Joshua Tulgan - Director, Corporate Finance and IR Alexey Kornya - President and Chief Executive Officer Vyacheslav Nikolaev - Vice President, Marketing Andrei Kamensky - VPresident, Finance, Investments and M&A Andrei Smelkov - Vice President, Foreign Subsidiaries Kirill Dmitriev - VP, Sales and Customer Services

Ivan Kim - VTB Capital Madhvendra Singh - Morgan Stanley Igor Goncharov - BCS Svetlana Sukhanova - Sberbank Maria Kahn - Deutsche Bank Igor Goncharov - BCS

Thank you very much, and welcome everybody to today's call to discuss the company's fourth quarter and full year 2017 financial and operating results. As usual, I must remind everyone that except for historical information, comments made during this call may constitute forward-looking statements.

Important factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements. These, in turn, imply certain risks.

A thorough discussion which are available in our MTS annual report on Form 20-F and the materials that we distributed today. MTS disavows any obligation to update any previously made forward-looking statements spoken on this conference call or make any adjustments to previously made statements to reflect changes and risks.

Copies of the materials referenced and used in this call today are available on our company website. Now I have the pleasure of presenting MTS' President and Chief Executive Officer, Mr.

Alexey Kornya.

Ladies and gentlemen, thank you for joining us on today's conference call to discuss the company's financial and operating results for the fourth quarter and full year 2017. As we begin, we want to note the sudden passing of our Head of Media Relation, Dima Solodovnikov, who died yesterday at a far too young age of 33.

While Dima may have not been visible to the investment community, he was a key part of our team who now never fail to provide the constructive input of helpful counsel. As someone noted, you also couldn't find a photograph where he wasn't smiling his beaming smile.

He is survived by his wife Yulia and three-year-old son, Shoder. We ask you to join us for a moment to pass your thoughts and prayers to the Solodovnikov family.

Thank you, everyone. Joining me to discuss our results are Kirill Dmitriev, Vice President of Sales and Customer Services; Vyacheslav Nikolaev, Vice President, Marketing; Andrei Smelkov, Vice President, Foreign Subsidiaries; and Andrei Kamensky, Acting Vice President, Finance, Investments and M&A.

We are pleased to report another strong quarter and successful year for MTS. Group revenue increased 4.7% year-over-year to RUB116.8 billion.

Data usage continues to drive the pace of growth as rising usage in both Russia and Ukraine, combined with strong preholiday handheld sales in Russia, translated to 5.8% year-over-year growth. For the year, group revenue reached RUB443 billion and an increase of 1.7%.

As we previously mentioned, we saw signs through the year of improved customer sentiment in many of our markets. Overall usage of both voice and data is a strong indicator of an improving business and consumer environment.

Sustained growth in data usage increased consumption of high-margin products, like international roaming and profitability improvements in Ukraine, helped us to realize adjusted OIBDA growth of 8.2% to RUB45.2 billion. For the year, group adjusted to OIBDA reached RUB179.8 billion, an increase of 6.2%, and our margin climbed to 40.6 percentage points.

Now I turn the call over to Vyacheslav, who will further elaborate on our revenue performance with our business units.

Thank you, Alexey. For the year, revenue grew in Russia 2.9% over RUB 412 billion.

The key driver remained mobile service revenue, which increased exactly 3% for the year. We see higher consumption of virtually all products and services as customers increase their usage through -- mostly in organic growth.

Data users now constitute over 53% of our customers. Total data served overall networks via smartphones increased over 2.5 times in 2017, a result of both organic growth and tariff policies designed to stimulate usage.

In addition, we saw increased sales of more data-intensive devices. Handset sales increased 11% in Q4 and 3.1% for the year as customers opted for higher-price premium handsets, in particular during the preholiday sales periods.

Slight improvements in the retail environment allowed us to see improved ARPUs from new customers and higher spending in certain customer segments. Overall, the pricing environment did improve in 2017 as we were able, in most markets, to either increase pricing outright or adjust allowances to increase the effective pricing.

