Tele2 Russia EBITDA up 2% in Q3
STOCKHOLM. Oct 18 (Interfax) - The Russian branch of Scandinavia's Tele2, Tele2 Russia, increased EBITDA (earnings before interest, taxes, depreciation, and amortization) to SEK 1.24 billion ($186 million) in the third quarter of this year, a 2% year-on-year increase from SEK 1.21 billion ($182 million), Tele2 reported.
The EBITDA margin was down two percentage points at 38% (40% in Q3 last year).
Tele2 Russia's Q3 sales revenues (not counting exchange rate variance) amounted to SEK 3.26 billion ($489 million), 14% more than for the same three months last year (SEK 2.86 billion).
In ruble terms, Tele2's operating revenue also climbed by 14% - to 15.4 billion rubles. EBITDA rose 8% to 5.9 billion rubles.
Free cash flow expanded 36% to 3.2 billion rubles in Q3.
Tele2 affirmed its annual EBITDA margin forecast at 37%-39%, compared to 40% at the end of 2011.
Tele2 Russia increased its subscriber base by 710,000 users to 22.3 million in Q3 (20.4 million at end-Q3 2011). Subscriber loss over the quarter was stable, Tele2 materials say.
In light of growth in Tele2 Russia's subscriber base, the company has revised its forecast for subscriber recruitment upwards from 21.5-22 million to 22.5 million by the end of 2012.
Monthly ARPU (average revenue per user) for Tele2 Russia was 234 rubles in Q3 versus 225 rubles a year earlier. Average usage was 257 minutes per month (240 minutes). For 2012 as a whole, ARPU is anticipated to grow 3%-5%.
Tele2 Russia's capex was slightly lower than a year earlier in Q3, at 1.9 billion rubles (2.1 billion rubles in Q3 2011), or 12% of revenue.
For 2012 as a whole, the company expects a capex/revenue ratio of 15%, thanks to the launch of networks in six new Far East regions. So far, only one of those six networks has been launched - in Sakhalin. Within a month, Tele2 Russia will launch networks in the Kamchatka territory, the Magadan region and the Jewish Autonomous District, the company's CFO Lyudmila Smirnova said at a press conference on Thursday.
In absolute terms, capex is forecast at 6-6.7 billion rubles.
During the press conference, Tele2 Russia chief Dmitry Strashnov said that the company plans to steadily reduce the capex/revenue ratio, which is connected with the fact that the lion's share of investments in the expansion of network coverage in the regions have already been accomplished. Now funds are being set aside to boost the capacities of existing networks and modernize them with an eye to possibly using new technologies in the future.
Tele2 Russia currently operates on the GSM standard, and if it receives Russian government approval to use other technologies on the same frequencies, it could launch the 4G network - LTE.
"Undoubtedly, if there is talk about serious strategic steps connected with the introduction of technological neutrality, the proportion [of capex to revenue] will of course change, since we will have to really increase network capacity to support [the quality of] voice [services], since part of the range will be allocated to 'digital' in the LTE standard," Strashnov said.
In order to deploy an LTE network, bandwidth of 5 MHz is sufficient, he said. However, if the regulators decided that 10 MHz are needed, Tele2 Russia would be willing to explore this possibility (the company's bandwidth in each of its regions of presence is 15 MHz). "Either option is suitable for us," Strashnov said in response to a request to comment on the Communications Ministry's proposal to establish a minimum bandwidth for the LTE standard at 10 MHz.
If permission is granted to build an LTE network, substantial spending will not be necessary, Strashnov said. "At 5 MHz, the lift in capex in the upcoming year after the decision is made [to introduce technological neutrality] will be roughly 30%. That's not very much," he said.
Tele2 Russia's competition - the big three mobile service providers and OJSC Rostelecom - already have the frequencies for LTE, but according to Strashnov, their advantage will not be critical for another two to three years. In his opinion, that period will suffice to work through and adopt a decision on technological neutrality in Russia's frequency spectrum
Earlier on Thursday, Sweden's Tele2 said that it was disappointed by the decision of Russian regulators to delay the introduction of technological neutrality, but is ready to provide support to the State Radio Frequency Commission in studying this issue.
That commission intended to make a decision October 2 relative to applying the principle of technological neutrality (the possibility for a frequency-spectrum holder to independently select technology), and planned to announce nine frequency auctions in the 1,800 MHz range without specifying technology - but consideration was put off until later.
In the spring of this year, Tele2 tested LTE (long-term evolution) technology in the 1,800 MHz range of frequencies permitted by regulators for GSM. The State Radio Frequency Commission gave thumbs-up to the results of the testing, saying that 4G communications would not cause disturbance to voice services. Recently, market players, particularly representatives of major operators, disputed the results of the testing, saying that much more research needed to be done.
Tele2 Russia is ready to participate in new research, although it sees no need for it, Strashnov told reporters, adding that he believes the research already conducted by the State Radio Frequency Commission and the company to be enough.
Tele2 Russia currently holds licensing to provide GSM mobile communications services in 43 regions that are home to 62 million people.
The Tele2 holding ended the third quarter of this year with net profits down about 23% at SEK 980 million (SEK 1.26 billion in Q3 last year). EBITDA rose to SEK 3 billion from SEK 2.99 billion and sales revenues increased 5% to SEK 10.9 billion (from SEK 10.4 billion).
About 80% of the holding's combined revenues come from mobile communications services. Tele2 CEO Mats Granryd, who is cited in a company press release, said this corresponds to market structure, on which demand for data-transfer services in the mobile segment is growing three times faster than fixed-line services.
Granryd noted that the Russian mobile communications market is still growing. Tele2 now plans to concentrate its efforts on the adoption of a more weighted approach to increasing the subscriber base and increasing profitability, he said.
As to the Swedish market, Granryd said that there has been substantially higher demand for 4G services. The company figures that a significant number of devices that support LTE will appear in the fourth quarter.
