First Day Dealings
October 12 2006 - 3:01AM
UK Regulatory
RNS Number:3431K
Teleset Networks PLC
12 October 2006
FOR IMMEDIATE RELEASE THURSDAY, 12 October 2006
Teleset Networks - admission to AIM
Teleset Networks ("Teleset" or "the Company"), a leading alternative fixed-line
telecom network operator in Kazan, Republic of Tatarstan, Russia, announces the
admission of its ordinary shares to trading on AIM via an introduction. Dealings
start today under the ticker symbol "TNW".
Yiannis Demetriou, CEO, commented: "We believe we can further strengthen our
position in the telecom market of Kazan where our $23 million digital network
gives us a significant competitive advantage. Our plan is to apply our local
telecom market knowledge and experience in other cities within the Republic of
Tatarstan and elsewhere in Russia where we believe there are consolidation
opportunities. Admission to AIM will raise Teleset's profile within our industry
as well as providing access to capital and enabling us attract and retain senior
management talent."
Corporate Synergy is the nominated adviser and Metropol (UK) Limited is broker
to the Company.
CONTACTS
Corporate Synergy - Nominated Adviser +44 (0) 20 7448 4400
Jonathan Evans
Metropol (UK) Limited - Broker +44 (0) 20 7439 6880
Alexander Selegenev
Bankside Consultants - Financial PR +44 (0) 20 7367 8888
Simon Bloomfield or Samantha Kinghorn
Russian Market Overview
The Russian fixed-line telecom market has developed substantially in the last 10
to 15 years. The entire sector has required substantial investment from a
position of historic underinvestment. The continued demand for fixed-line
telecom services, including value-added services, is expected to be driven by
the growth of the Russian economy as a whole, which is forecast to grow by 6 per
cent per annum over the next 5 years. Further investment in fixed-line telecom
networks is required to service both private and corporate customers to provide
improved basic and value-added telecom services.
Russian GDP has grown by 6 per cent per annum between 1999 and 2005 and it is
now the tenth largest economy in the world. However, expansion in fixed-line
capacity has failed to match demand. It is estimated that by the end of 2006
there will only be 30 fixed lines per 100 persons in Russia, which compares to
over 75 in the USA and Western Europe.
The Russian fixed-line telecom market is broadly structured into three tiers:
* Local - facilitating communication within the boundaries of a single
populated area;
* Zonal - telecommunication networks between local networks within a
single region and
* National and International - telecommunication networks that provide for
national and international switching
Local networks are found in towns and cities, including Kazan, which has a
population of approximately 1.2 million and is ranked as one of the 10 most
populated cities in Russia. Kazan has developed a competitive fixed-line telecom
market that is shared by Kazan GTS (part of Tattelecom, the zonal operator
controlled by the government of the Republic of Tatarstan) and a number of
private operators, including Teleset.
The market size (in terms of the number of installed fixed telephone lines) in
Kazan at the end of 2005 was estimated at 383,000 lines. It is estimated that
there are currently 430,000 city dwellings in Kazan. It is expected that between
2006 and 2009, approximately 42,000 existing and 50,000 newly built dwellings
will require fixed-line telephone connections which in total are estimated to
generate 91,200 new residential subscribers.
The zonal networks in Russia are typically operated by enlarged regional telecom
operators, being subsidiaries of Svyazinvest, the government-controlled
fixed-line telecom holding company. More recently, private alternative
fixed-line telecom operators have entered the market, including NASDAQ-listed
Golden Telecom and London-quoted Comstar-UTS.
In Tatarstan, the zonal operator Tattelecom is controlled by the government of
the Republic of Tatarstan, and the long-distance market is dominated by the
government-controlled Rostelecom (via Svyazinvest) which until recently had a
monopoly on DLD and ILD calls made from and into Russia. It carries the majority
of long-distance traffic due to its extensive network developed under the Soviet
Union. The company believes that the government may privatise Svyazinvest in
2007 or after the presidential elections in 2008.