Fixed line revenues in Russia decreased slightly by 0.6% in both Q4 and for the full year. We continue to see growth in our B2C home Internet and pay-TV segments, particularly in Moscow, but we are still a victim to global trends as customers continue to give up their fixed line voice services.

Our market share of broadband Internet and pay-TV in Moscow reached 36% and 38%, respectively. Over 1.8 million Moscow households use our GPON services as of today.

Key enterprise contracts allowed our integration business to show a robust 2.5 times increase in revenue in Q4. For the year, its contribution to the top line was slightly down from 2017, realized a significant increase in software sales as we concluded key contracts to provide software licenses to key enterprise customers.

Software sales nearly tripled on a quarter-by-quarter basis throughout the year and, thus, will increasingly provide noticeable contribution to the top line. In Ukraine, we saw impressive growth of 14.5% in Q4 as revenues reached UAH 3.2 billion.

Like in Russia, the key driver was data adoption. More customers are adopting 3G services, and we see organic growth in data usage, all of which leads to higher ARPUs.

Now Andrei will discuss the group's financial position.

Thank you, Slava. For the fourth quarter, we saw a strong group adjusted OIBDA growth of 8.2% year-over-year.

For the full year, adjusted OIBDA grew by 6.2%. In Russia, adjusted OIBDA in the fourth quarter grew 6.4% to RUB 43.7 billion.

For the year, we saw a 5.7% increase in OIBDA. Factors we discussed throughout the year continue to account for the increase in the full year adjusted OIBDA and in particular, during the fourth quarter: increased usage of higher-margin products, including data services, international roaming and long-distance calling; relatively stable currency dynamics in Russia; a reduction in SIM card sales year-over-year; and sustained growth -- gross margin improvement for handsets and accessories.

In Ukraine, we saw substantial OIBDA growth throughout the year. In the fourth quarter, OIBDA rose 26.5% to UAH 1.4 billion.

And for the year, our OIBDA improved 36.6% to UAH 5.2 billion. This allows Ukraine to make a positive RUB1.5 billion OIBDA contribution to the group despite many changes in the market and sustained currency volatility.

OIBDA growth in Ukraine has been primary supported by rising data consumption, but we also benefited from improvements made over the past year to enhance profitability. For the year, performance at MTS foreign subsidiaries constituted a negative ruble contribution to overall OIBDA.

This, however, largely stems from developments in Turkmenistan, where our business remains in limbo. In September, we announced the suspension of business activities in Turkmenistan over the termination of interconnect agreements with TurkmenTelecom, the state-owned fixed client incumbent.

Since then, there have been no changes in our interconnect agreements. In consideration of the nation’s current state, the group recognized an impairment loss in the amount of RUB3.2 billion attributable to non-current Turkmenistan assets.

Indeed, in our other markets, we saw dramatic increases in profitability for the year. In Armenia, we realized OIBDA for the year of AMD26 billion, a 10.9% increase for the year.

In Belarus 2, OIBDA grew 14.4% and rose to RUB356.5 million. Tracking revenue and OIBDA dynamics, despite our issues in Turkmenistan, group net profit for the full year grew by 15.6% to RUB56 billion.

For the quarter, net profit was down 12%, largely due to asset impairment. For 2017, we saw a near-record free cash flow to date amounted to RUB71.5 billion, an increase of 52.2% from the previous year.

One of the key factors was an 8.5% decline in CapEx spending year-over-year to RUB76.4 billion, but a bigger driver was the exceptional OIBDA performance throughout the year. In 2017, we generated an exemplary return for our shareholders.

For the calendar year, MTS fulfilled its commitment to strong historical dividends by making 2 dividend payments, which totaled RUB26 per share or roughly RUB52 billion. In September, MTS announced the launch of the Rule 10b5-1 Plan, which enabled MNS, MTS to wholly owned subsidiary, Stream Digital, to repurchase shares of common stock and ADS by means of a share repurchase plan.

