The Ticketland. The cost of the license is RUB 1. The companies will jointly develop Nokia's new technological solutions to promote digital products and services from MTS. In , Ericsson will supply MTS with the latest equipment and software for the core network and radio access network for a total amount of more than EUR mln. The initiative's key goal is to improve the quality of life and security for MTS subscribers and the society as a whole by developing innovative solutions and providing a wide range of services. The early repayment of the loan is a part of the Company's debt portfolio optimization strategy aimed at decreasing of the overall cost of debt and increasing its overall tenor.
In December, MTS launched its own IoT platform, an integrated solution for business clients to manage objects embedded with network connectivity and pro-actively monitor IoT-enabled equipment performance. The new service combines all payments tools on one platform - electronic wallet, bank cards, and customers' mobile account balances. The updated version offers users expanded payment services, a contactless payment option, investment services, an increased synchronization with MTS Bank as well as other functionality.
In cooperation with Zetta Insurance Company, MTS insured user's funds held in the wallet against the risk of cyber fraud. This is the first insurance program for e-wallets in Russia and represents another important advantage offered by the innovative MTS payment service. MTS and other Russian telecom operators teamed up with Vedomosti , a leading daily newspaper, to test Mobile Connect, the leading mobile ID technology, which simplifies the authorization process to access Vedomosti content.
The integrated Microsoft Azure Stack system, hosted at MTS data centers, will allow business customers to create modern hybrid applications combining the capacities of our local data services with global cloud functionality. Group revenue for the quarter reached RUB Service revenue continued to pace growth in Russia and Ukraine, but sales of handsets, traditionally strong prior to the New Year holiday, were particularly robust.
FY revenue totaled RUB Overall, the Group's performance in was largely driven by Russia, which benefitted from an improved pricing environment for data and higher usage. Despite healthy underlying performance, our non-Russia markets contributed less revenue due to the relative appreciation of the ruble and the situation in Turkmenistan, where operations remain dormant.
Underlying year-over-year growth, on the other hand, was stronger, as was also a leap year. For the full year, it grew 6. Group net profit for the year rose Strong top-line and higher profitability were the key drivers for earnings growth. By the end of the year, total debt stood at RUB MTS actively uses hedging instruments to limit currency exposure to its outstanding bilateral debt.
As of December 31, , weighted average interest rates decreased since the end of Q3 as a result of MTS' debt portfolio optimization. This includes shares of Common Stock acquired from Sistema Finance. This includes shares of Common Stock acquired from Sistema Finance under a sale and purchase agreement concluded prior to the launch of the Repurchase Plan.
Over 13, LTE base stations were installed in MTS also continued developing fiber-optic lines. In Ukraine, capital expenditures grew to RUB Free cash flow totaled RUB This is an increase from , which can largely be attributed to stronger cash generation from operating activities and lower CAPEX. For the year, Russia Revenue increased 2. A healthier pricing environment complemented by an increase in data usage drove mobile service revenue, while the improved macroeconomic environment allowed consumers to increase purchases of higher-quality and more expensive devices.
In mobile business, revenue increased 3. Key factors include natural growth in data consumption, better monetization through the cancellation of unlimited data plans and increased international roaming. The positive dynamic reflects an overall improvement of consumer and business sentiment in Russia.
The decrease was made possible by changes in MTS's retail strategy and a stronger pricing environment. Meanwhile, the number of multiservice subscribers that use mobile, fixed and digital services from MTS is growing stimulating churn reduction and revenue growth. MTS' fixed business continued to demonstrate negative dynamics due to a decrease in fixed-telephony subscribers.
In , revenue fell by 0. The number of GPON users reached 1. Revenue volatility throughout the year reflected fluctuations in the pull of contracts. MTS witnessed a 5. Sales of goods reached its peak in Q4 in both sub-segments. The increase in sales of software was driven by major enterprise software contracts concluded in the last quarter. Gross margin in handsets sales reached After a reduction of approximately stores in Q1 , MTS's retail network remained largely unchanged throughout the year.
At the end of. Meanwhile, there was a marginal positive impact on full-year results, as the average number of stores throughout and was almost the same. MTS continues to focus on its e-commerce efforts. In , MTS launched a new web-based platform for its online shop and a new logistical scheme to accelerate regional expansion and introduce new logistics services in In addition to this, MTS significantly improved its credit options offering for online customers.
By the end of , smartphone penetration on MTS's network reached By the end of , the number of MTS Money customers reached 4. In addition to traditional banking products, MTS actively developed its e-wallet, which was launched in the beginning of By the end of the year, the penetration of this service into MTS's subscriber base was 9. The number of users reached In addition, the app continues to be a strong platform for the promotion of other MTS' digital services. In Ukraine, revenue grew 6.
MBT,PKO,VIP : Summary for Mobile TeleSystems PJSC - Yahoo Finance
Overall, in , the Group focused on the network coverage and the quality of services. Mobile Internet traffic more than doubled since the beginning of In June, the Group launched Vodafone Pay service and continued developing its digital ecosystem. In Armenia, revenue for the year declined by 2. MTS suspended communication services in Turkmenistan from September 29, , due to the actions of the state-owned telecommunication company "Turkmentelekom", which resulted in the disconnection of international and long-distance zonal communication services and Internet access.
Meanwhile, the license for the provision of telecommunication services in Turkmenistan is valid till the end of July The Group recognized an impairment loss in amount of TMT In Belarus, revenue grew steadily throughout the year and reached BYN The increase of Stronger performance in retail based on successful marketing initiatives also supported overall revenue growth.
MTS retained its leadership position in Belarus in terms of subscribers. Its subscriber base was flat at 5. These standards come into effect from January Although this new standard is effective from January , MTS has elected to adopt this practice early. IFRS 9 regulates the classification and measurement of financial assets and liabilities and requires certain additional disclosures.