Interconnection Arrangements
At present, any calls between Kazan's local fixed-line networks are carried by
the local operators free of charge. However, local calls initiated from fixed
lines and terminated to mobile lines are considered to be zonal calls as from 1
July 2006. As a result of this, tariffs for these zonal calls have been raised
from 0.20 RUR per minute to 1.50 RUR per minute.
Teleset has an interconnection agreement with Tattelecom, whereby the latter
carries Teleset's zonal, DLD and ILD traffic out of Kazan in return for an
interconnection fee. Similarly, Teleset is entitled to receive interconnection
revenue for every minute of traffic delivered by Tattelecom to Teleset's
network; however, it is presently netted out from the interconnection fee paid.
Teleset has a similar interconnection agreement with GJSC TransTelekom NN
whereby fees for the provision of such services are set off against each other.
Legislation has been introduced that allows local fixed-line operators to choose
from a range of long-distance carriers and in the case of Teleset to obtain
additional revenues from the "into Kazan" traffic by receiving a termination fee
for the calls coming into its network. Teleset has negotiated interconnection
agreements with several such long-distance carriers. Teleset has also entered
into contracts relating to the rent of communication channels with CJSC
MetroTelkazan, MELT LLC and OJSC RTKomm-RU among others.
Teleset's Digital Network
To date, approximately $23 million has been invested in building Teleset's local
digital fixed-line network in Kazan where the company provides
telecommunications services to residential and business customers.
Teleset's digital network infrastructure is equipped with ISDN and DSL
capability. The network currently has a switching capacity of approximately
130,000 subscriber lines. The switching and transmission equipment installed was
procured through international tender with the contract finally awarded to
Telrad Telecommunications which manufactured this equipment under licence from
Nortel.
Teleset's Services and Products
Traditional voice telephony services
* Installation of access lines
* Local calls
* DLD and ILD calls
These services are provided through Teleset's local network in Kazan. As at 31
December 2005, Teleset had approximately 72,000 active lines with an installed
capacity of 79,000 lines and total network switching capacity of up to 130,000
lines.
Teleset's subscribers are predominantly residential and as at 31 December 2005
there were approximately 68,000 residential lines. Teleset levies a connection
fee, monthly line rental fee and a timed usage fee.
Population density in Kazan is high and the cost of connecting a new subscriber
is low compared to lower density areas.
There is currently a strong trend for existing customers to switch towards
paying a fixed monthly line rental fee thereby allowing the user an unlimited
number of local call minutes. As at 30 April 2006, 17.4 per cent of Teleset's
residential customers took up the fixed fee service, an increase from 9.6 per
cent as at 31 December 2005.
Teleset's business subscriber base is primarily made up of corporate entities
and public sector institutions. The latter include schools, hospitals,
universities, and state and city administrative bodies. As at 31 December 2005,
Teleset had 4,600 corporate customers who generated aggregate traffic of 33
million minutes in that financial year.
Data transmission services
* dial-up internet access
* dedicated internet access (xDSL and fiber)
Teleset operates in both the dial-up and broadband internet access markets and
the Company estimates it has a 19.4 per cent market share in Kazan. This has
been the largest growth area for Teleset with revenues for dial-up and broadband
internet access increasing from $584,000 in 2003 to $1,789,000 in 2005.
The dial-up service is currently the most popular route to the Internet in
Kazan. It is offered in bundled marketing packages by Teleset to attract
potential new customers. It is also offered to the existing subscribers of
Kazan's other fixed-line operators by way of prepaid internet dial-up access
cards available through third-party retail outlets.
The Group's xDSL internet access services have developed a strong upturn in
customer numbers; as at 1 January 2006 Teleset had 686 xDSL subscribers, up from
222 at the start of the previous year.
Value-added business services
* Installation of multi-line local access solutions
* VPN solutions
* Turn-key solutions, systems integration
Teleset offers value added services and currently enjoys strong growth in this
segment with revenues increasing from $116,375 in 2003 to $206,746 in 2005.
