Russian cellular market: One million new subscribers every month
Russia's cellular market has to be taken seriously. The country is roaring ahead, outpacing its regional neighbours, including Poland, Hungary and the Czech Republic.
Three consecutive years of triple-digit subscriber growth - 121% last year alone - has been built on the primary fact that more than one million Russians are signing up for new mobile services every month.
What is more in this diverse country of 143 million is that Russia has the potential of China and India to be at the forefront of mobile developments over the next decade.
Russian mobile operators are now placing greater emphasis on their regional operations. For example, of the 270 base stations VimpelCom added to its networks across Russia in December alone, only 60 were in Moscow, where much of the country's mobile telecom buildup and competition has been focused in the past.
Regional growth rates among the big three operators vary. For three consecutive months, VimpelCom has outperformed its rivals, posting 20%-plus regional subscriber growth. That is more than twice the pace of competitors MTS and MegaFon.
We expect further consolidation in the regions. MTS and VimpelCom are in talks for the few remaining independent regional operators, and Svyazinvest confirmed plans to consolidate all its cellular assets.
In addition, the consolidation of NMT mobile networks (and their migration to CDMA) has become clear after the sale of stakes in MCC and Delta Telecom to Telco Overseas by Millicom and Telecominvest.
Overall, for the first time, we estimate that the number of regional subscribers in Russia exceeded the Moscow licence area, totalling 10 million. This is expected to reach more than 20 million by the end of this year.
But the regions still have a way to go. The level of penetration in many regions has not exceeded the psychologically important threshold of 10%. With per capita incomes below E50 a month for the poorest, the adoption of mobile services in the regions will depend on aggressive tariff plans, good marketing and packaging.
The deal signed last week, between BP and Russian group Tyumen Oil to create the country's third largest oil and gas company, was a momentous event for Russia. It matched all foreign direct investment in the country in the last three years combined, according to the World Bank. The reverberations of the deal will undoubtedly be felt in other sectors of the Russian economy, including telecoms.
For some foreign investors in telecoms, Russia is not a new market. Norwegian operator Telenor, for example, was an early investor, coming in 1997. Now its early investments are paying off with remarkable dividends. The firm is not pulling back on its commitment to Russia. Quite the opposite. Even though Telenor sold its 49% stake in StavTeleSot recently, the deal will solidify its Russian position.
We expect that Russia will be taken more seriously during the next 10 years, with the majority of investments once earmarked wholly to central and eastern Europe going to Russia. With this, there will be a more aggressive entrance of foreign small and medium-sized enterprises, mostly from western Europe and Asia, wishing to capitalise on the Russian opportunity.
Despite all the pessimistic forecasts about the development of GPRS and other premium services in Russia, partially caused by the negative experience of European operators, premium services themselves are gradually developing not only in bustling Moscow, but also in the regions. The big three announced their plans to develop 2.5G services as part of their overall strategy aimed at pushing Russia into the 3G world. MTS and VimpelCom tested GPRS networks as early as the middle of 2000.
Yet, at the moment, there is still no obvious leader. MTS has yet to launch GPRS commercially in Moscow. VimpelCom was the first operator which did so in April 2002, setting an unprecedented price of $0.25 for each megabyte of information. Western operators cannot match this price. For example, Vodafone UK and T-Mobile have GPRS tariffs ranging from $2 to beyond $10 (or even more) for 1 megabyte of information.
The results of VimpelCom's aggressive pricing and marketing efforts demonstrated that GPRS traffic increased twofold, with GPRS users exceeding 25,000. The company also keeps expanding GPRS in the regions. In November, VimpelCom completed GPRS networks in Nizhny Novgorod and Novosibirsk. By the end of 2003, the company plans to expand 2.5G to all regions.
In October, after MegaFon introduced GPRS to both prepaid and regular users in the Moscow region, VimpelCom introduced WAP over GPRS for prepaid subscribers. Since that time, net additions of new users grew fourfold. MegaFon was the first Russian operator which introduced commercial multimedia message service (MMS). MegaFon considers itself the most innovative GSM operator in Russia, and plans to promote new services more heavily as vendors and content-providers enter the market.
It seems that MTS strategy is similar to MegaFon. The operator is waiting for 2.5G to become maturer and for demand to increase. Although MTS announced the first phase of its GPRS-network in Moscow in 2000, it is still in trial. Novosibirsk and Gorno-Altaisk are the only regions where GPRS networks of MTS were commercially launched, and where high take-up rates are expected among young, well-educated people. Despite rather high tariffs, MTS was able to attract 3,500 GPRS users in Novosibirsk.
MTS is also testing GPRS networks in Krasnodar, Ufa, Kostroma, Smolensk, Tver, Yaroslavl, and St. Petersburg. We estimate that 2.5G+ services will start to take off commercially and grow to at least a E46.2 million ($50 million) business in 2003, serving the whole of Russia.
