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VimpelCom / Annual Report 2007
Our ARPU growth was predominantly fueled by an increase in ARPU in
Russia, which increased to US$12.6 in 2007 from US$9.6 in 2006. In
Russia, we continued to focus on growth in ARPU and revenue coupled
with strict cost control in 2007. Other key components of our growth
strategy in Russia will be to increase our share of the high value subscriber
market, improve subscriber loyalty, and make selective acquisitions of
regional operators.
In the CIS, we will focus on strengthening our commercial operations,
in order to provide increased levels of coverage and service for our
customers, and on subscriber growth. Most of the mobile markets in
the CIS are still in a phase of rapid subscriber growth with penetration
rates substantially lower than in Russia, including Kazakhstan
(82.4%), Uzbekistan (22.0%), Tajikistan (30.2%), Georgia (55.8%) and
Armenia (58.0%) As the infrastructure for mobile networks improves
and the use of mobile devices becomes more widely-accepted, we
expect substantial increases in the number of new subscribers using
mobile services and we believe we are well-positioned to capitalize on
this growth. Going forward, we expect the contribution of our mobile
operations in these countries to our financial results to increase at
a higher proportionate rate than our mobile operations in Russia.
Like Russia, the mobile penetration rate in Ukraine is over 119.0%
and accordingly, the opportunity for subscriber growth in Ukraine is
less than the opportunity in other countries of the CIS in which we
operate.
Golden Telecom has also experienced significant growth in both
revenues and operating income in recent years. This growth has come
predominantly from Golden Telecom’s Business and Corporate Services
line of business and its Carrier and Operator Services line of business.
Growth across Golden Telecom’s lines of business resulted primarily
from growth in demand for its products caused by an improving
macroeconomic environment in Russia, Ukraine and the CIS and the
inflow of direct foreign investment into these countries, as well as
Golden Telecom’s regional expansion and market segment expansion.
We expect revenues from the business currently comprising Golden
Telecom’s Consumer Internet Services line of business to grow at a higher
proportionate rate than the businesses currently comprising Golden
Telecom’s other lines of business. We also expect the consolidation
of Golden Telecom’s business into ours will have a somewhat dilutive
effect on our margins due to the generally lower margins associated
with fixed-line telecommunications businesses as compared to mobile
businesses. In addition, the acquisition of Golden Telecom will result
in a substantial increase in our goodwill. Also, in connection with the
financing of our acquisition of Golden Telecom our indebtedness has
increased substantially, and interest expense in connection with this
indebtedness will have a negative impact on our net income going
forward. Furthermore, our depreciation and amortization expense going
forward will reflect an increase due to the step-up in value of the Golden
Telecom assets recorded as a result of the acquisition.
Certain Performance Indicators
The following discussion analyzes certain operating data, such as
subscriber data, total average monthly minutes of use per subscriber,
or MOU, ARPU and churn rate that are not included in our financial
statements included in this annual report. We provide this operating
data because it is regularly reviewed by management and because
management believes it is useful in evaluating our performance from
period to period as set out below. We believe that presenting information
about subscriber data, MOU and ARPU is useful in assessing the usage and
acceptance of our mobile products and services, and that presenting our
churn rate is useful in assessing our ability to retain mobile subscribers.
Subscriber Data
We offer both contract and prepaid services to our mobile subscribers.
As of December 31, 2007, we had approximately 51.7 million active
mobile subscribers, representing 81.7% of our approximately 63.3
million registered subscribers. An «active subscriber» is a subscriber
whose activity resulted in income to our company during the most
recent three months and who remains in the base at the end of the
reported period. Such activity includes all incoming and outgoing
calls, subscriber fee accruals, debits related to service, outgoing SMS,
MMS, data transmission and receipt sessions, but does not include
incoming SMS and MMS sent by our company or abandoned calls. A
«registered subscriber» is an authorized user of cellular services using
one SIM card (GSM/3G) with one or several selective numbers. We
believe that the active subscriber definition is a better criterion for
analyzing our subscriber base and is more in line with international
standards. We also believe that registered subscriber figures have
become irrelevant for operational purposes. As a result, we provide
the subscriber data and calculations of MOU and ARPU herein on the
basis of active subscribers. This additional operating information may
not be uniformly defined by companies operating in this sector and,
accordingly, may not be comparable with similarly titled measures and
disclosures by our competitors. We provide market share data herein
on the basis of our registered subscribers because the information is
based on information reported by an independent third party, who
continues to base its calculations on registered subscribers. Although
we also provide the churn information contained herein on the basis of
our registered subscribers, we plan on reporting churn on the basis of
active subscribers with the period beginning January 1, 2008 because
we believe the registered subscriber figures have become irrelevant for
operational purposes.
The following table indicates our mobile subscriber figures, as well as our
prepaid mobile subscribers as a percentage of our total mobile subscriber
base, for the periods indicated:
As of December 31,
2007 2006 2005
Russia 42,221,252 39,782,690 35,936,356
Kazakhstan 4,603,300 3,052,878 1,813,938
Ukraine 1,941,251 1,523,682 249,189
Tajikistan 339,393 72,028 –
Uzbekistan 2,119,612 700,470 –
Armenia 442,484 415,965 –
Georgia 72,655 – –
Total number
of subscribers 51,739,947 45,547,713 37,999,483
Percentage of prepaid
subscribers 95.9% 96.2% 96.5%