12% Subscriber growth during 1998
Moscow and New York (January 8, 1999) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom") (NYSE: "VIP") today reported preliminary results for the fourth quarter and fiscal year ended December 31, 1998. VimpelCom expects to release U.S. GAAP audited financial results for these periods in April 1999.
Despite the Russian economic crisis, VimpelCom's total year-to-year subscriber growth was approximately 12% with the number of subscribers as of December 31, 1998 at approximately 124,000, as compared to 110,140 subscribers reported as of the end of 1997. However, as a result of the onset of the economic crisis in August 1998, the number of subscribers on VimpelCom's networks decreased in the fourth quarter by approximately 12%, as compared to the 141,600 subscribers reported as of September 30, 1998. At the end of 1998, VimpelCom's 50% joint venture in Samara had over 10,350 subscribers, a growth of 85% over the 1997 year end subscriber figure of 5,600.
VimpelCom's GSM network experienced a moderate increase in subscribers in the fourth quarter despite the reduction in the overall subscriber base during that same period. As of December 31, 1998, VimpelCom's GSM network had approximately 21,000 subscribers, which constituted approximately 17% of the Company's total subscriber base as of such date. GSM subscriber growth was due primarily to individuals signing up for prepaid card services, which were introduced by VimpelCom in late October 1998.
VimpelCom's annual average monthly airtime usage per subscriber in 1998 was 295 minutes, approximately 21% less than the 376 minutes reported in 1997. Management believes that the increased rate of decline in average monthly airtime usage per subscriber was a direct result of the Russian economic crisis, resulting in a 28% decline in the fourth quarter compared to the third quarter. VimpelCom's annual average monthly service revenue per subscriber (ARPU) for 1998 was approximately US$213, 23% less than the US$277 reported in 1997. This reflected the decline in minutes of airtime usage as tariffs did not change materially during 1998. VimpelCom also recorded an extraordinarily high churn rate in 1998, estimated at 54% for the year, most of which occurred subsequent to the Russian economic crisis. The Company has continued its strict policy of disconnecting non-paying customers, which accounted for almost two thirds of all disconnects during 1998.
The Company expects reduced revenues in the fourth quarter compared to the third quarter and to report a net loss for the fiscal year ended December 31, 1998. The expected net loss for the year is a result of extraordinary charges in the third quarter of 1998 for GKO securities and foreign exchange losses, as well as lower net income for the fourth quarter of 1998. The Company anticipates limited subscriber growth and lower revenues in 1999 as negative consumer sentiment continues as a result of the Russian economic crisis. During 1999, the Company also expects churn rate to continue to remain high and ARPU to continue to decline at similar rates as in 1998, due to the anticipated growth in prepaid service subscribers and increasing price sensitivity.
Commenting on today's announcement, Dr. Dmitri Zimin, President and Chief Executive Officer of VimpelCom, said: "1998 was a very difficult year for Russia and VimpelCom. The economic crisis, which began in August, has had an adverse effect on VimpelCom's results for 1998. However, we remain confident that once the Russian economy stabilizes and as we continue to build out our GSM network and promote our prepaid and value added services, VimpelCom will resume its steady growth. Despite the economic crisis, 1998 was marked by a number of outstanding achievements for the Company. These achievements will have a long-term positive effect in positioning VimpelCom for future growth and expansion, and will provide the Company with the resources to enable it to remain a major player and leader in the development of the telecommunications industry in Russia."
VimpelCom continued to expand the coverage area of its Moscow networks during 1998. At the end of 1998, the Company's coverage area was approximately 36,700 sq. km. for its D-AMPS network (a 51% increase in coverage area compared to the end of 1997) and approximately 4,000 sq. km. for its GSM network (a 300% increase in coverage area compared to the end of 1997). Also, as of the end of 1998, VimpelCom had entered into international roaming agreements with 55 operators in 34 countries.
In 1998, the Company was awarded four new GSM-1800 licenses, which extended the total population in VimpelCom's license areas to approximately 100 million (68% of Russia's population). Also, in August 1998, the Company's GSM-1800 licenses for the Moscow License Area and the Central and Central Black Earth License Area of Russia were amended to permit the Company to operate dual band GSM-900/1800 networks in such license areas which cover a population of over 40 million people. The Company has been successful in deploying the first phase of its GSM-900 network in the Moscow License Area.
During 1998, VimpelCom entered into various agreements to begin to provide mobile satellite services throughout Russia. In December 1998 VimpelCom, ICO and Morsviazsputnik (a Russian enterprise represented in Inmarsat) signed a joint venture agreement to form a Russian joint stock company ICO-R, which will be the exclusive operator of ICO services in Russia. VimpelCom will hold 50% of common stock in ICO-R. VimpelCom also signed an agreement with Iridium to become a service provider for Iridium in Russia.
On December 1, 1998, VimpelCom and Telenor AS ("Telenor") announced that they reached an agreement for Telenor to purchase a strategic ownership interest in VimpelCom. The Company will issue 8,902,201 new common shares at $18.19 per share ($13.64 per ADS). Immediate post-transaction, Telenor will have 25.7% of VimpelCom's total voting stock (31.6% of the common shares) in consideration for a cash payment of approximately $162 million, the full amount of which has been placed in escrow to fund the purchase of shares. This capital infusion will be used by VimpelCom to develop its GSM licenses, fiber optic network and Internet services and other telecommunications projects. The transaction also contemplates a subsidized services agreement. The issuance of shares to Telenor and certain other aspects of the transaction are subject to a 3/4 majority approval by VimpelCom's shareholders, as well as various Russian regulatory approvals (including the State Antimonopoly Committee of the Russian Federation, the Russian Federal Commission on the Securities Markets and the Central Bank of Russia). The VimpelCom Board of Directors has recommended the terms of the transaction to VimpelCom's shareholders and will hold a special shareholder meeting on January 29, 1999 to consider the matters requiring shareholder approval. Subject to obtaining necessary shareholder and regulatory approvals, the Company anticipates closing the transaction by June 1, 1999. The transaction also contemplates Telenor receiving three (3) out of nine (9) Board seats.
VimpelCom is a leading provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line". The VimpelCom Group operates GSM and Digital-AMPS cellular networks in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The VimpelCom Group holds cellular licenses covering a total population of approximately 100 million (68% of Russia's population). VimpelCom was the first Russian company listed on the New York Stock Exchange (November 1996) and its ADSs trade under the symbol "VIP"
This press release contains forward-looking statements related to the development of the Company's business. These statements are based on Management's best assessment of future market conditions and trends. The actual outcome may differ from these statements as a result of unforeseen developments from competition, governmental regulations of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia, all of which may be aggravated by the current economic and political crisis. No assurance can be given that the economic crisis will abate in the foreseeable future or that the full impact of the economic crisis on the VimpelCom Group can be assessed at this time. As a result of such uncertainties, there can be no assurance that current or future changes in the political, economic and social environment or current or future regulation of the Russian telecommunications industry will not have a material adverse effect on the VimpelCom Group. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.
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