VimpelCom's 2009 Revenue Slumps 14% Despite Broadband Growth, Kyivstar Merger Approved by Ukrainian Regulator

CIS integrated operator VimpelCom has announced that in 2009 its net operating revenues dropped 14% on the year, to US$8.703 billion, although in rouble terms there was a 10% year-on-year (y/y) increase in consolidate revenues, to 235.4 billion roubles. Net profit was up 114% y/y to US$1.122 billion, helped by a 68.3% decrease in capital expenditure (capex) to US$814.1 million, which VimpelCom has attributed to its ability to utilise sizeable investments made in 2007 and 2008, including the acquisition of Golden Telecom’s networks. In operational terms VimpelCom increased its mobile subscriber base to 64.596 million, and its broadband subscriber base by 84.8% y/y, to 2.257 million.

Outlook and Implications

• Healthy Broadband Performance in Russia, Further Growth Likely in 2010: Within its domestic Russian market VimpelCom has continued to add subscribers, adding 3.209 million despite a penetration level in Russia that had reached 147% by end-2009. The operator has reported an increase in revenues from value-added services, a trend it will expect to continue in 2010 as 3G uptake and usage continues. Interestingly, voice traffic levels increased in each progressive quarter of 2009, indicating that, despite the growing emphasis on value-added services, voice telephony remains a core strategic element of the company. In the broadband sector VimpelCom reported 1.073 million fixed broadband users and 1.038 million users of mobile broadband via USB modems at the end of 2009. The operator’s fibre-to-the-building (FTTB) network had passed 7.9 million households at end-2009, with a 12.45% take-up rate. VimpelCom reported a 78.6% y/y broadband subscriber increase in Russia, to 2.111 million, comparing favourably to the 40% y/y increase, to 1.298 million subscribers, reported earlier this week by its principal rival in the alternative broadband operator space, Comstar (see Russia: 18 March 2010: Comstar Reports 15% Revenue Increase During 2009 on Broadband Growth, Eyes Up-Selling of Pay-TV Subscribers During 2010). Both operators will expect broadband revenue growth, particularly in the corporate sector, in 2010, as corporate clients recover from the effects of the financial crisis.
• Investment to Increase in VimpelCom's Overseas Markets: Although VimpelCom reported revenue growth in local-currency terms in each of its CIS markets, dollar depreciation meant a 13% drop in annual revenues from CIS operations. Subscriber numbers were generally flat across its CIS operations, as the operator adapted to maturing markets and increased its focus on subscriber quality. VimpelCom has indicated that it will increase investments across its markets in 2010, with group capex as a percentage of revenues to increase to between 15% and 20%, from the 2009 level of 9%. Funds will be directed towards the construction of backbone network lines, as well the development of 3G networks and last-mile infrastructure for its FTTB networks. Such a strategic move can be seen as a reaction to the growing maturity of the various CIS markets, in which penetration is in some cases exceeding triple-digit levels, as well as a reaction to the expanding economies of these countries. VimpelCom has also noted that its US$5.7 million was generated from its South-East Asian operations in 2009, with network coverage across 70% of the Cambodian population and 32% of the Vietnamese population. The operator has declared itself ''satisfied" with its progress in South-East Asia.
• Positive Development in Plans for Merger with Kyivstar: In a separate development Ukraine’s Antimonopoly Committee has approved the merger of VimpelCom with Ukrainian mobile operator Kyivstar into newly-formed group VimpelCom Ltd. The merger has already been approved by Russian regulatory bodies, and therefore now requires approval from 95% of VimpelCom minority shareholders in order to proceed. Alexander Izosimov, CEO of the new VimpelCom Ltd. group, has already outlined ambitious international expansion plans for the group (see Russia: 19 February 2010: Large-Scale Mergers on VimpelCom Ltd's Radar as Grand Plans Outlined for New Group). However, the short-term priority is likely to be consolidation within an ailing Ukrainian market, in which economic and competition pressures have brought about ARPU as low as US$3.9 in the fourth quarter of 2009.

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