Kyivstar, Ukrtelecom sign interconnection contract for 2009-2010

Kyivstar GSM and Ukrtelecom (UTLM) signed a new contract spelling out interconnection rates for 2009-2010, local news agencies are reporting, after a year of negotiations. The actual rates have not yet been disclosed. Yegor Samusenko: The impact of the news on Ukrtelecom depends on the specific interconnection rates set in the agreement with Kyivstar. If Ukrtelecom has been able to achieve the same tariffs as it did with operator Astelit (mobile-to-fixed rate of UAH 0.25 per minute, no change, and fixed-to-mobile (FTM) rate of UAH 0.35 per minute, down UAH 0.15), savings on decreased rates would generate UAH 90 mln in EBITDA in 2009 and UAH 170 mln in EBITDA in 2010. We expect that the impact on 2009E EBITDA will be fully accounted for in Ukrtelecom’s financial statements for 4Q09, as in the interim financials for 9M09 the company did not report on interconnection revenues and costs associated with Kyivstar due to the on-going dispute over tariffs. Assuming this scenario, we estimate the company will post UAH 6.8 bln in 2009E sales (+2.3% yoy), UAH 2.7 bln in 2009E EBITDA (41% yoy, +7 pp yoy to EBITDA margin) and UAH 190 mln in net losses (-3% yoy, +20 pp to net margin). We expect a positive reaction from the market if the FTM rate decrease is confirmed.