• ACRA estimates show that in 2018, the Russian telecommunications market may grow by 3.7%, up to RUB 1.64 tln. Afterwards, the market is expected to grow by 2.7% annually, with the growth rate slowing down by 2022. The key segment of the market is mobile communications, covering 50% of the market volume.

• Sector's profitability will continue to restore. Reintroduction of unlimited mobile data tariff plans should not affect ARPU (average revenue per user) and profitability of TSPs thanks to a cautious pricing policy. Strong competition may prevent companies from passing the growing data storage expenses down to users, which may restrict the profitability. According to our estimates, the FFO margin before net interest and taxes may reach 36% in 2018 and grow by 1–2 pps in the next four years.

• Starting from 2019, ACRA expects that TSPs' CAPEX will surge. According to ACRA estimates for the next five years, CAPEX (capital expenditures) for data storage infrastructure may reach RUB 250 bln, with a peak in 2019–2020. In 2021–2022, TSPs will start investing in 5G networks. As a result, the CAPEX to revenue ratio in the telecommunications sector may grow from the current value of 16% up to 24% by 2022.

• Growing CAPEX may push sector's FCF down to negative values. Large-scale investment projects will push down FCF (free cash flow) demonstrated by TSPs. In addition, FCF will be affected by annual dividends, the aggregate amount of which will not be lower than RUB 90 bln in 2018–2022. Therefore, it is expected that the aggregate FCF in the telecommunications sector will enter the negative area in 2019–2022, which, in its turn, will further pull the absolute debt up. On the other hand, taking into account faster growth rate of FFO before net interest and taxes, ACRA analysts expect that the decline in the sector's leverage will be slow.

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