FOCUS: New Market Trends Force Russian Mobile Operators to Evolve

MOSCOW, April 27 (Prime-Tass) -- While the development of Russia?s mobile telecommunications market in recent years was characterized by soaring subscriber bases and falling average revenue per user (ARPU), that trend now seems to be broken with subscriber base growth decelerating and revenue per user stabilizing.

Given this backdrop, mobile operators should revise their operating strategy and offer an expanded range of services in order to keep existing subscribers, analysts said. At the same time, the highly penetrated Moscow market provides mobile operators with solid ground for ARPU growth, which would later be expanded to the Russian regions, analysts said.

The most recent financial results posted by Russian mobile operators reflect ARPU "stabilization and potential for further upside (like in Moscow) on higher usage and impact from value-added services going forward - a trend that has been observed in many European and Eastern European countries," Alfa Bank said in a research note last week.

The total subscriber base of Russian mobile operators grew on average by 2 million people per month in the first quarter, compared with between 3 million to 4 million monthly in the first quarter of 2005. The SIM-card penetration rate hit 91% as of March 31 across Russia and was just under 140% in the Moscow Licensed Area (MLA), which includes Moscow and the Moscow Region, according to Advanced Communications & Media (AC&M).

The penetration rate, based on valid SIM cards, will hit 100% in Russia this year and is likely to increase to 113% as of December 31, Anton Pogrebinsky, telecoms analyst at AC&M said. "The SIM-card penetration rate stood at 87% as of late 2005, while real penetration was about 60%," Pogrebinsky said, adding that real penetration at the end of 2006 is likely to be about 25 percentage points lower than SIM-card penetration.

"Once penetration growth has been exhausted, Russia should see an increase in ARPU, just like any other country," Alexander Kazbegi, telecoms analyst at Renaissance Capital, said in a research note last week.

Russia?s largest mobile operator Mobile TeleSystems (MTS) posted ARPU of U.S. $7.30 in October-December 2005, while Russia?s second largest mobile operator VimpelCom posted ARPU of $7.10, down from around the $10 that mobile operators posted in mid-2004.

"ARPU is approaching its minimum, after which it will stabilize and start growing," Pogrebinsky said, adding that average ARPU in Russia would amount to $7.40 in 2006.

However, some analysts believe that ARPU is going to continue its slide this year.

"ARPU will fall this year. VimpelCom's ARPU has already stabilized, but MTS' is going to slide. We will see overall stabilization only in 2007," Oksana Pankratova, analyst at iKS-Consulting, said.

Analysts named ARPU stabilization and the launch of loyalty programs aimed at keeping existing subscribers as two major steps that mobile operators should undertake this year.

"Operators should shift to activities aimed at preserving subscribers rather than attracting new users, thus, they should offer their (existing) users better quality service," Pogrebinsky of AC&M said. Mobile operators should also focus on further promoting value-added services and tariff rebalancing following the launch of the Calling Party Pays principle scheduled for July 1, he added.

The Moscow market, which has already matured, may become the first foothold for mobile operators' ARPU growth, analysts said. VimpelCom's management has already noted that ARPU in the MLA has started to grow.

The average revenue per user (ARPU) in the MLA rose to $12-$13 in 2005 from $7.50 in 2004, VimpelCom's MLA branch General Director Dmitry Pleskonos said in March.

Russia?s third largest mobile operator MegaFon posted even stronger ARPU figures in the MLA. MegaFon's ARPU rose to $19.50 in March from about $18 in January, the company said last week. The company also showed a very high monthly MoU (minutes of usage) figure, which totaled about 300 minutes in the first quarter in the MLA. The MoU of MTS and VimpelCom across Russia stood at 123 minutes and 106.5 minutes in the fourth quarter of 2005, respectively.

MegaFon attributed its high ARPU and MoU figures to a shift to ruble-denominated tariffs, the improvement of its network in the MLA and the company's focus on courting active subscribers.

MegaFon accounted for over 50% of Moscow's monthly net additions in January-March and controlled 15.8% of the Moscow market as of March 31, according to AC&M.

Pogrebinsky from AC&M attributed MegaFon's recent success in the MLA to the launch of the Mobile tariff plan, under which users are charged 1 ruble per minute for outgoing calls to other mobile users.

"The company's network coverage improved and the company had attractive advertising and promotional campaigns," Pogrebinsky said, adding that MegaFon may increase its market share in the MLA to 20%-25%.

Though the Moscow market is highly penetrated, analysts still see some upside for growth. "Growth will be minor, as there are almost no people left without mobile phones, but mobile operators will still find new users who want to have a second or a third SIM card," Pankratova of iKS-Consulting said.

Besides people who want to have several SIM cards, the subscriber base in the MLA may also rise thanks to tourists, businessmen and schoolchildren, Pogrebinsky said, adding that the age when schoolchildren get mobile phones is decreasing. "If a schoolchild with a mobile phone was something unusual before, now it is a common thing," Pogrebinsky said.

Penetration in the MLA may also rise further due to contradictions in the actual number of people living in the MLA and the official population figures used to calculate penetration.

"The population used to calculate penetration is inaccurate. The actual population in the MLA is 25 million people, and not the 17 million contained in official statistics. If we take the first figure, the penetration will amount to about 95% as of March, which corresponds with figures of western countries," Pogrebinsky of AC&M said. (27.5198 rubles - U.S. $1)

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Posted to the site on 27th April 2006