people wanted to invest their devaluating rubles into something tangible. And they bought some high-priced high-end smartphones. We should not expect that to continue long term. We should see more people focusing on mid-level and even low-level smartphones. And we see our task is to promote affordable 4G smartphones, which we’ll be right now running a campaign of 4G for the price of 3G phone in the market and throughout the whole Russia. Well in terms of units and prices, we think that the units will remain at the levels of 2014 for the first three quarters. And the price will likely go down in average, but not dramatically. The other source of revenue increase is the fixed line and TV business. As we’ve seen a good trend in the second half of 2014, we count on this trend to develop, and as we’ve seen an increase in ARPU despite of some decrease of the customer number which was, as I mentioned due to some of the social package that customers drop out, we believe that there is a good background for growth in TV and fixed line throughout Russia and specifically in Moscow, where we’re finishing the MGTS modernization to GPON this year. And the other one again to work on the tariff plans. We’ve unfolded our strategy of V&D tariff plans, the so-called voice and data bundle tariff plan drive in Russia. And we see the penetration increasing throughout 2014, and we’re putting more efforts in 2014 to make it the biggest driver which will ensure the higher and most stable ARPU for more of our customers. Thank you.

[Alex Kazbegi:]

How many of B2C customers you have on bundles now?

[Vasyl Latsanych:]

Well in terms of the quantity, I can’t say. But in terms of the percentage points, it’s still below 20% and we think that it should go pretty dramatically up in 2015, and continue into 2016.

[Operator:]

We’ll now move to Herve Drouet from HSBC. Please go ahead.

[Herve Drouet:]

Two questions on my side. Firstly in the fixed line business in Russia, can you give us a bit more color about corporate projects? I know that and especially government projects, I know that last year you had significant projects, government projects you were able to book in the fourth quarter last year. I was just wondering why similar projects could not have been repeated, and looking forward do you believe the current macroeconomic environment in Russia is such that you are likely to see less government projects? And do you think as well on the corporate side, on corporate spending we might see as well a similar trend? And the second question is on CapEx. Can you remind us out of your current CapEx, how much of it is in hard currency? And what assumption you’ve taken in terms of exchange rates, US dollar to ruble for instance for your current CapEx guidance? Thank you.

[Vasyl Latsanych:]

This is Vasyl, again. The B2G projects that you mentioned, we had a luxury to draw them in the end of 2013. And as you’ve seen in our reports, in 2014 we had less of them. That was before, basically before the economical turbulence occurring in Russia. So we don’t attribute it to any macro-economical factors, but it's just sort of seasonality when some of these big tenders, some of these big orders come, we fulfill them. And then the next one not necessarily come in the same period in the year or so. But for 2015, we don’t expect any huge orders. We don’t have any big pipelines going on right now for such orders. So we should expect the performance in 2015 to be alike 2014, rather than the year before.

[Herve Drouet:]

Okay, alright. And are there any [read-across] or any trends you’ve seen in terms of corporate spending of your corporate clients? I mean is it more difficult to get monetization from the corporate. At the moment, this is a consumer segment or is it the reverse or?

[Vasyl Latsanych:]

Well, if you mean the fixed business, there is no big difference. I would even say in the mobile business, there is no great difference so far, because you know we’re facing a huge scrutiny, and a lot of tenders every year fro big corporations, and from the government sector. And I don't think it will ease up this year. It will likely be at least the same or even more pressure put on us. But believe me, we’re living under that pressure for years and years for now.

[Alexey Kornya:]

And speaking on the second question, speaking about our CapEx. We used to have about half of our, or roughly slightly less than half of our CapEx in hard currency denominated. After the ruble devalued, this share of course increased, and we were approaching by the end of the year about 70% to 75% of our CapEx being linked to hard currency. However, we’re working with our vendors on limiting our exposure to any hard currency fluctuations. And including some, it is limited currency clause in most of our contracts. Thus we believe that this exposure will decrease, and we’ll still be about 50% to 60% on our CapEx dependent on hard currency.

