VimpelCom (NYSE:VIP) rang with its Q1 2006 earnings report this morning, but because of the time difference, the call was at the entirely uncivilized hour of 6 a.m. So in case you were sleeping in, here's a rundown of what Russia's No. 2 mobile telecom provider had to say.

First, the basics. VimpelCom nailed analysts' target for quarterly revenues, coming in with $936.2 million on the nose. At the same time, however, the company exceeded Wall Street's expectations for net earnings, reporting $0.74 per American Depositary Share (ADS), or a dime over analysts' target. (For those not familiar with the term, an ADS is simply the vehicle used for trading VimpelCom equity in the U.S. Each ADS represents 0.25 shares of common stock listed in Russia.)

The positive earnings surprise earned existing VimpelCom shareholders a 5% bump in the value of their shares, but to be honest, I'm not entirely convinced that was warranted. While more profits are certainly preferable to less, the trends reflected in VimpelCom's results suggest to this Fool that the business is slowing down.

First off, if you compare the growth in VimpelCom's revenues to the growth in profits, it looks like the company is experiencing diminishing returns. Sales grew 46% versus last year's Q1 results. Meanwhile, profits grew only 37%. The reason: Margins contracted in the quarter. Gross margins shrank 90 basis points to 82.1%, and net margins declined 110 basis points to 16%.

There was, however, a bit of good news as well. OIBDA, or operating income before depreciation and amortization, which is the company's preferred metric for evaluating its performance, improved considerably when compared to Q1 2005. By that yardstick, VimpelCom's operations became 460 basis points more profitable as the company controlled the increase in its selling, general, and administrative expenditures (SG&A). As you may recall, this was one key objective I suggested that investors look for in yesterday's Foolish Forecast.

Speaking of yesterday's column, I don't mean to end this column on a down note, but VimpelCom performed poorly on the other metric I highlighted yesterday: customer churn. The company's quarterly churn rate (the proportion of total customers that departed the service in the past quarter) leapt 250 basis points in comparison to last year. So VimpelCom is losing 8.4% of its customers every three months (up sequentially as well, in comparison to last quarter's 8.3% churn rate). This means that about one-third of its customers slip through VimpelCom's grasp and into the arms of a competitor like Megafon or Mobile TeleSystems (NYSE:MBT) every year.

Which just goes to show: The Russian mobile telecoms may have had a stroke of brilliance in settling on their pre-paid cellphone service business model (97% of VimpelCom's customers are pre-paids). It eliminates credit risk and makes it easy for customers to sign up with a service. The problem is that it's proving terribly difficult to make customers stay put with just one provider for very long.

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Fool contributor Rich Smith does not own shares of any company named above.