The primary changes relate to the assessment of hedging arrangements and provisioning for potential future credit losses on financial assets as well as recognition of modification gain or loss for all revisions of estimated payments or receipts, including changes in cash flows arising from a modification or exchange of a financial liability, that does not result in its derecognition. Based on Group's current estimate there will be no material effect from earlier recognition of future credit losses on financial assets or for current hedge accounting.
The estimated gain in relation of the Group's modified liabilities will amount to RUB 3 bln. The Group will recognize the cumulative effect arising from the transition as an adjustment to the opening balance of equity. Prior period's comparative will not be restated. This standard provides a single, principles-based five-step model for the determination and recognition of revenue to be applied to all contracts with customers.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under the standard, an entity recognizes revenue when or as a performance obligation is satisfied, i.
Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios than exists in the current guidance. Furthermore, extensive disclosures are required by IFRS The Group currently anticipates that the main effect from the adoption of IFRS 15 on the Group's consolidated financial statements will relate to the deferral of certain incremental costs incurred in acquiring or fulfilling a contract with a customer.
Such contract costs will be amortized over the period of benefit. The Group will use a practical expedient from IFRS 15 allowing to expense contract costs as incurred when the amortization period is one year or less. The Group estimates the additional asset stemming from the capitalization of contract costs to amount to RUB 5. Other anticipated impacts of the standard includes later recognition of revenue in cases, where "material rights" such as offering additional products and services free of charge are granted to the customers, and the reallocation of remuneration between components of contracts with customers.
The Group estimates the additional deferred revenue to be recognized as a result of applying IFRS 15 will not be material. The Group will utilize the option for simplified initial application, so that contracts that are not completed by January 1, will be accounted for as if they had been recognized in accordance with IFRS 15 from the very beginning. The cumulative effect arising from the transition will be recognized as an adjustment to the opening balance of equity in the year of initial application. The prior period comparatives will not be restated. This standard principally requires lessees to recognize assets and liabilities for all leases and to present the rights and obligations associated with these leases in the statement of financial position.
ITEM 6. ITEM 7. ITEM 8. ITEM 9. ITEM Matters discussed in this document may constitute forward-looking statements. The Private Securities Litigation Reform Act of provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their businesses. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein and in the documents incorporated by reference herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements including the achievement of the anticipated levels of profitability, growth, cost and synergy of our recent acquisitions, the timely development and acceptance of new products, the impact of competitive pricing, the ability to obtain necessary regulatory approvals, the impact of general business and global economic conditions and other important factors described from time to time in the reports filed by MTS with the Securities and Exchange Commission.
Except to the extent required by law, neither MTS, nor any of its respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained or incorporated by reference in this document. PART I. Item 1. Identity of Directors, Senior Management and Advisors. Not applicable. Item 2.
Offer Statistics and Expected Timetable. Item 3. Key Information. Selected Financial Data. The selected financial consolidated financial data below shows our historical financial information for the five-year period ended December 31, The selected consolidated financial data as of December 31, , and are derived from the audited consolidated historical financial data, prepared in accordance with accounting principles generally accepted in the United States of America U. GAAP included elsewhere in this annual report. Operating and Financial Review and Prospects.
Key industry data and certain MTS operating data are also provided below. Years Ended December 31,. Amounts in thousands, except share and per share amounts, industry and operating data and ratios. Statement of operations data: Net revenues: Service revenues 1. Connection fees.
Equipment sales. Total net revenues. Cost of services and products: Interconnection and line rental. Roaming expenses. Cost of equipment. Total cost of services and products. Operating expenses 2. Sales and marketing expenses. Depreciation and amortization. Impairment of investment. Net operating income. Currency exchange and translation loss 3.
Other expenses income: Interest income. Interest expenses, net of amounts capitalized 4. Impairment of investments and other expenses income , net. Total other expenses income , net. Income before provision for income taxes and minority interest. Provision for income taxes. Minority interest in net loss income. Net income before cumulative effect of a change in accounting principle, and extraordinary gain.
Net income. Dividends declared. Pro forma net income giving effect to the change in accounting principle, had it been applied retroactively. Net income before cumulative effect of change in accounting principle and extraordinary gain per share, basic and diluted.
- Mobile Telesystems Pjsc.
- Mobile Telesystems Pjsc (MBT) F Annual Report Fri Apr 19 | Last10K.
- mobile phone 5000 to 6000;
Net income per share, basic and diluted. Dividends declared per share. Weighted average common shares outstanding.
Mobile TeleSystems OJSC SEC Filings
Consolidated cash flow data: Cash used in provided by operating activities. Cash used in investing activities. Cash provided by used in financing activities. Consolidated balance sheet data: Cash, cash equivalents and short-term investments. Property, plant and equipment, net. Total assets. Total debt long-term and short-term 6. Key financial ratios end of period: Key industry data end of period: Estimated population in Russia millions.
Russian cellular subscribers thousands 8. Industry penetration 8. MTS operating data: MTS-total subscribers end of period, thousands MTS share of total Russian subscribers end of period. Average monthly usage per subscriber minutes Average monthly revenue per subscriber in U. Churn Any dividend distribution will be recorded in our financial statements for the year ended December 31, Information on Our Company-B.
Business Overview-Sales and Marketing-Tariffs. Capitalization and Indebtedness. Reasons for the Offer and Use of Proceeds. Risk Factors. An investment in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the information contained in this document, before you decide to buy our securities.
If any of the following risks actually occur, our business, financial condition or results of operations could be adversely affected. In that case, the trading price of our securities could decline and you could lose all or part of your investment. We have described the risks and uncertainties that our management believes are material, but these risks and uncertainties may not be the only ones we face.
