Mobile TeleSystems
(MBT), Eastern Europe’s largest cellular operator, announced results for third-quarter 2009 with earnings per ADS of $1.31 exceeding the Zacks Consensus Estimate of $1.17. Net income, however, dipped 4.1% year over year to $494.4 million on lower revenue and higher interest expenses on US dollar denominated debt. 

Revenue, ARPU & Churn 
Consolidated revenue declined 19.4% year over year to $2.27 billion, affected by the macroeconomic volatily across key markets and unfavorable exchange rate (rouble versus dollar) movements which hurt the company’s dollar-denominated revenues. On a geographic basis, revenue increased in Russia (7.2% year over year) and Turkmenistan (113.2%) while declining in Ukraine (1.7%), Uzbekistan (1.9%)and Armenia (3.1%).
In Russia , churn (customer switch) increased sequentially and year over year while ARPU (average revenue per user) increased from the previous quarter but declined year over year. Churn at Ukraine declined year over year while increasing sequentially. ARPU at Ukraine increased both sequentially and year over year basis. 

Subscriber and Market Share
The company added approximately 1.86 million customers in the quarter (down seqentially), primarily driven by healthy subscriber growth in Russia which registered 1.28 million in net additions. Outside Russia , subscriber base grew in all markets except Ukraine which remained flat year over year. At the end of the quarter, the company served approximately 101.4 million subscribers (68.7 million in Russia ), up 10.5% year over year. 

The company continues to maintain its leadership position in most markets it serves. Market share in Russia , Turkmenistan and Armenia remained stable sequentially but declined in Ukraine, Uzbekistan and Belarus. 

The company has provided its guidance for fiscal 2009 with consolidated revenues expected at $8.25 billion while group OIBDA margin is forecasted in the high 40% range. Estimated capital expenditure for the year is $1.8 billion (up from $1.5 billion) which includes investment in 3G network infrastructure and expansion of proprietary retail distribution network. 

Mobile TeleSystems is expanding its 3G network footprint through commercial service roll-outs in selected cities of Russia and surrounding countries. It plans to spend up to $1.6 billion on 3G network upgrades in Russia through 2011 to provide high-speed data transfer services to its customers. The company is securing financing from international lenders to fund the aggressive 3G network deployments. 

The company continues to pursue acquisitions and strategic collaborations to strengthen its “mono-brand” mobile retail network while implementing cost optimization programs to lower operating expenses. To further strengthen its retail distribution network, Mobile TeleSystems acquired 100% stake in Russian mobile retail chain Teleforum in October 2009. The mono-brand retail initiative is expected to provide the company a competitive edge over its archrival VimpelCom (VIP). 

While expansion of 3G network represents a critical growth driver, associated expenditures to support network deployments and promotional initiatives may tighten free cash flow and margins. Moreover, competition, foreign exchange exposure, regulatory challenges and macroeconomic volatility in Russia and sourrounding countries warrant a cautious view on the stock.
Read the full analyst report on “MBT”
Read the full analyst report on “VIP”
Zacks Investment Research