Question-and-Answer Session
Operator
Thank you, sir. (Operator instructions) And the first question today comes from Alex Wright. Please state your company name followed by your question.
Alex Wright – UBS
Yes. Thanks very much. Alex Wright from UBS. Had a couple of questions on Russian operations, please. In your presentation, you referred to the improvements in gross margin being driven by better management of off-net calls. And I wonder if you could just elaborate further on exactly how you've achieved that and how sustainable you believe that recovering the gross margin is. And secondly, could you just give us some further color on the increase in churn in Russia during the quarter, please? Thank you.
Mikhail Shamolin
Yes. Thank you, Alex. This is Mikhail Shamolin answering. Yes, indeed, we have done some price adjustments in the second quarter in attempt to manage the interconnect costs, which have risen in Q4 and Q1 of 2008. And we did so by simply analyzing all of our tariff plans. And we actually have quite a lot of tariff plans across the territory because each region of Russia – and we are present in 82 of those regions – basically represents in many cases a different market with different levels of competition and different pricing.
And therefore, we have quite a lot of tariffs, a mix of federal and local. And therefore, after having done this analysis, we discovered quite a number of tariffs which were either not profitable or not profitable enough up to our standards. And we reviewed pricing in those tariffs to bring them into profitability area, which helped the interconnect and overall revenue.
At the same time, we are consistently – we have been consistently implementing the cost efficiency program, which also bear fruit in the second quarter of 2008, which helps us improve the margins compared to the first quarter. As far as the increase in churn in Russia goes, that is closely correlated to increasing our gross additions, which we had in Q4 and Q1. And therefore, this is more or less a direct correlation, for us business as usual.
Alex Wright – UBS
Okay. Thank you. Just to follow up very briefly on the first question, did you see any significant change in the mix of your traffic overall between on net and off net, or it’s really just, as you say, just some adjustment in tariff plan?
Mikhail Shamolin
- To read the full transcript on Seeking Alpha, click here »