Additional risks and uncertainties, including those we. Emerging markets such as the Russian Federation, Belarus and Ukraine are subject to greater risks than more developed markets, including significant legal, economic and political risks. Investors in emerging markets such as the Russian Federation, Belarus and Ukraine should be aware that these markets are subject to greater risk than more developed markets, including in some cases significant legal, economic and political risks.
Investors should also note that emerging economies such as the economy of the Russian Federation are subject to rapid change and that the information set out herein may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate.
Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and financial advisors before making an investment in our securities. Risks Relating to Our Business. All or part of our subscriber database, containing private information relating to our subscribers, was illegally copied and stolen, and is currently available for sale in Russia on the black market.
This security breach of our database could adversely impact our reputation and lead to subscriber lawsuits, a loss of subscribers and an inability to gain new subscribers which, in turn, could negatively impact our revenues and results of operations. The database contained information such as the names, addresses, home phone numbers, passport details, individual tax numbers and other personal information of approximately 5 million of our subscribers, and is currently being sold in Russia on the black market. We are currently engaging in an extensive internal investigation relating to this theft.
While we do not believe that this was an internal security breach, we do not yet know the perpetrator of the theft. If such lawsuits were successful, we could have to pay significant damages, including consequential damages. It may also lead to a loss in subscribers and our inability to attract new subscribers. Each of these factors, individually or in the aggregate, could negatively impact our revenues and results of operations. Increased competition and a more diverse subscriber base have resulted in declining average monthly service revenues per subscriber which may adversely affect our results of operation.
While our subscriber base and revenues are constantly growing as we continue to grow our operations in Moscow and to expand into regions outside of Moscow, our average monthly service revenues per subscriber are decreasing. We expect to see a continued decline due to tariff decreases and the increase of mass-market subscribers as a proportion of our overall subscriber mix. Operating Results. Our billing system registers and debits the account of a subscriber for calls made by such subscriber one to two hours after such calls were made. During the first quarter of , certain dealers and subscribers together fraudulently exploited these billing time lags by placing a sizeable amount of domestic and international long distance calls using subscriber accounts registered under false names.
We have taken measures to prevent further use of this scheme, such as requiring our subscribers to activate their long distance services in person at our service centers. This, in turn, may cause us to lose subscribers who view the new requirement as burdensome and negatively affect our market share.
Our ability to successfully manage our business is contingent upon our ability to implement sufficient operational resources and infrastructure. While we are in the process of implementing measures to prevent further dealer fraud of this kind, the failure or breakdown of key components of our infrastructure in the future, including our billing system, could have a material negative affect on our profits and results of operations.
If we cannot successfully develop our network, we will be unable to expand our subscriber base, and therefore, lose market share and revenues. We plan to expand our network infrastructure in the following ways: Petersburg, Krasnodar, Nizhny Novgorod, Perm, Rostov and in the other regions in which we currently operate; and. Our ability to increase our subscriber base depends upon the success of our network expansion. We have expended considerable amounts of resources to enable this expansion. In addition, we have expanded and are likely to continue to expand our network through acquisitions.
Although we are currently in discussions with mobile cellular telecommunications providers in various regions of the Russian Federation and countries of the CIS regarding potential acquisitions, we cannot give assurances that pending or future acquisitions will be completed on favorable terms or at all.
Moreover, we may not be able to integrate previous or future acquisitions successfully or operate them profitably. We also may face problems and complications that we are unaccustomed to dealing with during the course of our expansion into countries outside of the Russian Federation. For example, after we signed agreements for the acquisition of a majority stake in Ukrainian Mobile Communications UMC in November , a lawsuit was filed in Ukraine seeking to prevent the sale by one of the selling shareholders, Ukrtelecom, of its shares in UMC.
The buildout of our network is also subject to risks and uncertainties which could delay the introduction of service in some areas and increase the cost of network construction, including difficulty in obtaining base station sites on commercially attractive terms. In addition, telecommunications equipment used in Russia is subject to governmental certification, which must be renewed at least every three years.
The failure of any equipment we use to receive timely certification or re-certification could also hinder our expansion plans. We also, at times, put our equipment into operation prior to receiving certification, which could lead to the seizure of such equipment. To the extent we fail to expand our network on a timely basis, we could experience difficulty in expanding our subscriber base.
Rapid growth and expansion may cause us difficulty in obtaining adequate managerial and operational resources, restricting our ability to successfully expand our operations. We have experienced substantial growth and development in a relatively short period of time. Management of this growth has required significant managerial and operational resources and is likely to continue to do so. We have recently added two new vice president positions, subordinate only to our chief executive officer, in response to this growth.
Our future operating results depend, in significant part, upon the continued contributions of a small number of our key senior management and technical personnel. Management of growth will require, among other things: Our success will depend, in part, on our ability to continue to attract, retain and motivate qualified personnel. Competition in Russia for personnel with relevant expertise is intense, due to the small numbers of qualified individuals. If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices and therefore lose market share and revenues.
Our ability to provide commercially viable services depends upon our ability to continue to interconnect cost-effectively with MGTS and other local, domestic and international telecommunications operators. Fees for interconnection are established by agreements with network operators and vary, depending on the network used and the nature of the call.
We have entered into interconnection agreements with several local, domestic and international telecommunications operators, including MGTS and Rostelecom. Interconnection with these operators is required to complete calls originating on our network but terminating outside of it and to complete calls to our subscribers originating outside of our network.