These services include:
* Calling line identification facility
* Outgoing calls via password
* DLD and ILD call access via password
* Call waiting
* Call forwarding
* Conference calling
VoIP telephony services
* VoIP services to Teleset's customers and those of certain of its
competitors
* Calling cards for DLD and ILD calls
Teleset also offers VoIP telephony services which have grown strongly,
increasing from $159,000 in 2003 to $541,000 in 2005. These revenues come from
Teleset subscribers as well as from other operators' clients who access
Teleset's VoIP services on a pre-paid basis.
Other specialised services
* Leased line and infrastructure provision for other operators and for
Teleset's customers
* Network construction and facility leasing
* Co-location and media traffic services
* Network design
Financial Information and Current Trading
$000's Year ended 31 Year ended 31 Year ended 31
December 2003 December 2004 December 2005
Net sales 5,683 7,239 9,428
Operating profit 1,964 2,208 3,663
Profit after tax 1,007 1,085 2,453
For the six month period to 30 June 2006, net sales increased by 28 per cent to
$5.79 million (2005: $4.51 million), operating profit increased by 34 per cent
to $2.47 million (2005: $1.84 million) and profit after tax increased by 69 per
cent to $2.08 million (2005: $1.23 million ).
During the same period EBITDA margin amounted to 60 per cent (including
installation revenues) compared to the average of 28 per cent among the larger
regional telecom operators; the EBITDA margin net of "one off" installation
revenues was 39 per cent. The total number of active fixed subscriber lines in
this period increased by 2.4 per cent compared to the same period of the
previous year
Strategy
The Group's strategy is to provide stable growth in revenues and maintain strong
cost controls. Its main objectives are:
1. To increase Teleset's network coverage within Kazan to reach additional
potential customers (e.g. Teleset intends to launch new remote telephone
exchanges in the Vakhitovsky, Privolzhsky and Sovietsky districts of Kazan,
to which its current network does not extend);
2. To expand the range of services provided to Teleset's current and future
customers in Kazan (e.g. Teleset plans to introduce cable TV services to its
residential and corporate customers);
3. To establish points of presence ("POPs") in other cities in Tatarstan by way
of acquiring existing operators in those areas for integration into the
existing Kazan network; and
4. To establish POPs in other regions through the acquisition of existing
operators.
The company is currently in negotiations for the acquisition of a telecom
operator in Kazan although no binding commitments have yet been entered into.
Such acquisition would require additional capital to be raised by the company.
With approximately 200 employees, Teleset has an experienced management team and
a stable workforce to support its future strategy.
Competition
Teleset faces competition from three companies that have largest local
fixed-line networks in Kazan. These are Kazan GTS (with an estimated 228,000
lines), Intelset (with an estimated 40,000 lines) and TNPKO (with an estimated
32,000 lines) (all figures as at 31 December 2005). Teleset is currently ranked
second with approximately 72,000 active lines and 19 per cent of the fixed-line
market.
Teleset will seek to win additional fixed-line telecom subscribers on the back
of the general economic growth expected to continue in Kazan as well as from the
advantages offered by its digital network infrastructure, sales techniques,
Western-standard management and information systems.
Mobile telephony is not considered by the company to be a direct competitor of
Teleset in all of its markets as it does not provide certain services at the
same quality levels (e.g. broadband internet access) that a digital fixed line
is capable of delivering. However, mobile telephony is capable of competing for
voice traffic and can therefore reduce traffic revenues of fixed-line operators.
Directors
Philippos Vatiliotis (age 70) (Non-Executive Chairman)
Philippos has been involved in Teleset's business since 1996 as a general
director of TeleDev East. He led the original acquisition of Teleset in 1996 and
subsequent investments. Philippos has been involved in the telecom industry
throughout his career which he started with Cable & Wireless in 1956 before
moving to the Cyprus Telecommunications Authority where he spent 34 years before
retiring as its general manager. He was President of the Cyprus Institute of
Electrical Engineers and he is a member of the UK Institute of Electrical
Engineers. He holds a BSc in electrical and electronic engineering from the
University of Bath.