MTS management has been authorized by the Board of Directors to spend up to RUB20 billion on the repurchase plan at its discretion until April 2019. Simultaneously to this aforementioned subsidiary, Stream Digital, we entered into a sale and purchase agreement with Sistema Finance, a subsidiary of our parent company, Sistema.

Whereby, Sistema Finance agreed to a number of MTS shares in proportion to the number of shares acquired by Stream Digital through our repurchase plan at a price, managing rate with the price paid through open market repurchases. Based on our past experience with the open market tender, we believe that this is the most logical structure to give all shareholders the opportunity to benefit from our market activities.

By the end of the year, Stream Digital had acquired almost 44 million shares of the common stock, representing 2.2% of the share capital. The total consideration reached nearly RUB12.5 billion.

Combined with the Dutch auction tender we concluded at the beginning of the year, this translates to a roughly RUB36.9 per share return to shareholders in 2017. Since the end of the period, as of today, we have acquired an additional 25.4 million shares.

And in total, since the Board of Directors authorized management to begin the program, we have acquired 69 million shares, which represents 3.5% of the share capital. In total, from the end of 2016 to now, we have spent close to RUB 30 billion.

The Board of Directors authorized the management of MTS to spend on our shareholder repurchase program. By the end of the period, our total debt stood at RUB 292.8 billion.

Our net debt to LTM adjusted OIBDA ratio remained stable at a seasonably consistent 1.2, a factor significantly lower than our regional or global peers. As for changes in our debt portfolio, we have been focusing on optimizing our portfolio throughout -- through new issuances and repayments.

Recent announcements call attention to this effort. In March, we made a partial early repayment on 10-year credit facility concluded in 2009 for $224.7 million.

To finance this repayment, we issued two [indiscernible] RUB 10 billion exchange-traded bonds with semiannual coupons of 7.1% and 7.25% with maturities of 3.5 and 7 years, respectively. The 7.1% coupon was, in fact, the lowest rate ever issued in Russia for a nonfinancial issuer.

Now Kirill will address developments related to our sales and retail efforts.

Thank you, Andrei. In sum, 2017 showed both the potential opportunities in our markets and the continuing risks the retail structure sustains in these markets.

For the year, improvements in our retail operations contributed an additional RUB 2.7 billion to group adjusted OIBDA. These improvements included a reduction of SIM card sales of roughly 11%; rising prices to handsets, coupled with customer preferences for higher price, higher-quality handsets, which is a topic we discussed recently in our retail report; and a slight reduction of total store count.

We finished the year with roughly 78.3 million subscribers in Russia, a 2.2% decline since 2016 and the continuing trend throughout the year. As we have described before, this trend, coupled with revenue and OIBDA dynamics, suggests our growth in revenue is less dependent upon using card sales but more effects of high usage, better monetization of customers and secured products and services.

And the greatest opportunity to create value through OIBDA for operators lies not only in the reduction of our retail footprint, but to decreased sales of SIM cards as well. Although we had roughly 500 stores less in Q4 2017 compared to the previous year, year-over-year average store count remained roughly the same.

Thus, the overall input on OIBDA for the year was minimal. After building up retail throughout 2016, we begin to optimize by reducing points of sales in Q1.

However, the market didn't really respond as we hoped, and our count remains high. While the reduction in SIM card sales is indicative of the behavior we would like to see in the market.

And by our estimates, our competitors did reduce SIM card sales, albeit at a slightly slower pace than us. We have yet to see changes in the structure of sales that would permit us to reduce our store count further.

My MTS continues to be successful for us. By the end the year, we have 12.1 million active users, and it continues to attract customers.

While we clearly see benefits for digital engagement with regards to loyalty, loyalty customers spent an over affection for the MTS brand. Digital tools will also allow us to realize long-term benefits in customer service.

Already, My MTS, coupled with other services, such as interactive voice response and chat bots, have allowed us to realize a 10% drop in cost to our call centers from 2016 to 2017. Overtime, this trend will continue, and we anticipate opportunities to further optimize call center headcount in the next few years.