Any difficulties or delays in interconnecting cost-effectively with other networks could hinder our ability to provide services, causing us to lose subscribers, increase our costs and decrease our revenues. Although Russian legislation requires that operators of public switched telephone networks may not refuse to provide interconnections or discriminate against one operator in comparison to another, we believe that, in practice, some public network operators attempt to impede mobile operators by delaying interconnection applications and charging varying interconnect rates to different mobile operators and, in particular, more favorable rates to local mobile operators, potentially enabling our competitors to offer lower prices.
If frequencies currently assigned to us are reassigned to other users, or if we fail to obtain renewals of our frequency allocations, our network capacity will be restrained and our ability to expand limited, resulting in a loss of market share and lower revenues. There is a limited amount of frequency available for mobile operators in each of the regions in which we operate or hold licenses to operate.
We are dependent on access to adequate spectrum allocation in each market in which we operate in order to maintain and expand our subscriber base. While we believe that our current spectrum allocations are sufficient, we cannot be certain that frequency will be allocated to us in the future in the quantities, with the geographic span and for time periods that would allow us to provide wireless services on a commercially feasible basis throughout all of our license areas. A loss of assigned spectrum allocation which is not replaced by other adequate allocations could have a substantial impact on our network capacity.
In addition, frequency allocations are often issued for periods that are shorter than the terms of the licenses, and we cannot assure you that such allocations will be renewed in a timely matter or at all. If our frequencies are revoked or we are unable to renew our frequency allocations, our network capacity would be restrained and our ability to expand limited, resulting in a loss of market share and lower revenues.
In the event that we and other mobile operators are required by the Russian government to finance the costs of such frequency transfer, our financial results could be negatively affected, and we may be forced to pass on some of this expense to our subscribers. Because we lack full redundancy and insurance for our systems, a systems failure could prevent us from operating our business and lead to a loss of customers, damage to our reputation and violations of the terms of our licenses and contracts with customers.
We have back-up capacity for our network management, operations and maintenance systems, but automatic transfer to back-up capacity is limited. In the event that the primary network management center were unable to function, significant disruptions to our system would occur, including our inability to provide services. These types of disruptions could lead to a loss of customers, damage to our reputation and violations of the terms of our licenses and contracts with customers. Our computer and communications hardware is protected through physical and software safeguards.
However, it is still vulnerable to fire, storm, flood, loss of power, telecommunications failures, interconnection failures, physical or software break-ins and similar events. We do not carry business interruption insurance to protect us in the event of a catastrophe, even though such an event could have a significant negative impact on our business. Failure to fulfill the terms of our licenses, including the payment of license contributions, could result in their revocation. Our licenses contain various requirements. These include participation in a federal communications network, adherence to technical standards, investment in network infrastructure and employment of Russian technical personnel.
GSM operators are required to provide service to the federal government at regulated tariff rates. The amount and pricing of such services are subject to change and, if they were to materially and adversely change, so would our operating costs. However, no decisions regulating the terms and conditions of such payments have been formulated. Accordingly, we have made no payments to date pursuant to any of the current licenses which could require such payments.
Further, we believe that we will not be required to make any such payments. If such payments would be required in the future, we believe that it would be limited to purchasing certain equipment for our own use in the related license area. Each of our licenses also requires service to be started by a specific date. Each of our licenses, other than the licenses which cover the Moscow license area, also contains requirements as to the number of subscribers and required territorial coverage by specified dates.
Our licenses for the Moscow license area contain requirements relating to network capacity. These requirements are subject to adjustment during the term of the license. If the terms of a license are not fulfilled or the service provider violates legislation, the license may be suspended or terminated.
Decisions of the Ministry of Communications on suspension or termination of licenses may be appealed in court. To date, there have been no legal actions seeking to suspend or terminate any of our licenses, nor have we received any notice of violation with respect to any of our licenses. However, if we fail to comply with the requirements of applicable Russian legislation, or we fail to meet the terms of our licenses, our licenses and other authorizations necessary for our operation may be suspended or revoked.
A suspension or revocation of our licenses or other necessary governmental authorizations could negatively impact our business and results of operation. If we are unable to maintain our favorable brand image, we may be unable to attract new subscribers and retain existing subscribers, leading to loss of market share and revenues. Our ability to attract new subscribers and retain existing subscribers depends in part on our ability to maintain what we believe to be our favorable brand image.
Negative rumors regarding our services could negatively affect this brand image. In addition, consumer preferences change and our failure to anticipate, identify or react to these changes by providing attractive services at competitive prices could negatively affect our market share.
The loss of market share could negatively affect our revenues.
Mobile TeleSystems PJSC
We must change the federal prefix telephone code used by many of our subscribers in the Moscow license area, which could result in an increase in churn and a loss of market share and revenues. We may be unable to obtain licenses for third-generation, or UMTS, mobile cellular services on commercially reasonable terms or at all, which would materially adversely affect our competitive position and limit our ability to expand our services, leading to a loss of customers and a decline in revenues.
The Ministry of Communications has previously stated that it expects to announce the procedures for the award of licenses for UMTS mobile cellular services during , though, to date, no procedures have been announced. Depending upon the procedures adopted, we may be unable to obtain UMTS licenses on commercially reasonable terms or at all. Failure to obtain UMTS licenses for the Moscow and other license areas would materially adversely affect our ability to compete with operators who are able to operate these services and limit our ability to expand our services, leading to a loss of customers and a decline in revenues.
We, our principal shareholders and their affiliates have engaged in several significant transactions among us and may continue to do so. We have purchased interests in various mobile telecommunications companies from Sistema and T-Mobile and entered into arrangements with affiliates of Sistema for advertising and insurance services.
Furthermore, we have entered into a number of arrangements with T-Mobile and its affiliates, including the agreements for the purchase of shares of UMC, and we have entered into a number of equipment lease agreements with Invest-Svyaz-Holding, one of our. In the event that minority shareholders were to contest successfully existing, or were to prevent future, approval of transactions among our subsidiaries which require special approval in accordance with Russian legislation, this could limit our operational flexibility and adversely affect our results of operations.
