Global Insight Perspective | |
Significance | Once again the business and corporate sector was the main driver of Golden Telecom's financial success. |
Implications | Golden Telecom will expect increased subscriber uptake in the residential sector, following its purchase of Corbina Telecom, and is adopting a multi-faceted approach to broadband roll-out. |
Outlook | In a growing market, which is still lacking a single, dominant player, Golden Telecom's aggressive strategy should form a template for rivals wishing to capitalise. |
Golden Telecom has reported that in the second quarter of 2007 its operating income rose 45% year-on-year (y/y) to US$49.2 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) were up 41% y/y to US$81.6 million. EBITDA margin, generally a useful gauge of company efficiency, was 27%, down from 29% twelve months earlier, although up from 22% the previous quarter. Golden Telecom also saw second-quarter revenues rise 51% y/y to US$297.9 million and net income rise 46% y/y to US$33.0 million.
As ever, the Business and Corporate Services (BCS) sector was the main driver of Golden Telecom's success. Operating income in the sector rose 55% y/y to US$47.6 million, with revenues up 48% y/y to US$167.5 million. This growth was attributed by the company to generally healthy economic conditions in Russia, with GDP in the country estimated to be around 7% in 2007, as well the operator's policy of following its corporate customers as they expand regionally.
In the residential sector, Golden Telecom performed less well, recording a second-quarter operating loss of US$4.5 million. However, the company is unlikely to be unduly concerned by this, as it is currently undertaking roll-outs of a number of new services that can be expected to generate positive figures in the longer-term. In the first seven months of 2007, Golden Telecom added 18,300 xDSL subscribers, while 29,200 subscribers have signed up to its "Golden Wi-Fi" service since this was launched earlier this year (see Russia: 17 April 2007: Golden Telecom Begins Marketing "Golden Wi-Fi" in Russia, Postpones Ukrainian FMC). Most significantly, Golden Telecom has, since 1 June, begun consolidating the results of Corbina Telecom, which was acquired earlier this year (see Russia: 28 February 2007: Golden Telecom Announces Details of Corbina Purchase). The purchase of Corbina has added 222,800 FTTB subscribers, taking Golden Telecom's total broadband subscriber base to 297,200 at the end of July 2007, an estimated national market share of 9%.
Outlook and Implications
Foot Remains on the Accelerator: Despite the successful second-quarter performance, Golden Telecom does not appear to be resting on its laurels. Corbina is currently undertaking its "Triple 65" project, which will see FTTB networks, enabling triple-play services, rolled out in the 65 largest cities in Russia and Ukraine, covering 15.6 million households and 42.3 million people. Other services offered by Golden Telecom include VoIP through its Wi-Fi network and DVB-T digital TV, currently being tested in the capital, Moscow. Such developments suggest that Golden Telecom is keeping its foot on the accelerator, and will continue to push for further growth in Russia's broadband market.
Golden Telecom's Successful Strategy Should Encourage Rivals: The heterogeneous nature of Russia's broadband market, with no single dominant operator, or indeed technology, bodes well for the future. Russian broadband penetration was 5.7% at the end of 2006, and Golden Telecom chief executive officer (CEO) Jean-Pierre Vandromme recently estimated, in Global Telecoms Business, that household penetration in Moscow was around 30%. There is therefore plenty of room for further growth, and Golden Telecom has raised its projection for end-2007 EBITDA growth from 30-35% to around 40%. The operator's purchase of Corbina represented the first major consolidation in the sector, indicative of the growing maturity of the market. While the increasing strength of Golden Telecom may be slightly intimidating to rivals, these rivals should instead be encouraged by the success brought by Golden Telecom's multi-faceted and aggressive approach to broadband provision—using "pretty much any technology we can" according to Vandromme. Golden Telecom's strategy touch in the Russian broadband sector represents a template that could be successfully replicated by others, given current market conditions.