Now I'll pass the floor back to Alexey.

2017 was a transformative year for MTS. Helped by stable economic backdrop, we showcased the success of our strategy as we continued to expand in new directions via traditional telecommunication services.

Financial services remain a key focus of our report to expand the fundamental definition of what telecom services mean. In February, we launched our MTS Money Wallet and subsequently updated the domain with new functionality.

We now have all 4.3 million active users. And in 2017, the total turnover through MTS Money products exceeded RUB22 billion.

Throughout the year, we also laid the ground for expanding financial services product. Our investments in Sistema Capital, a leading asset management firm, will eventually allow us to enter the retail investment management market.

To better enable mobile commerce, we acquired the majority stake in a retail software developer operating under the brand LiteBox, which provides B2B clients with an easy and affordable access to the cloud-based digital cash management solutions. Acquisitions augmented our primacy now in key markets such as our small but nevertheless, important purchase of BCC, Bashkir company, to strengthen our spectrum resources in the euros.

We also bought into new markets that continue our strategy to dig deeper into the Internet economy. Recently, we acquired Ticketland and Phenominal, two leading online business that sell event tickets to a variety of spectacles and shows.

While the scale of and scope of MTS nationwide reach is an obvious synergy, integrating this type of services into our ecosystem represents an opportunity for MTS to establish a deeper relationship with our customer and gain entrance in any number of insulated businesses in the Internet space. This year, change not only is happening to our business operations but also internally within MTS itself, as we welcome new colleagues to our management board.

Vyacheslav Nikolaev was named Vice President of Marketing and our Chief Marketing Officer this summer. In December, we also promoted Maria Golyandrina to the position of Vice President, Human Resources.

Both Vyacheslav and Maria have long track record of success with MTS, and the appointment once again highlight our success in nurturing talent and developing candidates for top management. More recently, we welcome Andrei Kamensky to the decision of Acting Vice President, Finance Investments and M&A.

Andrei has been the Chief Controller of Sistema for the past 7.5 years, but he also was -- he has finance background in banking and retail. In Andrei, we have an ideal candidate to further support our evolution, someone who brings a fresh view on our business but also a degree of familiarity but a mutual field experience in Sistema.

We expect his role to be confirmed at our next Board meeting in April. I, too, should note that I recently had the honor to be offered the position of President and Chief Executive Officer of MTS.

Obviously, this is an exciting opportunity and a great personal privilege to take over the leadership of such a dynamic organization at such an interesting time in the industry. As part of the leadership team for the previous 18 years, I had the opportunity to contribute to the growth and development of the Group as a whole and was involved deeply in the formulation of our current 3D Strategy.

During my tenure as CFO, we have seen MTS grow from a voice and SMS provider to an emerging player in the Internet market. I firmly believe that the same underlying ideas that helped drive this change are those that are necessary to succeed in my current position.

Naturally, we will maintain our commitment to our core business data. Developing this network, managing them efficiently, adopting an ever-changing technology, these issues remained at the heart of our business as part of our DNA.

Managing our business effectively, though, has been a critical factor that allowed MTS to realize a high level of financial efficiency and deliver shareholder value despite the variety of challenges to our market primacy, whether they arise from competitors, the macroeconomic situation or other factors. But this approach has also allowed us to leverage economies of scale to invest and nurture complementary businesses.

And it is firmly in this digital direction that we see our future. I am to lead MTS further and deeper into the market for Internet services and products.

As I mentioned in past, we very much see a number of clear opportunities in the market to develop and integrate such services for our customers and enter new markets. At the same time, we need to continually understand and engage our customers in order to adapt to what is a dynamically changing environment.

Services, which didn't exist a few years ago are now in great demand, while others have come and gone. As an organization, we must develop and maintain superior capabilities to anticipate, adopt and meet new challenges.

My goal will be to nurture these capabilities within the company, so that we can profitably and efficiently take advantage of new opportunities to employ data and develop new markets for MTS. Looking ahead, I want to note again that 2017 was an exceptionally strong year in terms of both revenue and OIBDA.