Our subsidiaries engage in numerous transactions which require interested party transaction approvals in accordance with Russian law. These transactions have not always been properly approved, and therefore may be contested by minority shareholders. In the event that minority shareholders were to contest successfully existing interested party transactions among our subsidiaries, or prevent the approval of these transactions in the future, this could limit our operational flexibility and adversely affect our results of operations.
In addition, certain transactions between members of a consolidated corporate group may be considered interested party transactions under Russian law even when the companies involved are wholly-owned by the parent company. While we generally endeavor to obtain all corporate approvals required under Russian law to consummate transactions, we have not always applied special approval procedures in connection with our consummation of transactions with or between our subsidiaries.
In the event that a claim is filed in relation to certain transactions with or between our subsidiaries, such transactions are found to have been interested party transactions, and we are found to have failed to obtain the appropriate approvals therefor, such transactions may be declared invalid. The unwinding of any transactions concluded with or between our subsidiaries may have a negative impact on our business and results of operation.
Our controlling shareholders have the ability to exert significant influence over us and their interests may conflict with those of holders of our securities as they may make decisions that materially adversely affect your investment. In addition, because one of our controlling shareholders is also our competitor, it may have interests that conflict with those of holders of our securities.
As a result, each of T-Mobile and Sistema have the ability to exert significant influence over certain actions requiring shareholder approval, including the election of directors and the declaration of dividends, and may have the ability to influence our policy. As such, decisions made by T-Mobile or Sistema may influence our business, results of operation and financial condition and these decisions may conflict with the interest of the holders of our securities. In this connection, if these controlling shareholders were to vote in favor of declaring dividends constituting a significant proportion of our net profits, our cash flow and ability to finance our debt obligations or make capital expenditure investments and acquisitions of.
The acquisition was completed on April 25, In addition, we compete directly with affiliates of Sistema. Sistema indirectly owns, through MGTS, Ownership and involvement by this controlling shareholder in these competing businesses could result in the diversion of resources that otherwise could be invested by this shareholder in our business and could enable these other businesses to compete against us more effectively. Risks Relating to Our Financial Condition. Changes in exchange rates could increase our costs, decrease our reserves or prevent us from repaying our debts. Over the past several years, the ruble has fluctuated dramatically against the U.
The Russian Central Bank from time to time has imposed various currency-trading restrictions in attempts to support the ruble. The ability of the government and the Russian Central Bank to maintain a stable ruble will depend on many political and economic factors. These include their ability to finance budget deficits without recourse to monetary emissions, to control inflation and to maintain sufficient foreign currency reserves to support the ruble.
Substantially all of our costs and expenditures, as well as liabilities, are either denominated in or tightly linked to the U. These include capital expenditures and borrowings, including our U. As a result, devaluation of the ruble against the U. In order to hedge against this risk, we link our tariffs, which are payable in rubles, to the U. The effectiveness of this hedge is limited, however, as we may not be able to maintain our U.
We do not engage in any other hedging arrangements. Additionally, if the ruble declines and tariffs cannot keep pace, we could have difficulty repaying or refinancing our U. The devaluation of the ruble also results in losses in the value of ruble-denominated assets, such as ruble deposits. Continued devaluation of the ruble against the U. The decline in the value of the ruble against the U.
Increased tax liability would increase total expenses. Inflation could increase our costs and decrease our operating margins. The Russian economy has been characterized by high rates of inflation, including a rate of When the rate of inflation exceeds the rate of devaluation, resulting in real appreciation of the ruble against the U.
These include salaries and rents, which are sensitive to rises in the general price level in Russia.
In this situation, due to competitive pressures, we may not be able to raise our tariffs sufficiently to. Accordingly, high rates of inflation in Russia relative to the rate of devaluation could increase our costs and decrease our operating margins. If we are unable to obtain adequate capital, we may have to limit our operations substantially, with a resulting negative impact on our operating results and loss of market share.
We will need to make significant capital expenditures, particularly in connection with the development, construction and maintenance of our GSM network. In addition, the acquisition of UMTS licenses and frequency allocations and the buildout of a UMTS network would require substantial additional capital expenditures. However, future financing may not be sufficient to meet our planned needs in the event of the following potential developments: To meet our financing requirements, we may need to attract additional equity or debt financing.
If we cannot obtain adequate funds to satisfy our capital requirements, we may need to limit our operations significantly, which could negatively impact our market share and operating results. Our inability to obtain permission from the Central Bank of Russia pursuant to currency control regulations may hinder our ability to enter into certain hard-currency-denominated transactions. Certain payments in foreign currency are subject to prior permission by the Central Bank of Russia, including, with various exceptions, the following: These regulations are subject to substantial changes and varying interpretations, complicating both the process of determining whether permission of the Central Bank of Russia is required and the process of obtaining permission.
If we are unable to obtain Central Bank of Russia permissions for hard-currency-denominated. In addition, in the event that we failed in the past to obtain Central Bank of Russia permissions for hard-currency-denominated transactions and borrowings requiring such permissions, such failure could result in severe penalties, including the unwinding of such transactions, fines and administrative penalties assessed against us and criminal and administrative penalties assessed against our management which, in turn, would negatively affect our business.
Although we have Russian Central Bank licenses to make payments of principal and interest on these loans, there is no assurance that we will be able to obtain similar licenses, if required, for future financings. In addition, the revocation of any of our Central Bank licenses or a breach by us of the terms of a Central Bank license could result in cash flow difficulties and fines and penalties.
