Rostelecom’s profits cut in half

2 Aug 2006

Russian former long-distance monopoly Rostelecom’s net profit halved in the first half of 2006, with the company attributing the fall to the liberalisation of the telecoms market. 1H net income, calculated using Russian accounting standards, fell 53% to RUB2.7 billion (USD100.7 million) compared with the same period a year ago, a bigger hit than most analysts had expected. Rostelecom lost its monopoly on DLD and ILD calls earlier this year, and other sector reforms have spurred a massive rise in expenditure, with changes in the system of payments to other operators driving up costs by 90% to RUB24.79 billion. Under the reforms, Rostelecom also has to compensate regional telecoms providers for long-distance and international tariffs, which are set by the government. Long-distance traffic fell by 1% in the second quarter compared with 2Q ‘05. Although Rostelecom’s revenue rose 47.2% to RUB28.7 billion, EBITDA fell to RUB5.5 billion from RUB7.7 billion a year before. EBITDA margin dropped to 19.1% from 39.7%. The telco this year increased its capex by 70% to RUB9.4 billion. The Bank of Moscow said it expected Rostelecom’s results would worsen as real competition in the long-distance market starts from next year and it expects the company to lose up to 40% of its market share.

Russia, Rostelecom