We exceeded our guidance for both metrics based on a number of organic factors as well as improved customer and business sentiment. While we expect that sentiment will remain positive, the key questions for 2018 will be related to how two key factors impact our performance in what should be stable economic situation: competition and regulation in Russia.

We expect revenue to be slightly positive for the coming year. Rising data consumption will offset weaker voice trends in the B2C market.

But last year, the reduction in SIM card sales could be negative in the short-term for durations. In Ukraine, we do not expect significant revenue uplift this year from the launch of LTE, which we anticipate in the second half 2018 in key markets as handset penetration and affordability may limit growth.

Potential currency volatility always remains an issue in our foreign subsidiaries, and the loss of revenue from Turkmenistan will be a minor factor. Also impacting our results in 2018 will be the outlook from the new IFRS accounting standards.

The materials we have distributed today contain details about these new standards, but these new standards may collectively have a minor impact on revenue. Where the greatest impact we will see is in our OIBDA, in our choice to adopt early IFRS 16, which government leases necessitates that our guidance includes this impact.

Overall, we believe that the adoption of these tenders will result in an additional RUB20 billion into OIBDA. Because we have elected to adopt the standards early, we will apply the standards to our future results beginning with first quarter 2018 and provide the market with pro forma estimates based on full year 2017 results for the sake of transparency.

Excluding the impact of new standards, we anticipate stable OIBDA for 2018. Competitive factors and ongoing uncertainty over retail development compels us to hold off on forecasting any changes to our retail network or the underlying costs associated with it.

Tele2’s discount pricing practices throughout the market also limit the ability of the market to grow both in size as the measure of profitability. Internally, we have also elected to make certain changes that will affect profitability.

These changes include: expected increase in salaries after holding off last year; revision of internal policies governing control over content revenues from third-party providers, which could translate to improved loyalty metrics, but may impact both the OIBDA and revenue negatively in the short term. In addition, we see short and regulated developments, which will likely impact OIBDA.

These issues involve spectrum fees in Russia, which are scheduled to increase this year by up to 25% in changes to policies governing internal roaming in Russia. The elimination or reduction of which will also have an impact on profitability.

We’ll also see bulk of these changes impacting MTS during the second half of the year, so we do anticipate a stronger performance during the first half of the year. But if you can see the competitive factors, regulatory challenges and strategic decisions will be taken.

Stable OIBDA in 2018 should be seen as a positive development. As for CapEx, we have stated before that we have long ago moved into 2-year budgeting cycle, which makes it logical for us to give a broader CapEx outlook.

For fiscal year 2018 and 2019, we anticipate total CapEx to reach RUB160 billion. Obviously, our focus remains on the enhancement of our data network, and we do anticipate further LTE rollout in Russia and, as I mentioned, the eventual launch of our LTE network in Ukraine.

However, our estimates do not include license cost, which should total roughly RUB2.9 billion. This sum does not include fully, investments to satisfying new laws regarding data storage in Russia.

We are not yet ready at this time to give a fuller forecast on the total sum given the fact that the laws still have yet to be finalized. It is likely that the slight higher sum could be spent in 2018 rather than in 2019, but the 2-year total should not exceed RUB160 billion.

We are also aware of questions about competitive dynamics in our market given recent announcement on tariff and investments by one of our competitors. For now, we can show patience.

We want to wait and see how things develop before concluding that we must change our approach. I want to point out the fact that data usage in our network in Russia has increased over five times since 2015.

And during that time, we have sustained CapEx levels and, in fact, improved network performance through the adoption of new technologies, infrastructure sharing and other efforts. Of course, as trends develop, we will revisit our revenue and OIBDA guidance through the year.

But overall, we remain confident that our strategy and this consistent approach to the market we will continue to reap rewards for MTS, its subscribers and shareholders. Thank you.

Operator, with that, we'd like to open the call to questions.

Two questions, please. Firstly, on your dividend policy and the broader cash return to shareholders going forward.

