Russia's Megafon ups 2017 profit forecast, warns of future pressures

MOSCOW, Dec 1 (Reuters) - Russia’s No.2 mobile phone operator Megafon on Friday raised its forecast for its telecoms business’ 2017 core earnings but warned of future economic and regulatory pressures on sales and profits.

Megafon in its core telecoms business expects operating income before depreciation and amortisation (OIBDA) of 118 billion roubles ($2.02 billion), at the upper end of its previously stated 112-118 billion rouble range.

It also confirmed its forecast for flat-to-low-single digit growth in service revenue and for capital expenditures of 55 billion to 60 billion roubles.

Chief Executive Sergei Soldatenkov said difficult economic conditions, a competitive telecom market and regulatory challenges could hurt future sales and profits.

The company estimates it will need to spend up to 40 billion roubles in the next five years to comply with a new law requiring operators to store voice and data traffic, part of wider security legislation, Soldatenkov said.

“I assume that the data will have to be stored for one month, calls for six months, and the equipment will be Russian-made,” he told reporters.

Russia’s economy has returned to growth after two years of recession following a drop in oil prices and Western sanctions over the Ukraine crisis, but consumers remain price-sensitive.

Megafon’s telecoms revenue grew 4.4 percent year on year in the third quarter to 84.7 billion roubles on the back of a rise of 7.5 percent in mobile data revenue, 11.5 percent growth in wireline services and a 29.8 percent jump in handset sales.

The company said demand increased for high-end devices, particularly Samsung and Apple phones.

The OIBDA of the telecom segment rose 3.3 percent to 33.3 billion roubles but the OIBDA margin fell by 0.4 percentage point to 39.4 percent.

The results exclude the results of internet group in which Megafon bought a controlling stake in 2017.

Megafon said profitability declined mainly due to higher handset sales - traditionally a low-margin business - as well as higher provisions for employee bonuses linked to improved financial results and an increase in radio frequency fees because of the acquisition of additional spectrum.

$1 = 58.4900 roubles Reporting by Maria Kiselyova; editing by Jason Neely