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SSTL - Aims at pan-Indian presence by end-2010

July 15, 2010
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Since its entry into the Indian cellular space in late 2007, Russian telecom operator Sistema has been steadily growing its presence. The operator's first major milestone was the acquisition of a pan-Indian licence in January 2008 through a joint venture with the Shyam Group. Competing aggressively on tariffs and by providing value-added services, Sistema Shyam TeleServices Limited (SSTL) crossed the 5 million subscriber mark in June 2010. From one telecom circle in March 2009, the operator has increased its footprint to 12 circles today.

On the data front, SSTL's subscriber base stands at over 1 million for its MBlaze internet services. According to Vsevolod Rozanov, president and CEO, SSTL, the company's mobile broadband subscriber base has been increasing by 30-40 per cent every month, providing an ARPU of around Rs 500 per connection.

In terms of subscriber base, SSTL leads the pack of new licensees along with Uninor, which had a customer base of 5 million as of May 2010. Etisalat, S Tel and Videocon Telecommunications Limited have a subscriber base of 10,000, 1.23 million and 1.39 million respectively.

To facilitate the network rollout process at low capex, the company has been sharing its infrastructure with Bharat Sanchar Nigam Limited, WTTIL-Quippo, Reliance Infratel, Indus Towers, etc.

By end-2010, SSTL plans to be commercially present in all the telecom circles.
In order to reduce the time-to-market and focus on its core operations, the company plans to outsource its network management to a vendor.

In March 2010, SSTL received a Rs 5 billion two-year loan from the Central Bank of India. This amount will be used for capex as well as opex for the existing and future service areas.

Financial performance
SSTL is aiming for a 10 per cent market share over the next five years. It also expects to turn EBITDA (earnings before interest, taxes, depreciation and amortisation) positive by end-2012 and cash positive by 2013.

These goals do not seem unattainable given SSTL's rapid growth rate over the past one year. For the quarter ended March 2010, the operator reported revenues of $17.1 million, 200 per cent more than the $5.4 million in the corresponding period in 2008-09.

SSTL's operating income before depreciation and amortisation for the quarter ended March 2010 stood at $76.7 million as compared to $30.4 million a year ago. However, operating losses during the same period increased from $36.4 million to $95.3 million.

On a quarter-on-quarter basis, SSTL's subscriber base increased by 29.4 per cent to 3.8 million while its mobile ARPUs decreased by 5.9 per cent to $1.6. Its minutes of usage decreased by 3.4 per cent from 339 in the quarter ended December 2009 to 328 in the quarter ended March 2010. Its fixed line subscriber base also dropped from 177,000 to 134,000 during the same period.

The road ahead
In 2009, Sistema received the Department of Telecommunications' approval for the Russian government investing $676 million to acquire a 19.8 per cent stake in SSTL. The deal, which was scheduled to close in 2009, has been delayed and the equity infusion is now expected to be completed by end-2010.

Sistema's 73.71 per cent stake in SSTL would then come down to 54 per cent. The Shyam Group holds 23.79 per cent stake in the company while the remaining 2.5 per cent is with the public.

The company is also considering launching an initial public offering (IPO) following the Russian government's investment. "For regulatory purposes, the capital structure should be frozen before the IPO launch. As soon as the capital structure is fixed, we can proceed with the IPO," says a senior company official.

Going forward, SSTL is plans to integrate its voice and internet services to attain higher ARPU levels. The operator has entered into long-term agreements with RailTel, Reliance Communications and Tata Telservices Limited to lease internet bandwidth for offering mobile broadband services. It also plans to launch co-branded high-end (high speed internet access) handsets and smartphones in collaboration with Samsung, Fly, ZTE and Huawei.

Apart from focusing on achieving these targets, the operator needs to watch out for competition from 3G and broadband wireless access spectrum winners in the future.

Though the company has set a number of goals and has devised strategies to achieve them, given the prevailing uncertainty on both the regulatory and market fronts, it is difficult to ascertain its longterm prospects.

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