MOSCOW, October 26, 2017 /PRNewswire/ --

The results of the meeting of MegaFon's Board of Directors began to be discussed even before the meeting was convened. In addition to management changes, analysts have identified another significant market trend - the company may not be able to pay dividends. MegaFon has been paying out dividends consistently over the last several years; however, in analysts' view, in current market conditions its decision would be justified. The company simply has to start saving, following the trend of the other Big Four telecommunications operators.

Ivan Streshinsky, Chairman of MegaFon's Board of Directors, commented in an interview to Kommersant, Russia's leading daily business newspaper, that in the current conditions the company needs to mobilise all of its resources, including financial, to invest in strategic projects. These include the need to implement the requirements of the so-called 'Yarovaya package' on data storage, and to begin the construction of 5G networks.

Although the procedures for implementing the Yarovaya Law are still being debated by the officials, the sums that are being discussed by the market operators and the regulator are in the region of trillions of roubles (according to various estimates, the law would require RUB 2.2-17.5 trillion for its implementation). There is also the ongoing discussion with the Federal Antimonopoly Service relating to domestic roaming within the Russian network. This would significantly damage mobile operators' budgets and already now is causing companies to review their tariff policies. Add to this the rollout of 5G networks and operators would face huge capex requirements…

According to Mr Streshinsky, "to expand their new-generation 5G networks in the next 2-3 years, companies will require significant investments. In real terms, this means a new wave of technological and investment competition between operators. And of course as a strategic investor, USM is interested in MegaFon's technological leadership".

Today, operators are required to pass 5G installations tests, preparation is underway for the 2018 World Cup, and preview zones are being set up. As soon as companies receive the spectrum required to expand 5G networks, they will take construction responsibilities upon themselves in the areas where deadlines are strictly defined (they would also need to pay for the new spectrum).

Both Mr Streshinsky and MegaFon's management team are convinced that the market can overcome these new challenges, as Russia is a global leader both in technological and penetration terms. However, the situation is far from ideal. As Streshinsky notes, "the intensification of competition in recent years is having a very negative effect on operators' revenues. This competition is not always a positive for the sector, and not just for service providers, but also for customers."

Finally, all the challenges listed above have led to the necessity for MegaFon to significantly increase its financial burden, and dividends could be the first to be cut:  

Mr Streshinsky told Kommersant: "Since 2013, MegaFon has paid dividends that have exceeded market expectations, while simultaneously making acquisitions worth more than $3 billion and investing in the development of its network. As a result, the company's debt has increased significantly. It's time to reinvest in the development of the сompany to maintain its competitiveness and financial stability. In this regard, MegaFon's excessive cash outflow, including the payment of dividends, contradicts the strategic goals of the сompany and USM as its controlling shareholder."

The company's potential decision to not pay dividends for 2017 has been met with understanding from analysts. Denis Kuskov, CEO of TelecomDaily, said: "The situation in the Russian telecommunications sector is not simple; if you look at the lack of growth in the number of subscribers, the market is in stagnation. In addition, recent policy decisions have added an additional and significant financial burden on operators. Therefore, companies should concentrate on capitalising on all available opportunities for stable growth. We note that MegaFon has regularly paid dividends that have often exceeded analyst expectations , while still buying assets and investing further in development. Perhaps now is the exact moment when a decision to not pay dividends can be viewed as a positive and justified move. As a result, I would not be surprised if this year we do not see any dividends from MegaFon."

SOURCE Analytics Agency Telecom Daily