Russian Wireless Provider VimpelCom Beats Q2 Expectations As Usage Soars

Russian Wireless Provider VimpelCom Beats Q2 Expectations As Usage
Soars
Reinhardt Krause
Thu Aug 30, 7:00 PM ET


Wireless phone company Vimpel-Com, sparked by surging mobile usage in
its home market of Russia and some central Asian markets, on Thursday
reported second-quarter profit and sales that beat expectations.


The company, whose U.S. shares have been a top performer for the past
year, said its net profit jumped 84% from the year-earlier quarter to
35 cents a share, or $359.3 million, from 19 cents. Analysts polled by
Reuters had forecast net profit of $324 million. The company said
sales rose 53% to $1.7 billion. Analysts had expected $1.68 billion.

VimpelCom's (NYSE:VIP - News) U.S. shares rose 6.8% to an all-time
closing high of 24.73.

While subscriber growth has slowed in Russia, VimpelCom's customers
there are burning up more minutes on mobile phones and sending more
text messages.

"An outstanding quarter, particularly in Russia and Kazakhstan," said
Rhys Summerton, a London-based analyst for Citigroup. "They performed
very strongly on the usage side. They're getting more usage from
existing customers."

VimpelCom, controlled by Russian conglomerate Alfa Group and Norwegian
phone company Telenor, has expanded from Russia into neighboring
countries Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia and
Armenia.

About 85% of its customers are in Russia, where most people now have
mobile phones.

"The name of the game now for VimpelCom is getting more money out of
the subscribers they've got," said Simon Baker, an analyst with
research firm IDC.

VimpelCom's second-quarter revenue in Russia, including much higher
tariffs on connection fees to landline phones, jumped 43% to $1.46
billion.

In Russia, VimpelCom's is the No. 2 wireless carrier behind Mobile
TeleSystems (NYSE:MBT - News), which is slated to report results on
Tuesday. Heartened by VimpelCom's showing, Mobile TeleSystems' U.S.
shares rose 2.7% Thursday to 65.40.

VimpelCom's market share in Russia has slipped to 31% from 33.4% over
the past year. VimpelCom has 40.1 million Russian subscribers, up only
5% from a year earlier.

In Kazakhstan, though, VimpelCom ended the second quarter with 3.86
million customers, up 75%. Net income in Kazakhstan climbed 49% to
$16.4 million.

In Ukraine, it posted a second-quarter loss of $17.2 million. In
Ukraine, VimpelCom has 1.82 million customers, up from 473,000 a year
earlier. VimpelCom has sharply lowered prices in Ukraine to gain
market share, says Gemma Bunting of research firm Informa.

Aside from sharing VimpelCom, Alfa Group and Telenor also jointly own
Kyivstar, a wireless firm in Ukraine. They aren't happy partners. Alfa
Group and Telenor engaged in a bitter battle over control of Kyivstar.
In U.S. federal court, Telenor has charged that Alfa Group upped its
stake in VimpelCom through insider trading involving other Alfa
firms.

Alfa now owns about 44% of VimpelCom, Reuters says. Russian law limits
Telenor's stake in VimpelCom at 30%. If Alfa hikes its stake to 50% of
VimpelCom, its governance rules might be affected, analysts say.

"There's bad blood between Telenor and Alfa," said IDC's Baker. "In
the end, there has to be a deal between them to untangle things."

Alfa Group, controlled by Russian tycoon Mikhail Fridman, has been
eyeing wireless assets in southeast Asia, such as Indonesia and
Vietnam, analysts say. Alfa Group acquired a small wireless firm in
Cambodia in early August.

Bunting says Alfa Group may be planning to acquire wireless assets on
its own and combine those with VimpelCom down the road.

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