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. Last Updated: 07/27/2016

Vimpelcom Hails 28% Profit Increase

Cellular telecommunications provider Vimpelcom ended 1997 on a high note, netting its 100,000th subscriber and posting a 28 percent increase in net profits.

Vimpelcom officials announced Tuesday $57.4 million in net profits for the first three quarters of 1997 and the last three months of 1996. In comparison, net profits for the year ending September 1996 were $44.9 million.

"The main event of 1997, which was also our fifth anniversary, was obtaining a license for the [higher frequency] GSM-1800 standard," Vimpelcom President Dmitry Zimin said at a news conference. "Now we must work to broaden our spectrum of services."

The company got another boost last week when it signed a $100 million credit agreement with ING Bank to finance purchase of telecommunications equipment from Swedish firm Ericsson.

Zimin said Vimpelcom also plans to diversify. "The time has come to move from merely providing telecoms services, to start participating in the creation of technology for the 21st century," he said.

Vimpelcom, which pioneered cellular services in Russia, was the first Russian company to post an American Depositary Receipt and list shares on the New York stock Exchange.

But it postponed plans for a Eurobond issue due to market turmoil.

Analysts predict a bright future for telecoms providers in Russia where market penetration is a dismal 0.2 percent, compared to more than 30 percent in some countries. Penetration rates are expected to rise to 10 percent by 2005.

A key factor in the low penetration rate is the price of cellular services. At prevailing tariffs Vimpelcom is estimated to generate revenues of $350 per subscriber per month as compared to $50 for London providers.

Though Zimin said Vimpelcom has no plans to lower tariffs this year, Andrei Braginsky, telecoms analyst with Skate financial information agency, said it might have no choice as competition heats up on Moscow's cellular market.

"The problem is that providers now have capacity constraints, which prevent them from meeting the demand for cellular services," Braginsky said, noting that high prices notwithstanding, demand remains uniformly high.

In 1998 Vimpelcom plans to invest in technology and obtain an additional license, which would allow its subscribers to seamlessly switch between the GSM-900 and the GSM-1800 standards it uses now. It will also bid in a tender for GSM-1800 licenses in Russia's regions.

The news conference included a teleconference with Ake Persson, vice president of radio operations for Ericsson, Vimpelcom's main equipment supplier.

Later Zimin gave out awards to Vimpelcom's 100,000th subscriber and 10,000th digital network subscriber.

Braginsky said Vimpelcom would continue to lead the market for some years though its rivals -- Moscow Telesystems and Moscow Cellular -- will increase their market shares.

"Though Vimpelcom's growth rate will fall somewhat, it will still be fantastic in comparison with profitability rates of most Western providers," he said.

Company officials said studies show increasing demand from Moscow's middle class rather than the very affluent."