The loss of a Central Bank license may also constitute an event of default under certain of our agreements, which may result in the acceleration of some or all of our outstanding hard-currency-denominated debt. Restrictions on investments outside of Russia or in hard-currency-denominated instruments in Russia expose our cash holdings to devaluation. Currency regulations established by the Russian Central Bank restrict investments by Russian companies outside of Russia and in most hard-currency-denominated instruments in Russia, and there are only a limited number of ruble-denominated instruments in which we may invest our excess cash.
Any balances maintained in rubles will give rise to losses if the ruble devalues against the U. This requirement further increases balances in our ruble-denominated accounts and, consequently, our exposure to devaluation risk. Continued or increased limitations on the conversion of rubles to hard currency in Russia could increase our costs when making payments in hard currency to suppliers and creditors and could cause us to default on our obligations to them.
Our major capital expenditures are generally denominated and payable in various foreign currencies, including the U. To the extent such major capital expenditures involve the importation of equipment and related items, Russian legislation permits the conversion of ruble revenues into foreign currency. However, the market in Russia for the conversion of rubles into foreign currencies is limited. The scarcity of foreign currencies may tend to inflate their values relative to the ruble, and such a market may not continue to exist, which could increase our costs when making payments in hard currency to suppliers and creditors.
Additionally, any delay or other difficulty in converting rubles into a foreign currency to make a payment or delay or restriction in the transfer of foreign currency could limit our ability to meet our payment and debt obligations, which could result in the loss of suppliers, acceleration of debt obligations and cross-defaults. During , Ericsson assigned this loan to Salomon Brothers Holding Company on the same terms and conditions. In connection with our acquisition of Rosico in , Sistema agreed to indemnify Rosico for this loan and all related obligations. Under the indemnification agreement, a significant portion of payments we receive from Sistema is in.
The carrying amount of these notes is negligible for our financial statements. Sistema, notwithstanding its obligation, did not make any payments to us under the indemnity until Our debt facilities contain restrictive covenants, which may limit our ability to engage in various activities. Petersburg and Krasnodar license areas. If a change in control occurs, our Eurobond noteholders may require us to redeem notes not previously called for redemption, which will have a negative impact on our cash flow and results of operation.
The notes issued in connection with our Eurobond offerings provide that, if a change in control occurs, our noteholders will have the right to require us to redeem notes not previously called for redemption. Under the terms of our Eurobonds maturing in , a change in control will be deemed to have occurred in any of the following circumstances: Our Eurobonds maturing in contain a similar change in control definition. If a change in control occurs, and our noteholders exercise their right to require us to redeem all of their notes not previously called for redemption, such event will have a negative impact on our cash flow and results of operation.
Risks Relating to Our Industry. We face increasing competition from existing licensees that may result in reduced operating margins, loss of market share and diminished value in our services, as well as lead us to make different pricing, service or marketing decisions.
The Russian mobile cellular telecommunication services market is becoming increasingly competitive. The trend in Russian government licensing policies has been to increase competition among mobile cellular telecommunication service providers. Russian regulatory authorities have moved from granting exclusive licenses for each technology standard per region to granting multiple licenses covering the same territory. Increased competition may result in reduced operating margins, loss of market share and diminished value in our services, as well as different pricing, service or marketing policies.
In the North-West region, where St. Petersburg, and launched its operations there in April The creation of MegaFon through the merger of Sonic Duo, North-West GSM and several other regional operators resulted in a new competitor that may receive preferential treatment from the federal government and benefit from the resources of its shareholders, potentially giving it a substantial competitive advantage over us.
In addition, all of the MegaFon companies have instituted a unified intra-network roaming tariff and are expected to introduce unified tariffs in each of the regions in which they operate. These factors could undermine our plans to expand in regions outside of the Moscow license area and diminish the competitive advantage we hope to enjoy from our creation of a single, integrated national network. Operators in the MegaFon group currently, or are expected to, compete with us in the North-West region, which includes St. Svyazinvest is effectively controlled by the Russian federal government.
Press reports have pointed to the previous involvement of federal government officials, including the current Minister of Communications, in entities owned by MegaFon as a potential reason for preferential treatment in regulatory matters. This could result in an uneven regulatory playing field and give MegaFon an advantage over us in competing for additional frequency allocations or new licenses.
MegaFon may also receive significant financial assistance from its major shareholders. The company has also announced its intention to conduct an initial public offering which, if consummated, could provide MegaFon with a substantial amount of capital to invest into its network. Our reliance on the GSM standard may prevent us from competing effectively against other existing technologies and new technologies, causing us to lose subscribers and associated revenues. The adoption of UMTS may also increase the competition we face.
In Russia, the Ministry of Communications expects to complete preparatory work for license tenders for third-generation mobile cellular standards in the near future. The UMTS standard is significantly superior to existing second-generation standards such as GSM, and given our reliance on the GSM standard, we may not be able to develop a strategy compatible with this or any other new technology. The technology we currently use may become obsolete or uncompetitive, and we may not be able to acquire new technologies necessary to compete on reasonable terms.
In addition, expenditures in connection with new technology may adversely affect our ability to expand in other areas. The Ministry of Communications has granted licenses based on code division multiple access, or CDMA, technology for the provision of fixed wireless services in a number of regions throughout Russia.
CDMA is a second-generation digital cellular telephony technology that can be used for the provision of both mobile and fixed services. Although CDMA technology is currently classified in Russia as a fixed radio telephone service, it may be used for mobile communications, and there is a risk that it may be offered for use via portable handsets. The regulatory environment for telecommunications in Russia is uncertain and may be subject to political influence, resulting in negative regulatory decisions on other than legal grounds.
