Ahead of UMC in terms of profitability

competition

On Friday, the largest cellular operators reported their earnings for the first quarter of 2006. Kyivstar's income amounted to UAH 2.7 billion ($530 million), UMC - UAH 2.4 billion ($470 million). However, experts predict that by the end of the current year, UMC’s income indicators will be higher than those of Kyivstar, since the latter is increasing its subscriber base at the expense of low-income subscribers.

The volume of the cellular communications market in 2005 amounted to $2.4 billion. Cellular communications services are provided by Kyivstar (46.5% of the total number of subscribers), UMC (44.5%), Astelit (TM life:)), DCC (8%), "Ukrainian Radio Systems" (TM "Beeline") (0.8%) and "Golden Telecom" (0.2%).

On Friday, the financial results of the largest mobile operators - Kyivstar and UMC - became known. According to the companies, Kyivstar's income from the provision of communication services increased in the first quarter of 2006 by 60.7% compared to the results of the same period in 2005 and amounted to UAH 2.73 billion. UMC's revenues increased by 24% compared to the same period last year, amounting to UAH 2.4 billion.

The operators themselves explain this rate of growth in revenues of Kyivstar and UMC by the growth of their subscriber bases. “Each operator has twice as many subscribers compared to the beginning of last year,” explained UMC director Vasily Latsanich. Kyivstar declined to comment. Experts note that the growth in Kyivstar’s profitability is almost three times higher than that of its competitor, due to the growth of its subscriber base: at the beginning of 2005, Kyivstar had almost 1.1 million fewer subscribers than UMC, and with at the beginning of 2006 there were already 500 thousand more people.

According to the companies' own data, in the first quarter of 2006, Kyivstar serves 15.15 million people (the number of subscribers is determined by the number of SIM cards sold). The growth of the subscriber base in the first quarter amounted to 1.2 million people. And UMC serves more than 14.6 million people. The growth of the subscriber base in the first quarter amounted to 1.3 million people.

However, according to experts' forecasts, at the end of the year, UMC's income will still exceed the income of Kyivstar. Operators will earn about $1.35 billion and $1.27 billion, respectively. Aleksey Rudenko, an analyst at the Millennium Capital investment company, explained this by saying that Kyivstar is now attracting low-income clients and thereby reducing ARPU (revenue from the sale of services per subscriber). “In the fight for new customers, the operator will have to sacrifice income,” said Mr. Rudenko.

Alexander Sandul, an analyst at the investment company Foyil Securities, believes that this year the growth rate of operator revenues will slow down, explaining this by the fact that the cellular communications market is close to saturation. “At the end of this year, the penetration (the ratio of the number of subscribers to the country’s population—Kommersant) of cellular communications will reach a level after which the growth of the subscriber base will slow down and, accordingly, the growth of revenues will slow down. This can be tracked by the example of European countries, where the level of penetration of cellular communications at which the growth of operator income slows down is 90 percent, and in Ukraine this year it will reach 85 percent (now 70%.—Kommersant),” said Mr. Sandul.

MAXIM J-KUTIK

Kyivstar made a low start