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VimpelCom / Annual Report 2007
somoni-U.S. dollar exchange rate was 3.4645 per U.S. dollar. At
December 31, 2006, the official Tajik somoni-U.S. dollar exchange rate
was 3.4265 per U.S. dollar.
Uzbekistan. The national currency of the Uzbekistan is the Uzbek sum.
Management has determined Unitel’s functional currency to be the U.S.
dollars as it reflects the economic substance of the underlying events
and circumstances of the company. The Uzbek sum is not a convertible
currency outside Uzbekistan. At December 31, 2007 the official Uzbek
sum-U.S. dollar exchange rate was 1,290.00 per U.S. dollar. At December
31, 2006 the official Uzbek sum-U.S. dollar exchange rate was 1,240.00
per U.S. dollar.
Armenia. The national currency of the Republic of Armenia is the
Armenian dram. Management has determined Armentel’s functional
currency to be the Armenian dram as it reflects the economic substance of
the underlying events and circumstances of the company. The Armenian
dram is not a convertible currency outside Armenia. At December 31,
2007 the official Armenian dram-U.S. dollar exchange rate was 304.57
drams per U.S. dollar. At December 31, 2006 the official Armenian dram-
U.S. dollar exchange rate was 363.50 drams per U.S. dollar.
Georgia. The national currency of the Republic of Georgia is the Georgian
lari. Management has determined Mobitel’s functional currency to be
the Georgian lari as it reflects the economic substance of the underlying
events and circumstances of the company. The Georgian lari is not a
convertible currency outside Georgia. At December 31, 2007 the official
Georgian lari-U.S. dollar exchange rate was 1.5916 per U.S. dollar. At
December 31, 2006 the official Georgian lari-U.S. dollar exchange rate
was 1.7135 per U.S. dollar.
Conversion of foreign currencies which are not convertible outside the
applicable country to U.S. dollars or other foreign currency should not
be construed as a representation that such currency amounts have been,
could be, or will be in the future, convertible into U.S. dollars or other
foreign currency at the exchange rate shown, or at any other exchange
rates.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. Actual amounts may
differ from these estimates. The following critical accounting policies
require significant judgments, assumptions and estimates and should
be read in conjunction with our consolidated financial statements
included elsewhere in this annual report.
Revenue Recognition
We earn service revenues for usage of our cellular system, which include
airtime charges from contract and prepaid subscribers, monthly contract
fees, interconnect fees from other mobile and fixed-line operators,
roaming charges and charges for value added services. Interconnect
revenue include revenues from mobile and fixed-line operators that was
earned from the services rendered for traffic termination from other
operators. Roaming revenues include revenues from our customers who
roam outside their selected home coverage area and revenues from other
mobile carriers for roaming by their customers on our network. Value
added services include SMS, MMS, caller number identification, voice mail,
call waiting, data transmission, mobile Internet, music downloads and
other services. Generally, these features generate additional revenues
through monthly subscription fees or increased mobile usage through
utilization of the features. Service revenue is generally recognized
when the services (including value added services and roaming revenue)
are rendered. Prepaid cards, used as a method of cash collection, are
accounted as customer advances for future services. Prepaid cards do not
have expiration dates but are subject to statutory expiration periods, and
unused balances are added to service revenue when cards expire. Also we
use E-commerce systems, retail offices and agent locations as channels
for receiving customer payments. Revenues from equipment sales are
recognized in the period in which the equipment is sold. Revenues are
stated net of value-added tax and sales tax charged to customers.
Our billing cycles’ cut-off times require us to estimate the amount of
service revenue earned but not yet billed at the end of each accounting
period. We estimate our unbilled service revenue by reviewing the
amounts subsequently billed and estimating the amounts relating to
the previous accounting period based on the number of days covered
by invoices and other relevant factors. Actual service revenues could be
greater or lower than the amounts estimated due to the different usage
of airtime in different days. We have analyzed the potential differences
and believe that historically they have not been material.
In line with SEC Staff Accounting Bulletin No. 104, «Revenue Recognition
in Financial Statements,» we defer telecommunications connection
fees. Deferred revenues are subsequently recognized over the estimated
average customer lives under tariff plans, which provide for payment of
connection fees and which are periodically reassessed by us, and such
reassessment may impact our future operating results.
We currently have two customer loyalty programs, Malina and Hi-Lite Club.
With a Malina card, subscribers accumulate bonus points by purchasing
goods from participating vendors. We transfer earned bonus points to a
third-party company that processes and maintains the bonus program,
and we account for such bonuses as decreases in our service revenue. Hi-
Lite Club member subscribers receive additional services from us, and the
related expenses are accounted for as operating expenses.
Long Lived Assets and Impairments
We state our property and equipment at historical cost. We depreciate
our telecommunications equipment, including equipment acquired
under capital leases, using the straight-line method over its estimated
useful life of seven to nine years or the lease term, whichever is shorter.
Fixed-line telecommunication equipment is depreciated using the
straight-line method over its estimated useful life of twenty years. We
depreciate capitalized leasehold improvement expenses for base station