Sistema Shyam (MTS India) Q3 Revenue & ARPU declined amid regulatory uncertainty!

Sistema Shyam TeleServices Ltd. (SSTL), which operates its telecom services under the MTS brand in India, today announces its unaudited consolidated financial results for the Third Quarter ended September 30, 2012.

Key Financial & Operational Highlights for the Third Quarter of 2012

• Consolidated revenues down by 3.3{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} Q-o-Q to INR 4,040 million (USD 73 million). Total wireless (Voice & Data) subscriber base for the quarter grew by 0.2{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} to 16.6 million.
• Non-voice revenues from both data and mobile VAS for the quarter remained flat Q-o-Q at INR 1,482 million (USD 27 million), which now contributes 36.7{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} of total revenue. The contribution of Non Voice Revenues to the Total Revenues is amongst the highest in the industry.
• Blended mobile ARPU for the quarter declined by 6{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} Q-o-Q to INR 78.
• SSTL’s data card subscriber base for the quarter up by 5.9{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} to 1.83 million subscribers. SSTL added 0.10 million data card subscribers during the quarter.
• The Company continues to develop its data business- HSD services now cover over 450 towns across India.
• Consolidated OIBDA loss for the quarter stands at INR 3,541 million (USD 63.5 mn). OIBDA margins improved 20 p.p. Q-o-Q.

According to Vsevolod Rozanov, President and Chief Executive Officer of Sistema Shyam Teleservices Ltd, “The telecom industry continues to suffer due to regulatory actions. In a seasonally weak quarter the revenues of SSTL were impacted. The revenues declined for the first time since the start of the Company’s operations. The subscriber growth during the quarter also suffered on account of uncertainties in the operating environment and due to the predatory practices adopted by competition. Going forward, the plan includes to continue our focus on driving operational efficiencies. In addition, the Company’s immediate priority is to look at the outcome of its curative petition filed in the Honorable Supreme Court.”

Financial Summary

Revenue growth during the quarter was impacted due to the continued effect of TRAI changes in tariff structure leading to drop in Minutes of Usage (MoU) and Average Revenue Per User (ARPU), for all operators including MTS. The revenue growth for MTS was also impacted due to the slowdown in subscriber acquisition activity. The subscriber growth slowed down due to strict control over sales and marketing expenditures,  aggressive tariffs and predatory practices launched by competition, all leading to churn of existing subscribers.

SSTL’s mobile subscriber base increased by 0.3{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} quarter-on-quarter and reached 16.64 million customers as of September 30th, 2012. SSTL’s mobile subscribers’ MoU for Q3 2012 declined to 263 min vs. 281 min in Q2 2012. SSTL’s subscriber market share increased to 1.83{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} in Q3 2012 (vs. 1.77{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} in Q2 2012).

SSTL reported an OIBDA loss of INR 3,541 million for Q3 2012, reflecting an improvement in OIBDA margin by 52 p.p. Y-o-Y, margins improved as a result of increase in the scale of the business and on account of Operational efficiencies as well as certain onetime reversal of provisions. The Total Revenues during the quarter grew 23{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} over Q3 2011. The revenue growth was driven by 25{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} increase in subscriber base over Q3 2011. By the end of Q3 2012, SSTL’s HSD services covers more than 450 towns in India. The number of data subscribers increased by 5.9{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} over Q2 2012 to 1.83 million.

Sergey Savchenko, Chief Financial Officer of Sistema Shyam Teleservices Ltd., commented, “SSTL’s current focus on driving operational efficiencies has resulted in improvement in the OIBDA margin during the quarter, OIBDA margins improved by 20 p.p. as compared to Q2 2012. The quarter also saw SSTL successfully raising INR 480 crores from banks which again reaffirmed the continued trust of our partners. The plan is now to further optimize cash outflow, given the continued uncertainties in the operating environment.”

SSTL’s net income during the quarter improved by 58{af589cdba9d77786c8c861317dbad60bba1e2ebbf56e2ffab874a1b59fde9ce3} Q-o-Q. The Net Income benefitted due to improvement in OIBDA and also due to favorable movement in exchange rate resulting in recording of forex gains with respect to Long Term Foreign Currency denominated loans, as Rupee strengthened against the dollar at the end of the quarter.

The CAPEX investments made by SSTL in India at the end of 30^th September 2012 stands at INR 65.5 billion, it includes investment of INR 158 million made during Q3 2012. Accumulated losses of SSTL as at 30^th September 2012 aggregated to INR 101 billion. Consolidated debt from banks and financial institutions at the end of 30^th September 2012 stands at INR 80.64 billion.

Since End of Q3 2012

• MTS Launches an innovative Mobile Advertising Service – mAd; becomes the first telecom operator to offer FREE mobile calls on a Pan India basis.

• MTS launched new Smartphone; MTS MTag 353, under INR 6,000. The latest launch is in line with MTS’ strategy to offer greater choice to CDMA Smartphone customers. MTS subscribers can now choose from an expanded portfolio of 10 smartphones.
• MTS launched 13 new branded retail stores in Tamil Nadu, now servicing over 15 lakh Voice and Data customers in the circle.

Legal and Regulatory Update: 

• SSTL has taken all the necessary legal steps within the four corners of the Indian Judicial system to safeguard its interest. As part of the same strategy, SSTL on 4th May 2012 filed a Curative petition in the Hon’ble Supreme Court. The Company has consistently maintained that being a pure play CDMA operator, its legal case is significantly different compared to the other mobile operators. For example, there is no finding or suggestion by the CAG report that CDMA spectrum was equally or anywhere near in demand as GSM back in 2008. SSTL believes that it has a strong case and is determined to await its hearing. Given this context, and also considering the level of recommended spectrum prices, SSTL had no choice other than not to take part in the 2G auctions for 800 Mhz. The Company is hopeful that the highest court of the land will speedily look into the merits of its case and will give it justice.
• It may also be noted that, Sistema JSFC, the majority shareholder in SSTL, had invoked its right under the Bilateral Investment Treaty (BIT) between India and Russia, after the decision of the Hon’ble Supreme Court. Communication exchanges continue between Sistema JSFC and the Republic of India. This is a part of the conciliatory process as per the provisions of the BIT.
  • The SSTL management has the intent to continue its operations in India. The Company is hopeful that its curative petition will lead to a favorable outcome. Alternatively, the Company is also working on other plans and operational models to ensure the continuity of brand MTS in the country.

• In the mean time, inspite of various on ground business challenges arising out of the current regulatory and legal environment, SSTL a national telecom operator continues to service more than 16 million customers, employing over 7,000 (Direct and Indirect) employees, and with investments of over USD 3.2 billion.