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MTS Denies Speculation of Capital Investment Reduction, VimpelCom Awaits Government Measures
|28 октября 2008|
Russia's leading mobile operator, Mobile TeleSystesm (MTS), has indicated that it will not make any reductions to its planned capital investment in the fourth quarter of 2008.
Alexei Kornya, company acting vice-president for finance and investments, is quoted by RosBusinessConsulting as saying that capital investment (which includes the investment in tangible assets, to which capital expenditure, or "capex", refers) will remain unchanged, but the terms of supply contracts may be revised. This statement follows a claim by parent company Sistema, earlier in October, that it would reduce capex amongst its subsidiaries by around 30% in the fourth quarter of 2008, although it did not specify how this would affect MTS. Kornya also indicated that proceeds from the placement of a company bond issue, due to begin tomorrow, will be used to refinance US$100 million of company debt in the fourth quarter and a further US$100 million debt in the first quarter of 2009.
Meanwhile, Russia's second-largest mobile operator, VimpelCom, has indicated that in preparing its 2009 budget it will wait to see whether any support is offered by the government before it announces any revisions to its investment programme. Chief Financial Officer Yelena Shmatova is quoted by RosBusinessConsulting as saying that VimpelCom's budget is due to be approved in December 2008.
Outlook and Implications
MTS Likely to Continue Heavy 3G Investments, Despite Financial Conditions: MTS's capex in Russia totalled around US$924 million in 2007, and with 3G network roll-outs under way it has previously pledged to direct around US$1.6 billion towards this area by 2011. In an age in which value-added data and internet services are crucial to revenue growth within the Russian mobile market, the roll-out of 3G services is a vital part of its outlook. MTS therefore appears to see continued investment in its 3G roll-out as the right move at this moment, despite the current financial downturn and even though its parent company has decided that capex reductions are currently expedient. The effects of the credit crisis on MTS are nevertheless being seen with its confirmation that it will alter the terms of supply contracts and use proceeds from its bond issue to refinance debt.
VimpelCom Expecting State Aid: The statements from MTS and VimpelCom are further indicative of the effects of the global financial crisis on the Russian telecoms market. In recent weeks a number of developments have illustrated some of the problems that have arisen. Notably, leading mobile handset retailer Euroset had to be sold, because of its inability to refinance its debt, while the proposed merger of MTS and Comstar, which was to have created a converged services behemoth to rival the new VimpelCom-Golden Telecom vehicle, has been postponed, apparently because of MTS's need to raise up to US$4 billion in debt. The Russian market has also witnessed the reduction of capex amongst a number of the regional units of national fixed-line holding Svyazinvest. As Svyazinvest is 75% minus one share state-owned, however, it is unlikely that the Russian government will allow any of these units to face insurmountable financial difficulties. The capex cuts being planned by these operators are likely to be in the areas of service quality improvements, such as investments in network digitalisation—and as such these moves will not massively affect revenues. Both MTS and VimpelCom may also consider cutting costs in areas which are unlikely to affect revenues, which suggests that reductions in spending on 3G services will not be on the agenda. Although neither operator is state-owned, VimpelCom has made clear that, as a one of the leading telecoms operators in the country and surrounding region, it expects some state assistance. As such, some sort of regulatory measures can be expected before the end of the year.