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. Last Updated: 07/27/2016

MTS Warns of Challenges

Mobile phone operator Mobile TeleSystems reported lower-than-expected fourth-quarter results Monday, and its chief executive warned of challenges ahead in 2006.

MTS said net profit was $242.6 million, down 26 percent from the third quarter and below the average forecast of $256.6 million in a Reuters poll of 11 analysts. Net profit was up 23 percent on the same quarter a year earlier.

Revenues were $1.33 billion, just short of the analysts' forecast of $1.35 billion, and down on the third quarter's $1.38 billion.

Average revenue per user fell to $7.30 per month in Russia and $9.10 in Ukraine, while analysts had expected $7.60 and $9, respectively. "ARPU is falling, but I think we will see the floor by the end of the year," he said.

Analysts said they were most worried about MTS's weakness in Russia, its key market. In the fourth quarter, MTS focused on Ukraine, where penetration is lower than in Russia and where rival VimpelCom has also launched operations.

Renaissance Capital analyst Alex Kazbegi said most of the emphasis, and therefore the additional marketing costs, had been on MTS's Ukrainian operations, so it was surprising that the Russian figures had suffered most.

Kazbegi also said MTS's fourth-quarter results might show a trend in Russian mobile business that could also be reflected in VimpelCom's results.

Sidorov also said the firm faced new challenges in 2006 with the introduction of a calling-party-pays regime, mobile number portability and mobile virtual network operators.