Yiannis Demetriou FCCA MBA (age 35) (Chief Executive Officer)
Yiannis is a fellow member of Association of Chartered Certified Accountants
(FCCA) and a member of the Certified Public Accountants of Cyprus. He was
Managing Director of TeleDev East from 2002 until the recent de-merger of the
Subsidiaries from TeleDev East in June 2006. He originally joined TeleDev East
as the company's Finance Director in 1998. He was closely involved in acquiring
the Subsidiaries and building up TeleDev East. He was formerly an internal
auditor for the Ministry of Finance of the Republic of Cyprus. Yiannis holds an
MBA from the University of Edinburgh. He is fluent in Greek, Russian and
English.
Roman Shaikhutdinov (age 32) (Chief Operating Officer)
Roman is actively involved in the operations of Teleset. He joined Teleset in
1998 to advise on legal issues relating to the local telecom market. He then
worked for 2 years for Stelcom, subsidiary of TeleDev East, a long-distance
wholesale telecom operator based in Moscow, in the capacity of legal adviser.
Before joining Teleset, he worked as a legal adviser to the Ministry of Foreign
Economic Relations and the Ministry of Finance of the Republic of Tatarstan. He
graduated from the Kazan State University with a degree in law. He is fluent in
Russian and English.
Lidana Bondar (age 30) (Chief Financial Officer)
Lidana joined Teleset in 1999 as chief accountant and has been responsible for
the development of the finance function with regard to both financial and
management accounting. She graduated from the Kazan State Finance & Economics
Institute with a degree in financial management. She is fluent in Russian and
English.
Ioannis Tirkides (age 42) (Non-Executive Director)
Ioannis is a Chartered Accountant. He is a managing director and secretary for
the Manglis Group of Companies, a substantial shareholder of the Company, where
he oversees several subsidiaries especially with regard to their finances and
strategy. He was previously an audit manager with KPMG, Cyprus. He holds a BA in
economics from the American University of Beirut and an MA in business economics
from the University of Essex. He trained as an accountant through the Institute
of Chartered Accountants of England and Wales with Landau Morley in London.
Frank Lewis (age 60) (Non-Executive Director - with effect from Admission)
Frank is a businessman with over 25 years of experience in both quoted and
private companies. He has held board positions both in the UK and abroad with
rapidly growing, mid-market companies. Quoted companies of which he was chairman
include Lloyds British Testing Plc, an engineering services company, Jetcam
International Holdings Limited, a software company, and Yoomedia Plc, an
interactive television company. He is also a non-executive director of MTI
Wireless Edge Ltd., a manufacturer of sophisticated antennas and antenna
systems. Frank is a fellow of the Institute of Chartered Accountants of England
and Wales and is also a member of the South African Institute of Chartered
Accountants.
Background and History
Teleset was incorporated on 26 September 1996 in the Republic of Tatarstan, part
of the Russian Federation, by several Russian investors to build and operate a
fixed-line telecom network in Kazan, Tatartsan's principal city. In April 1998,
TeleDev East, a company incorporated in Cyprus to pursue telecom opportunities
in Russia, became a 75 per cent participant/shareholder of Teleset. TeleDev East
subsequently formed a new subsidiary, Teleset Invest, on 8 September 1998 in the
Republic of Tatarstan to invest in telecom equipment for lease to Teleset. By
2001, TeleDev East had acquired the remaining 25 per cent of Teleset's issued
share capital from the original participants/shareholders as a result of which
Teleset became a wholly-owned subsidiary of TeleDev East.
Teleset Networks Public Company Limited was incorporated in Cyprus on 19 June
2006 as a holding company in anticipation of the proposed de-merger of the
Subsidiaries from TeleDev East. The ownership of Teleset and Teleset Invest has
now been transferred to the Company. The shareholders of TeleDev East Limited
immediately prior to the de-merger have now become the Shareholders of the
Company.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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