This is a new kind of Russian revolution.
Three consecutive years of triple-digit subscriber growth - 121% last year alone - has been built on the primary fact that more than one million Russians are signing up for new mobile services every month.
What is more in this diverse country of 143 million is that Russia has the potential of China and India to be at the forefront of mobile developments over the next decade.
Russian mobile operators are now placing greater emphasis on their regional operations. For example, of the 270 base stations VimpelCom added to its networks across Russia in December alone, only 60 were in Moscow, where much of the country's mobile telecom buildup and competition has been focused in the past.
Regional growth rates among the big three operators vary. For three consecutive months, VimpelCom has outperformed its rivals, posting 20%-plus regional subscriber growth. That is more than twice the pace of competitors MTS and MegaFon.
We expect further consolidation in the regions. MTS and VimpelCom are in talks for the few remaining independent regional operators, and Svyazinvest confirmed plans to consolidate all its cellular assets.
In addition, the consolidation of NMT mobile networks (and their migration to CDMA) has become clear after the sale of stakes in MCC and Delta Telecom to Telco Overseas by Millicom and Telecominvest.
Overall, for the first time, we estimate that the number of regional subscribers in Russia exceeded the Moscow licence area, totalling 10 million. This is expected to reach more than 20 million by the end of this year.
But the regions still have a way to go. The level of penetration in many regions has not exceeded the psychologically important threshold of 10%. With per capita incomes below E50 a month for the poorest, the adoption of mobile services in the regions will depend on aggressive tariff plans, good marketing and packaging.
The deal signed last week, between BP and Russian group Tyumen Oil to create the country's third largest oil and gas company, was a momentous event for Russia. It matched all foreign direct investment in the country in the last three years combined, according to the World Bank. The reverberations of the deal will undoubtedly be felt in other sectors of the Russian economy, including telecoms.
For some foreign investors in telecoms, Russia is not a new market. Norwegian operator Telenor, for example, was an early investor, coming in 1997. Now its early investments are paying off with remarkable dividends. The firm is not pulling back on its commitment to Russia. Quite the opposite. Even though Telenor sold its 49% stake in StavTeleSot recently, the deal will solidify its Russian position.
We expect that Russia will be taken more seriously during the next 10 years, with the majority of investments once earmarked wholly to central and eastern Europe going to Russia. With this, there will be a more aggressive entrance of foreign small and medium-sized enterprises, mostly from western Europe and Asia, wishing to capitalise on the Russian opportunity.
Despite all the pessimistic forecasts about the development of GPRS and other premium services in Russia, partially caused by the negative experience of European operators, premium services themselves are gradually developing not only in bustling Moscow, but also in the regions. The big three announced their plans to develop 2.5G services as part of their overall strategy aimed at pushing Russia into the 3G world. MTS and VimpelCom tested GPRS networks as early as the middle of 2000.
Yet, at the moment, there is still no obvious leader. MTS has yet to launch GPRS commercially in Moscow. VimpelCom was the first operator which did so in April 2002, setting an unprecedented price of $0.25 for each megabyte of information. Western operators cannot match this price. For example, Vodafone UK and T-Mobile have GPRS tariffs ranging from $2 to beyond $10 (or even more) for 1 megabyte of information.
The results of VimpelCom's aggressive pricing and marketing efforts demonstrated that GPRS traffic increased twofold, with GPRS users exceeding 25,000. The company also keeps expanding GPRS in the regions. In November, VimpelCom completed GPRS networks in Nizhny Novgorod and Novosibirsk. By the end of 2003, the company plans to expand 2.5G to all regions.
In October, after MegaFon introduced GPRS to both prepaid and regular users in the Moscow region, VimpelCom introduced WAP over GPRS for prepaid subscribers. Since that time, net additions of new users grew fourfold. MegaFon was the first Russian operator which introduced commercial multimedia message service (MMS). MegaFon considers itself the most innovative GSM operator in Russia, and plans to promote new services more heavily as vendors and content-providers enter the market.
It seems that MTS strategy is similar to MegaFon. The operator is waiting for 2.5G to become maturer and for demand to increase. Although MTS announced the first phase of its GPRS-network in Moscow in 2000, it is still in trial. Novosibirsk and Gorno-Altaisk are the only regions where GPRS networks of MTS were commercially launched, and where high take-up rates are expected among young, well-educated people. Despite rather high tariffs, MTS was able to attract 3,500 GPRS users in Novosibirsk.
MTS is also testing GPRS networks in Krasnodar, Ufa, Kostroma, Smolensk, Tver, Yaroslavl, and St. Petersburg. We estimate that 2.5G+ services will start to take off commercially and grow to at least a E46.2 million ($50 million) business in 2003, serving the whole of Russia.
This is a new kind of Russian revolution.