So, I understand that this year, the dividend in fiscal year based on the current existing policy, but there is still a big gap between the free cash flow of over RUB 70 billion that you generated in '17 and the dividend of over RUB 50 billion. So, do you plan to return the difference to shareholders maybe via buyback?

And can we -- so can we probably expect another buyback this year, the first? And then secondly, just to make sure that Euroset split doesn't indicate the sufficient action by rivals to cut more stores, right?

So, I was just wondering what sort of action you need to see by rivals to continue retail optimization.

Speaking about our dividend policy, this year is the last year of our three-year dividend policy. So, we are committed to deliver in accordance with our three-year dividend policy, which is RUB 26 per share in two installments.

Potentially, we will see this year that we are skewed toward the first payout. And we -- as you know, we completed the program on the buyback, which was approved by our Board of Directors.

Right now, we do not have plans for further buybacks, but we cannot exclude that those plans might appear further through the year.

Okay. And let me answer your second question.

Actually, let me start with kind of stating that actually our strategy aiming at rationalization of the overall landscape of the Russian retail has, to some extent, finished with a success to my mind because the split of Euroset is exactly one of the first signs which indicate or a milestone, if you like, which indicate our success. We believe that this optimization, the split in two different companies and creating a controllable retail footprint or increasing the footprint for all of our competitors, Ivan, will definitely help us to optimize the overall SIM card sales market and enhance the profitability.

Secondly, about our outlook and why we are not kind of providing any specific figures actually. I would say that we have not scheduled the optimization of our retail network, but we kind of predicted closer to the second half of the year, probably the fourth quarter.

Why I'm aiming at this period of time is actually that I want to see the visible -- not only myself, but my colleagues as well, we want to see the visible finalization of the split of this behemoth, if you like, because I believe that our competitors will definitely be interested in optimizing their costs and enhancing their OIBDA performance, which one source of which is actually the optimization of the footprint. I would like to say that probably after the taking over -- the process of taking over of half of the Euroset stores to VimpelCom will be finalized, we'll be ready to kind of -- for the further optimization of the overall retail.

Nowadays, we are slightly ahead of our competitors. And I believe we don't have to be too advanced obviously in this area.

Otherwise, we are affected by potential competition.

I would like to elaborate a little bit on Kirill's point that right now, for example, MegaFon is being sold through Euroset 3,500 stores; Svyaznoy about 3,000 stores; and MegaFon about 4,000 stores, franchise stores plus their own proprietary. So, if we divide Euroset and Svyaznoy by two, that gives about 8,000 unique touch points for MegaFon against our current presence of about 5,000.

So, this is quite a difference. So, to sum it up, what we are waiting, we are waiting the steps from competition to reduce their retail presence and reduce -- continue the policy of low SIM card rotation in the market.

Just on the Russian performance. You had quite a solid quarter in terms of revenue growth.

So, wondering what will be exit rate. And does that growth rate you saw not give you enough confidence to guide for low single digit kind of growth at least in 2018?

I mean, why are you guiding for just slight growth in revenues despite having such a good trend so far? And also, on the CapEx, I mean, do you have any idea about what could be the maximum upside risk to this number if there were, like the whole data storage law were to be taken into account.

Should we be worried about any upside to the guidance of 160 billion over the next two years? And in terms of the split between the two years, 2018 and 2019, how should we think about that?

Okay. Slava Nikolaev.

I will answer the first question. There are two main reasons for growth rate in 2018 being anticipated by us as slightly lower than 2017.

One is possible impact of intercountry roaming revenues. We still expect to -- they're not going to be -- it's not going to be a huge blow at our revenues, but it will still be notable.

And second reason is, And second reason is our own decision to decrease revenues from third-party content, which is not always quality service. And we’ve significantly improved our systems that control this -- the quality of the service and control the transparency of the service to subscribers.

Therefore, we see a significant decrease in this kind of revenue. But we believe that it's a huge investment into our overall good relationships with our subscribers, and in general, loyalty of our subscriber base.

