TeliaSonera’s Kcell Seeks to Maintain Profitability, Chief Says

Kcell, the Kazakh unit of Sweden’s TeliaSonera AB, seeks to maintain its profitability amid competition from Tele2 AB through cost cuts and growth in data business, Chief Executive Officer Veysel Aral said.

Kcell, Kazakhstan’s largest mobile operator, reported today that fourth-quarter earnings before interest, taxes, depreciation and amortization fell to 54 percent of sales versus 57 percent a year earlier, saying Tele2’s arrival in 2010 led Kazakh mobile operators to lower tariffs to defend their market shares.

The London-listed company seeks to “keep the Ebitda margin at the current level of mid-fifties,” Aral said in a phone interview from Almaty, citing actions including cost cuts. Kcell targets “low- to mid-single digit” revenue growth this year, helped by an expansion in the data business, he said.

TeliaSonera raised $525 million by selling 25 percent of Kcell shares in London last month. Kcell said today that net income fell 7.5 percent to 61.8 billion tenge ($410 million) last year. Sales rose 1.8 percent to 182 billion tenge. Expenses fell 2.2 percent last year, mostly because of a decline in the cost of handsets, the company said.

Kcell shares have risen 19 percent since their initial public offering price of $10.50, boosting the company’s market value to $2.5 billion. The stock rose 1 percent today to $12.57 after Kcell reported full-year earnings and confirmed a special divided. The company said it will distribute 32.4 billion tenge, or all its second-half net income, to investors.

Market Share

Kcell had 47.7 percent of the Kazakh market by users as of the end of September, according to Credit Suisse Group AG. Billionaire Mikhail Fridman’s VimpelCom Ltd had 37 percent of the market, compared with Tele2’s 12 percent and Altel’s 3.4 percent. The company’s market share “stabilized,” while Tele2 is growing in Kazakhstan at the expense of VimpelCom Ltd and local operator Altel, Aral said.

“Licenses for third-generation networks were awarded only in 2011, and smartphone penetration in Kazakhstan is just 12 percent,” Aral said. “The emergence of cheap Chinese smartphones may boost it.”

Kcell and its Kazakh competitors agreed in November to reduce mutual-traffic transmission rates by 15 percent a year through 2015 to comply with government regulations. This was a slower pace of MTR reduction than the market expected, according to Aral.

Before it's here, it's on the Bloomberg Terminal.