Financial Results

MTS turned a profit on the migration of Ukrainians

MTS turned a profit on the migration of Ukrainians
Ukrainians fled from Donetsk and Luhansk abroad with their MTS SIM-cards.
Photo: Ivan Chernichkin

Yesterday’s report of the MTS Ukraine company showed that in Q3 2014 its earnings in hryvnia did not decrease as was the case with its main competitor Kyivstar. On the contrary, the operator’s profits increased by 6.9% compared to July-September 2013 to UAH 2.817 mn. As a reminder, the profits of Kyivstar over the last reporting period fell by 6% to UAH 3.16 mn.

MTS has caught up to Kyivstar

Disregarding the additional earnings of Kyivstar from fixed communications and Internet access, it turns out that the volume of the gross earnings from the main businesses of the two largest players on the market were equal. Kyivstar’s indicator was UAH 2.906 mn, which is only 3% more than its main competitor. A year ago the difference was 16.5% (Kyivstar — UAH 3.069 mn, MTS Ukraine — UAH 2.634 mn).

The financial report of VimpelCom (the mother company of Kyivstar) showed that the decrease in earnings was associated with the events in the country: subscribers began spending less, while the earnings from hosting roaming also fell seeing as less tourists are visiting Ukraine.

Where are tourists from?

Strangely enough, MTS noted in its report the contrary saying that roaming had a positive effect on its earnings. «The growth of ARPU (average earnings from one subscriber per month — Capital) according to quarterly estimates is due to the increase in earnings from roaming services,» it reads in the company’s report. This indicator grew by 7.5% compared to Q2 2014 to UAH 41, while the average cost per minute was increased by a whopping 29% to 8.5 kopeeks.

Noteworthy is that the increase in earnings of the operators of mobile communications in Q3 2014 is typically a seasonal phenomenon. The fact is that July-September is the high vacation season. Besides that, earlier many «roamers» visited Crimea, which led to an increase in the earnings of mobile companies.

This year was dead season in terms of the number of tourists. The summer season of tourism in 2014 was deplorable, Capital wrote earlier. «Ukraine lost 40-50% of tourists that travel abroad. Maybe these figures will be higher,» President of the Association of Leaders of the Tourism Industry Oleksandr Novykovskiy told the publication earlier.

By the way, the ARPU of Kyivstar in Q3 2014 did not see a significant increase — a mere UAH 1.30 to UAH 37. Even in 2013, when the situation in the country was peaceful, MTS managed to increase its ARPU in July-September by only 2%. To be fair, it must be said that the ARPU of the third operator in terms of volume Astelit (life:)) grew considerably — 11.1%, though the company informed that this was due to the growth in the consumption of mobile Internet services.

Russia to the rescue

The manager of one of the large telecom operators believes that MTS earnings from roaming this year grew due to the large number of people that resettled in Russia. Noteworthy, MTS controlled more than 80% of the market in the Donetsk and Luhansk oblasts and was also the main operator in Crimea. An interlocutor of Capital presumes that part of the subscribers simply left to Russia. For example, those who moved to Rostov located close to the border continue to use Ukrainian SIM-cards.

Capital already wrote about the fact that the activeness of MTS subscribers in the eastern part of Ukraine has fallen. The traffic in August in the company’s network in Luhansk fell by 40% and in Donetsk by 24%. Among other things, this shows that part of the customers left the region. At the end of this summer Agence France-Presse (AFP) with reference to the UNHCR (UN Refugee Agency) said that nearly 416,000 residents of the eastern regions of Ukraine became refugees. Also, around 198,000 Ukrainians that were forced to leave their native cities went to Russia, more than 14,000 to Poland and almost 14,000 to Belarus.

Head of the MTS Public Relations Department Viktoria Ruban says that some of the subscribers clearly migrated within the limits of the country, while the second considerable part of them indeed most likely fled to Russia and are using MTS Ukraine SIM-cards in order to maintain contact with relatives in Ukraine. She cannot say for sure how many subscribers of MTS Ukraine ended up in Russia’s roaming regions presuming that there are tens of thousands of them.

As a rule, an operator earns the lion’s share of its profits from services provided abroad to its roaming partners in other countries. In other words, the receiving end earns the most even though Ukrainian subscribers of MTS fall into the MTS Russia network when they arrive there, which means that the total earnings remain in one and the same corporate group.

Ruban added that other factors could influence the growth of earnings in Q3 2014, such as changes in access rates to the networks of foreign operators, although MTS has not recently made considerable changes to its rates for international communications.

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