And the second one -- it's Alexey Kornya. As far as the CapEx is concerned, we would refrain from giving the estimates on what is an upside risk towards our CapEx on the Yarovaya law.

I would just indicate that those rough figures, which were given in the market by one of our competitor might give an idea of where right now could be the additional CapEx requirements.

And in terms of the split between the years 2018 and 2019?

That's really one for -- this comment is really one for ‘18 and ‘19 if I got you right. So, we do accommodate partially the CapEx requirements for Yarovaya law in our guidance in 2018 and ‘19, however, not fully.

And to give the exact parameters for our CapEx and effect from Yarovaya law, we'll be able only after the details will be issued.

And just to -- also on the follow-up on the first question on the revenue growth. Have you factored in the World Cup happening in the second quarter, third quarter while giving the guidance as well, any upside from that?

We have factored it, but we have the experience of such events, not only in Russia but in other countries of our presence. I can tell you that it’s not a huge upside in telecom’s revenue.

There will be some upside in guest roaming. We’re going to sell additional SIM cards and with data.

But it’s not going to affect the top line so that we can see any -- even decimals in growth figures.

My first question is regarding your gross margins you are doing currently on the handset sales. I mean, that has improved quite significantly.

I believe you are roughly now at 16%, while historically it was more around 10%. I just wanted to see with you what is explaining this improvement of the gross margins?

And do you think that level of gross margin is sustainable or can it even go at a higher level? My second question is regarding your fixed line and broadband strategy.

I was wondering, are you planning to further expand on passed through fiber or at the moment you believe what you have is relatively adequate. I’m asking that question in the sense that if we looked at your CapEx guidance and we remove the data center, data storage cost anticipated, there would be some kind of reduction of CapEx.

So, I was wondering as well if you can give a bit more light where you see a potential reduction on CapEx. Is it more in the fixed line business or mobile segment?

Okay. This is Kirill Dmitriev.

Thank you for the question. Let me address your first question about the sustainability of the situation with the marginality.

First of all, yes, we acknowledge that the marginality on the handset sales has significantly increased year-over-year. We attribute this to the following factors.

First of all, this is a shift in the kind of segment of the smartphones we are selling through our network. If we, for example, monitor the average price of the smartphones sold in 2017 versus 2016, so we have sold 20%, almost 25% year-over-year growth.

It’s one of the reasons. The second reason for that is actually the overall sentiment in the market.

We believe that retail landscape, maybe on the news of the kind of retail optimization of the independent players like Euroset, some kind of more positive outlook for the market based on the overall consumer expectations in the market. The market was ready to be less aggressive on pricing.

I have to remind you that the significant drop on the marginality of handsets happened right after we had launched this so-called Sunny Project or the price war, which helped us to attract additional footfall to our stores. Nowadays, this is not an issue any longer.

The overall sentiment of the market, let me repeat again, is positive. We don't believe that this trend will be going upwards.

We rather see that this or similar level of marginality will remain flattish in the 2018.

As far as fixed line investment is concerned, it’s Alexey Kornya. We do not plan aggressive fixed line expansion and investments.

We do certain investments, limited investments in organic growth, in organic development, but they are quite relatively conservative. As far as data storage concern, both for fixed and mobile, once again, it is partially included in our CapEx guidance, but not fully.

And we will have to estimate what consequences for our CapEx guidance will be as soon as the details on this data storage law comes out.

I have a rather technical question on the buyback. Now that the Stream Digital has accumulated more than 5% of your stock, what is, what are the plans with regards to the stock?

Clearly, you don't have legal restrictions, legal obligations to cancel it. But do you intend to cancel?

Do you intend to cancel it in the near term or what are the plans? Thank you.

Thank you. It's Alexey Kornya.

Yes, at the end of the day, we plan to cancel the stock. I think we will see some start of the cancellation through this year.

However, for some legal reasons and other considerations, we will not do it full and at once. However, we expect some cancellations starting soon.

And that will take certain time.

Would you please kindly explain to us this incremental RUB 20 billion, which you expect to get on top of EBITDA due to accounting changes? What would be the impact on the cash flow?