We operate in an uncertain regulatory environment. There is no comprehensive legal framework with respect to the provision of telecommunication services in Russia and in other areas in which we currently or may in the future operate, although a number of laws, decrees and regulations apply to the telecommunications sector. In particular, in Russia, the telecommunications system is regulated by the Ministry of Communications, largely through the issuance of licenses and instructions, and officials of the Ministry of Communications have a high degree of discretion.
In this environment, political influence could be exerted to affect regulatory decisions against us, and we cannot assure you that regulators will not challenge our compliance with applicable laws, decrees and regulations. Although Sistema, one of our principal shareholders, has no formal ties with the Mayor of Moscow, Yuri Luzhkov, it has been linked in press reports to him. We believe the likely source of such press reports is the fact that the controlling shareholder and Chairman of the Board of Sistema, Vladimir P. Evtushenkov, for many years worked at the government of Moscow as Mr.
Because Mr. Luzhkov has been, at times, politically adverse to President Putin, in the event of a political clash between the two politicians, some commentators in the press have suggested that President Putin could seek to exert pressure against Mr. Luzhkov through attacks on companies perceived as linked to him, such as Sistema and us.
If those commentators are correct, this could result in regulatory decisions against us on other than legal grounds, potentially increasing our costs and leading to negative impacts on our business or reducing our rights under our licenses. Because of limitations on the rights of license holders and the need to have a license reissued in the event of a merger, our ability to integrate our networks may be restricted, thus preventing us from offering integrated network services.
As our regional development program proceeds, we intend to integrate our various networks to create a single, unified GSM network. The Federal Law on Communications and other telecommunications regulations prohibit the transfer or assignment of licenses and require that telecommunications services must be provided by the licensee only. Further, Letter No. This requirement has been an important factor in our recent acquisitions. As we are unable to buy licenses, we must rather purchase the company holding the license. We also must continue to operate through such company in its license area by entering into agency, lease, services and similar agreements.
To date, the Ministry of Communications has not challenged agreements between licensees and third parties in connection with the provision of services under a license. We have entered into a series of agreements with a number of our subsidiaries for the provision of network construction services, the lease of mobile switching centers and related services. The Ministry of Communications may change its position and view these agreements as violating the general prohibition on the transfer or assignment of licenses. Additionally, Russian law requires that, in the event of a merger, a license held by either of the merging entities must be reissued to the successor entity, rather than simply transferred.
We intend to continue to merge with our wholly-owned subsidiaries as part of our efforts to integrate our networks. Failure to receive a new license as part of a merger would result in the loss of our ability to operate in that license area and might prevent us from attempting future mergers.
Restrictions on our ability to enter into contracts with our subsidiaries, or the failure to receive a new license in the event of a merger, would restrict our ability to create a single, unified GSM network, reducing our ability to attract and retain subscribers and compete with a federal, country-wide licensee in the event that such a license was granted.
Regulatory uncertainties affecting the renewal of our licenses could result in an inability to renew our licenses or increases in our obligations and a reduction of our rights under the terms of a renewed license, increasing our costs and limiting our service area. Our licenses expire in various years from to and may be renewed upon application to the Ministry of Communications. Officials of the Ministry of Communications have broad discretion in deciding whether to renew a license, and we cannot assure you that our licenses will be renewed after expiration.
If our licenses are renewed, they may be renewed with additional obligations, including payment obligations, or for reduced service areas. Failure to renew our licenses or receive renewed licenses with similar terms to our existing licenses, particularly for the Moscow license area, could significantly diminish our service area and decrease our subscriber numbers. If we were categorized as a monopoly, our tariffs could be reduced and our commercial activities restricted, significantly affecting our results of operations.
This classification, in turn, gives the Ministry the power to impose certain restrictions on the businesses of those entities including the pre-approval of direct acquisitions of assets or shares in other entities as well as the pre-approval of related party transactions. While we do not believe that there is a basis to categorize any of our entities as a dominant force, any determination to this effect could result in the regulation of our tariffs and restrictions on our commercial activities. Therefore, we attempt to avoid classification as a dominant force in the market, which, in turn, negatively impacts our ability to expand.
If we or any of our subsidiaries were classified as a dominant market force, the imposition of government-determined tariffs could result in competitive disadvantages, a decrease in our subscriber base and a significant decline in revenues. Additionally, restrictions on expansion or government-mandated withdrawal from regions or markets would negatively affect our plans for expansion and could reduce our subscriber base.
Moreover, we could be required to make additional license applications at additional unexpected cost. The public switched telephone networks have reached capacity limits and need modernization, which may inconvenience our subscribers and will require us to make additional capital expenditures. The overtaxing of these long distance lines may inconvenience our federal number subscribers by causing incoming and outgoing calls to have lower completion rates. Resolving these issues will require additional investment.
In addition, continued growth in local, long-distance and international traffic, including that generated by our subscribers, may require substantial investment in public switched telephone networks. Although the operators of public switched telephone networks are normally responsible for these investments, their weak financial condition may prevent them from making these investments. Since we are financially strong relative to these public network operators, we may be compelled to make such investments on their behalf, placing an additional burden on our financial and human resources.
Additionally, assuming we do make such investments, we may not own the assets resulting from such investment. While we cannot estimate the financial and operating burdens associated with such investments, they may be substantial. Alleged medical risks of cellular technology may subject us to negative publicity or litigation in Russia, decrease our access to base station sites, diminish subscriber usage and hinder access to additional financing.
The significant environmental damage suffered by Russia during the communist era has increased public sensitivity to health risks arising from technology. Electromagnetic emissions from transmitter masts and mobile handsets may harm the health of individuals exposed for long periods of time to these emissions. The actual or perceived health risks of transmitter masts and mobile handsets or press reports in Russia of any litigation relating to such risks could materially adversely affect us, including in the following ways: As mobile phones increase in technological capacity, they are becoming increasingly subject to computer viruses.