[Herve Drouet:]

And just a follow-up. I mean, is there any assumption you’ve taken for --forward FX, looking forward in terms of ruble to the US dollar. Is there any particular FX you’ve in mind for 2015?

[Alexey Kornya:]

Yeah we’re coming from the assumption slightly below 70 average for the year.

[Operator:]

We’ll take our next question from Ivan Kim from VTB Capital. Please go ahead.

[Ivan Kim:]

Two questions please. The first one looking at Russia, at Russian growth. If you were to break down 3% or higher growth for Russia in 2015 into segments, B2C and B2B-B2G, what that would look like? That's the first thing. And then secondly, with regards to Ukraine, do you consider any exit options or partial monetization of Ukrainian business. And if yes, did you make any progress on that recently? Thank you.

[Vasyl Latsanych:]

Ivan, this is Vasyl. I’ll take the first question. The growth in 2015 will predominantly come from B2C segment as we see more potential for growth in the B2C for over the years. B2B is a very difficult segment to grow, and it is more about defending our initial strong position in the B2B business across the Russia.

[Andrei Dubovskov:]

We consider Ukraine, speaking about the second question. Yeah, let me finish with the second question. We consider Ukraine being a geography of our strategic presence, and we’re committed to investments in Ukraine and the last 3G auction just controls our region. That is why currently we’re not considering exit options from Ukraine, and we’ll continue looking it as well, continue operations there looking for that market of our strategic presence.

[Ivan Kim:]

And just a quick follow-up on that B2B-B2G, but do you think that B2B actually will go down in 2015?

[Andrei Dubovskov:]

Well, I can’t say it would go down. I would say, we will make all that's possible to make it sustainable and at least flat. But given the volatile macro, we may be facing more difficulties than we expect.

[Operator:]

We’ll take our next question from Alex Balakhnin from Goldman Sachs. Please go ahead.

[Alex Balakhnin:]

Three questions from me, if I may. It shouldn’t be long. The first question is a clarification. In your guidance, you referred to the revenue growth of, you say revenue may increase over 2% to 3%. This may, and is it may or not or what exactly do you mean? My second question is on the margin dynamics. In the fourth quarter you referred to the rising general and administrative costs related to announcements of your mobile and fixed networks in Russia. What exactly those costs relate to? And lastly on the dividends, you reiterate your at least RUB 90 billion dividends for 2014 and 2015. But since 2011, you’ve been on the growing dividend trajectory, and well we know how much have you paid in 2014. It’s around RUB 50 billion. Does your dividend guidance imply that you may pay 40 in 2015, RUB 40 billion or you’ll rather stay on the projected -- progressive dividend trajectory paying at least as much as you paid in 2014? So your overall thinking about your shareholder remuneration and again, you’ve been very generous so far, that will be very helpful. Thank you.

[Andrei Dubovskov:]

I think Alex, on your questions. In our guidance, there is a specific paragraph which just stresses that currently we see significant market economic uncertainty, and volatility across its markets, also durations which may cause MTS to revise its revenue in the [B2G] guidance, and in term [pass] this financial operational results. Thus this may refer specifically to this paragraph in the periods of high macroeconomic volatility, and uncertainty. As for the cost pressure coming from ruble devalue and related to maintenance CapEx, there is a certain part of the CapEx which relates to software maintenance. That is dependent on hard currency moves, and which is somehow linked to either dollar or euro. Thus we are dependent partially, because if we see about some maintenance costs, we do depend on the hard currency moves. And in respect of the dividends, we just reiterate our dividend policy, and our dividend policy implies that at least 75% of our free cash flow ought to be distributed in the form of dividends, that is that you know the minimum requirement related to our dividend. So the minimum forecast which you can assume is, you know it’s stable, pretty much stable level of dividends in 2015 comparatively to 2014.

[Alex Balakhnin:]

But your free cash flow in 2014 was RUB 57 billion, right and that implies that the total dividend for 2014 payable in 2015 maybe in the range of let's say RUB 40 billion to RUB 42 billion? Or I am too conservative, and you would rather stay on the -- well pay at least as much as you paid last year?