And can you also explain the underlying reasons what is changing so that EBITDA would increase by RUB 20 billion?

Svetlana, thank you for the questions. Alexey Kornya.

We do not expect that it has -- it will have any impact on free cash flow because it is how you account for lease. It used to be an operational cost.

Now it will be put as an asset and then depreciated over time. So, this is where the difference comes.

So, all operational costs associated -- majority of operational costs associated with the lease will weigh in the depreciation line.

Very clear. And my second question would be on Ukraine.

You mentioned that part of the reason of significant, sizable top line growth acceleration in Ukraine was due to the high data use. Was there any price increases, how the price looks in Ukraine?

And what were the other factors?

I will answer this question. This is Slava Nikolaev.

I can say that -- I cannot say that there were any significant price increases. There were some changes in roaming policies, mostly in the field of fair usage policy than direct increase of prices.

But otherwise, it's more concerning the principle more for more. People are getting higher packages for higher ARPUs, but it's not price increase per se.

Clear. But if you can quantify the impact out of, let's say, what was the 14% or 20% increase in Ukraine, how much would be the roaming changes contribution?

Svetlana, it's Alexey Kornya. As Slava said, we didn't see any significant price increase in Ukraine.

That was mostly due to transition. The growth comes mostly through the transition in the 3G economy, in the data space.

Because in Ukraine, we launched just two years ago a full scale 3G network. So, the usual uplift from or growth which comes through -- from the transition from 2G into 3G world, from voice world into data world is what we see is the key driver of Ukrainian growth right now.

And roaming adjustments, they had a minor impact.

Okay. Hopefully, we'll see the data usage uplift translating into the revenues in Russia at some point finally.

I've got a question about 5G. Seems a little bit premature to talk about it, but since MegaFon talks about it, I would love to hear your thoughts on the time line of 5G when you expect to get spectrum and when do you expect to start investing for 5G and start testing the frequencies?

And the second question is, going back to the accounting change, is there any impact on interest expense from the lease accounting changes?

This is Slava Nikolaev. I will take this question.

Everybody talks about 5G now. There is not a real standard at the moment.

We don't expect it to be a significant impact on our CapEx in the next two or even sometimes, three years. We think that this is going to be a very gradual improvement of our 4G networks where and when needed.

So, this is not something that you should put in, in your CapEx models for the foreseeable future.

On your second question. Yes, we will have an impact on interest expense from IFRS 16 adoption because partially, the expense on rent will go into interest expense.

So, the bulk of this goes into depreciation, but some portion of that goes into interest expense. So, we'll see slight increase in interest expense due to the standard adoption.

Just to clarify once again the accounting change. If basically, if your depreciation charge will increase, does it mean that you will be capitalizing some of the expenses that you expensed before -- some of the expenditures that you expensed before?

And if so, the CapEx guidance that you provided, I mean, is it comparable to the account in the previous periods? Or there is a difference in CapEx accounting that you used for the historic period and for the guidance?

Thank you, Igor. We indeed, as we said, will see increase in depreciation due to transformation of lease agreements into assets, so afterwards.

So, it doesn't trigger increase in CapEx per se. It's a transformation of lease agreements into assets, which will be afterwards depreciated overtime.

We will see some minor impact on our CapEx coming from adoption of another standard, 15, on revenue recognition, but that will be not of big materiality in our guide -- we will -- it will not be that much rolling through our financial statements. And since we report on CapEx cash in our guidance, we do -- the guidance is not being significantly impacted by this factor.

So basically, the methodology for the historical CapEx will be -- is essentially the same methodology that you use for the guidance?

Cash CapEx, yes, which we guide.

Okay. Then, everybody, we'll wrap it up then.

Thank you for tuning in. And of course, as always, you're welcome at any time to contact me or anyone in the Investor Relations department if you have any further questions.

A webcast of this discussion will be available on our website if you wish to replay the call. In the meantime, everybody, we wish you a happy day and evening.