These viruses can replicate and distribute themselves throughout a network system, slowing the network through the unusually high volume of messages sent across the network, in addition to affecting data stored in individual handsets. We cannot be sure that we will not be the target of a virus, or if we are, that we will be able to maintain the integrity of the data in individual handsets of our subscribers or that such a virus will not overload our network, causing significant harm to our operations.
Risks Relating to the Russian Federation. Economic Risks. Economic instability in Russia could adversely affect our business. Since the dissolution of the Soviet Union, the Russian economy has experienced at various times: The Russian economy has been subject to abrupt downturns. These actions resulted in an immediate and severe devaluation of the ruble and a sharp increase in the rate of inflation; a dramatic decline in the prices of Russian debt and equity securities; and an inability of Russian issuers to raise funds in the international capital markets.
This further impaired the ability of the banking sector to act as a consistent source of liquidity to Russian companies and resulted in the losses of bank deposits in some cases. A decline in international oil and gas prices, the strengthening of the ruble in real terms relative to the U. Particularly affected are the rail and road networks; power generation and transmission; communication systems; and building stock. Road conditions throughout Russia are poor, with many roads not meeting minimum quality requirements.
Any such reorganization may result in increased charges and tariffs while failing to generate the anticipated capital investment needed to repair, maintain and improve these systems. These difficulties can impact us directly; for example, we have needed to keep portable electrical generators available to help us maintain base station operations in the event of power failures.
Further deterioration in the physical infrastructure could have a material adverse effect on our business and the value of our securities. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Russia and adversely affect the Russian economy.
Additionally, because Russia produces and exports large amounts of oil, the Russian economy is especially vulnerable to the price of oil on the world market and a decline in the price of oil could slow or disrupt the Russian economy. These developments could severely limit our access to capital and could adversely affect the purchasing power of our customers and thus our business. Political Risks. Since , Russia has sought to transform itself from a one-party state with a centrally planned economy to a pluralist democracy with a market-oriented economy.
As a result of the sweeping nature of the reforms, and the failure of some of them, the Russian political system remains vulnerable to popular dissatisfaction, as well as to unrest by particular social and ethnic groups. Significant political instability could have a material adverse effect on the value of foreign investments in Russia, including the value of our securities.
Governmental instability could adversely affect the value of investments in Russia and the value of our securities. While President Putin has maintained governmental stability and even accelerated the reform process, he may adopt a different approach over time. The value of investments in Russia and the notes could be reduced and our prospects could be harmed if governmental instability recurs or if reform policies are reversed.
Conflict between central and regional authorities and other conflicts could create an uncertain operating environment that would hinder our long-term planning ability and could negatively affect the value of investments in Russia. The Russian Federation is a federation of republics, territories, regions, cities of federal importance and autonomous areas. The delineation of authority among the members of the Russian Federation and the federal governmental authorities is, in many instances, uncertain and sometimes contested. Lack of consensus between the federal government and local or regional authorities often results in the enactment of conflicting legislation at various levels and may result in political instability.
This lack of consensus hinders our long-term planning efforts and creates uncertainties in our operating environment, both of which may prevent us from efficiently carrying out our expansion plans. Additionally, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions, and in certain cases, to military conflict. Russian military forces have been engaged in Chechnya in the past and are currently involved in ground and air operations there. The spread of violence, or its intensification, could have significant political consequences.
These include the imposition of a state of emergency in some or all of the Russian Federation. These events could materially adversely affect the value of investments in Russia, including in the value of our securities. Weaknesses relating to the Russian legal system and Russian legislation create an uncertain environment for investment and business activity and, thus, could have a material adverse effect on an investment in our securities. Risks associated with the Russian legal system include: Additionally, several fundamental Russian laws have only recently become effective.
The recent nature of much of Russian legislation, the lack of consensus about the scope, content and pace of economic and political reform and the rapid evolution of the Russian legal system in ways that may not always coincide with market developments place the enforceability and underlying constitutionality of laws in doubt and results in ambiguities, inconsistencies and anomalies.
In addition, Russian legislation often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the regulatory infrastructure. All of these weaknesses could affect our ability to enforce our rights under our licenses and under our contracts, or to defend ourselves against claims by others.
Furthermore, we cannot assure you that regulators, judicial authorities or third parties will not challenge our compliance with applicable laws, decrees and regulations. Lack of independence and experience of the judiciary, the difficulty of enforcing court decisions and governmental discretion in enforcing claims could prevent us or you from obtaining effective redress in a court proceeding, materially adversely affecting an investment in our securities. The independence of the judicial system and its immunity from economic, political and nationalistic influences in Russia remain largely untested.
The court system is understaffed and underfunded. Judges and courts are generally inexperienced in the area of business and corporate law. Judicial precedents generally have no binding effect on subsequent decisions. Not all Russian legislation and court decisions are readily available to the public or organized in a manner that facilitates understanding.
The Russian judicial system can be slow. Enforcement of court orders can in practice be very difficult in Russia. All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain. Additionally, court claims are often used in furtherance of political aims. We may be subject to such claims and may not be able to receive a fair hearing. Additionally, court orders are not always enforced or followed by law enforcement agencies.
These uncertainties also extend to property rights. However, it is possible that due to the lack of experience in enforcing these provisions and due to potential political changes, these protections would not be enforced in the event of an attempted expropriation or nationalization. Some government entities have tried to renationalize privatized businesses.
Expropriation or nationalization of any of our entities, their assets or portions thereof, potentially without adequate compensation, would have a material adverse effect on us. Unlawful or arbitrary government action may have an adverse affect on our business and the value of an investment in our securities.
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