[Andrei Dubovskov:]

Well our policy is that this resource, at least our [loan] adjusted free cash flow is RUB 66 billion. Thus overall, we would suggest to orient towards the stable level of dividend payout in 2016.

[Operator:]

We’ll now take our next question from Alexander Rozhetskin from UniCredit. Please go ahead.

[Alexander Rozhetskin:]

I’ve a couple of questions around your debt if I may. Firstly, if you could please discuss, and shed some light into what exactly is included into hedging of the non-ruble debt that allows you to reduce your net debt by, I think it was RUB 21 billion? Secondly how comfortable MTS is with its current level of total debt? If I'm not mistaken, it’s at its full-year highest, and following that if you’ve any plans of possibly any debt buybacks from international markets? Thanks.

[Alexey Kornya:]

Thank you. When we talk about hedge of our debt, we refer to two particular instruments. We’ve simple cross-currency swaps on one of our debt facilities, around $700 million, which we’ve since 2013. And we also use the hedging through building an asset position in hard currency. And this is where we realize those in other portion of the gain, which I mentioned in my speech. So about RUB 15 billion gain we realized on cross-currency swaps, and about RUB 10 billion from hard currency deposits over the fourth quarter. As far as the hard currency or as far as the overall level of debt concerned, you know we’re comfortable with our debt level. I would say that to have that high level of debt is a conscious decision. Because if you look at our net debt position, it is quite modeled. So we’ve a strong liquidity cushion, which is well justified and even brings us some positive carry in the period of uncertainty and volatility in the markets. We’re not planning any buybacks at this point of time. Because any hard currency debt has very long-term nature. We don’t see any point in substituting long-term debt with the shorter-term debt while we’re very comfortable with our current level of cost of [normal] debt.

[Alexander Rozhetskin:]

Thank you, just a follow-up on your short-term debt. If you could shed some light into how much are you planning to refinance, and how much would you like to repay from current short-term debt position?

[Alexey Kornya:]

Well, if you look at -- in the presentation, we’ve very moderate levels and very equal distribution of our debt repayments. So it’s equally distributed over the next three to four years. And for this year, it comes at about RUB 40 billion including put options, and which part of that will be refinanced depends on the particular market conditions. In the period, most of them -- most of that debt comes to maturity in the fourth quarter. So whether we’ll refinance or prolong depends on the particular debt market conditions at the period of time.

[Operator:]

We’ll now move to Anna Lepetukhina from Sberbank.

[Anna Lepetukhina:]

First of all, I just wanted, is it possible to break down CapEx in 2014? Because I'm just trying to understand, as far as I understand you’ve accelerated investments into GPON because previously you were planning to finish it in 2015. You also prepaid for equivalent for 2015, and therefore I mean besides the break down between fixed line and wireless business, I am also just trying to understand how much you actually invested? Because it looks to me that you invested into 4G kind of less than you previously anticipated. But at the same time you're saying that you are on schedule for the 4G network rollout. So can you maybe explain what has been done and how you were able to achieve this? And my second question is, you mentioned that you expect LTE services to drive revenues in 2015. And I am just curious, what makes you confident that in the current market environment, people will be kind of willing to increase spend on premium services? Or you consider that kind in Russia, LTE services is already a mass-market product that people will be willing to pay for? Thank you.

[Andrei Dubovskov:]

This is Andrei Dubovskov. Thank you for your question. Talking about your question on the capital expenditure. We’re not waiting for a radical decrease in our capital expenditure in terms of 2015 and because you know, that we need to finalize our GPON projects. So we explained to this issue, well let me remind you that till the end of 2014 we reached approximately 4 million households in Moscow, but that's not enough. Because the full cover in Moscow include 4.4 million households, and of course we need to finalize our project. At the same time, the main volume in our capital expenditure is for LTE development. And this is a question of the good balance between the speed of our construction, and the speed of 4G devices penetration in our subscriber base. And in my opinion right now, it's a normal good balance. If we’re going to decrease the speed of our LTE development, it means that in one, two years later we’ll face the problem for our LTE subscribers, how they can use their LTE devices. And the second question, let me let Alexey talk about it.

[Alexey Kornya:]

Yeah, we believe that the value of the services which we provide is higher than the price of those services. That is why there will be a stable demand for data usage and data consumption, which reflects the relatively lower elasticity on the services which we’re providing towards the price. Yeah, there is some elasticity towards you know the competitive pricing if you do the comparison. However in terms of overall consumption, we see that there is a formation of new kinds of patterns of behavior, new habits. And that will stimulate the growth in usage and data consumption. Of course, if you look backwards to the penetration of smartphones and cell phones overall, it does not -- and that much depends whether what level of disposable income, what dynamical disposable income you’ve. You’ll still any way have mobilization of your population and growth in the customer subscriber base. Still, we believe we’ll see the trends in the market with respect of data services and particularly high speed data services to which LTE and 3G relates. But that gives us confidence in organic growth of data usage, and potential for growth in revenues in the coming year. And that's what we saw back during the crisis of 2008-2009. We saw a strong uptick in the consumption of 3G services, data growth. And that is why we believe that the dependency on you know kind of macroeconomic development although is there, but limited.

[Operator:]

We’ll take our next question from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Could you please outline your revenue performance less Crimea in Q4 2013 and Q4 2014? Thank you.

[Andrei Dubovskov:]

Sorry, we didn’t quite get what was the question? Can you repeat please?

[Unidentified Analyst:]

Sure, could you please outline your revenue performance year-over-year in Ukraine less Crimea excluding the results of [indiscernible]?

[Andrei Dubovskov:]

You know, in the fourth quarter we’ve fully deconsolidated Crimea from our financial performance in Ukraine. Thus the performance which you can see in the fourth quarter is you know reflective of ex-Crimea operations. As far as you know, what is the share of Crimean operations? I think in the speech it was outlined that it used to be about 10% of our overall Ukrainian operations.

[Unidentified Analyst:]

So basically to reflect the year-on-year without Crimea in 2013, we get to exclude the 10% of the total revenue? Yeah, am I right?

[Andrei Dubovskov:]

This is a very vast estimate. We’re not disclosing any specific figures. That is why we’re just guiding in the direction in which you can look.

[Operator:]

[Operator Instructions]. We’ll take our next question from Igor Semenov from Deutsche Bank. Please go ahead.

[Igor Semenov:]

Can you talk a little bit about the key trends in Q1 so far? And obviously data growth decelerated quite significantly in Q4 relatively to the previous three quarters. So is this trend of about 14% to 15% growth, is it still sustainable or is it further decelerating, and what is the dynamics on the voice side? And this is about the Russian mobile services. Thank you.

[Andrei Dubovskov:]

Igor, it’s Andrei Dubovskov. Thank you for your question. So from my opinion, 27% growth of data revenue in Q4, that's not a new trend. That's not a trend of decreasing of our speed, because you can compare these numbers with our competitors which shows us approximately the same growth in previous quarters. In my opinion, we need to take into account that the big numbers like 36% growth of data revenue in full year is more important for the explanation of what does it mean to normal data growth in Russia. And okay maybe in 2015, it will be a little less, a little more, 35% 42% to [18] 28 but that does mean that it’s some deceleration or it’s a trend. Thank you.

[Igor Semenov:]

Yeah, sorry, I was looking at the total non-voice rather than data. Okay, but on the voice side, is the trends in Q1 so far --

[Alexey Kornya:]

Yeah, so speaking about the voice revenue, it's more or less at stable level. But you know our target, it’s a full substitute of our voice revenue by data revenue. And let me remind you that we promote our voice and data tariffs for the year. And we’re going to carry on in 2015 of course. Thank you.

[Operator:]

[Operator Instructions]. For your information we’ve no questions signaled at this time.

[Joshua Tulgan:]

Operator, thank you very much. Ladies and gentlemen, then this concludes our call. We appreciate your attention and welcome you at any time to contact our Investor Relations department if you have any further questions. A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, we appreciate everyone's interest and wish everyone a pleasant St Patrick's day. Thank you.

[Operator:]

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.