7 февраля '07
The Russian Telecommunications Market Development in January 2007
Moscow, February 3, 2007
1. General Trends of the Market Development
1.1. The Saturation Rate of the Cellular Communications Market in Russia
By December 31, 2006 the consolidated subscriber base of MTS and its subsidiaries was 72.6 mln people. At that the subscriber number growth in the Moscow region corresponded to an average growth in Russia – by 1.3% up to 11.21 mln peple.
In St. Petersburg the amount of subscribers has reduced by 0.2% to 2.69 mln users. In the rest regions of Russia MTS subscriber base has increased by 1.4% up to 37.32 mln people.
In December the subscriber base of UMS, the Ukrainian subsidiary of MTS, grew by 13.6% up to 20 mln people. The subscriber base of Uzdunrobita, the Uzbek subsidiary of MTS, grew to 1.45 mln users. Barash, a subsidiary from Turkmenistan, had 180 thousand people.
According to data by January 2007, MegaFon’s subscriber base is 30, 082, 145 people. In 2006 the amount of subscribers has grown by one third approximately.
The annual subscriber amount growth (by January)
2003 – 3 020 818;
2004 – 6 358 700;
2005 – 13 647 807;
2006 – 22 835 985.
By the results of the 3rd quarter of 2006, ARPU of Megafon was 13.1USD, a share of additional services was 13% 1.2. Demand Evaluation Euroset company has carried out an express analysis of cellular phones retailing market state. In 2006 29.27 mln cellular phones for 5.65 bn USD were sold on the Russian retailing market. That is more by 3% of the sales volume of 2005. On the world market of cellular phones sales the share of Russia has been about 3%. Within the whole time of cellular communications existence in Russia 126.1 mln cellular phones have been sold by retail. 1.3. The Offer of Standard and New Services Since January 1, 2007 MTS has transferred its tariffs system to Russian roubles. Earlier two other 3G participants Vimpelcom and Megafon did the same. The market participants as well as analysts find the innovation convenient for subscribers first as service prices will be in roubles, adjusted for taxation. The tariffs transfer to Russian roubles was made in accordance with MTS internal rate of 28.70 roubles per 1 USD. They claimed in MTS, that will not lead to growth of prices. The Infocommunications Unit ( Vimpelom’s GSM network has got the first virtual operator. Korbina Telecom company will sell its services under its brand. Within a year the company plans to connect 30-40 thousand subscribers. In experts’ opinion Korbina’s project as well as the same projects of the company’s competitors will be niche. They have not been able to compete with cellular companies yet. According to analysts, virtual operators will be able to enter a mass market when 3G cellular networks appear in Russia. By early 2007 the list of foreign cellular networks and countries, where subscribers of MegaFon-Moscow can use mobile communications, has been extended. The new partners of MegaFon in roaming are mobile operators of Argentina, Honduras, Nepal, Sudan, Surinam, Tanzania, Trinidad and Tobago, Ethiopia and the Marian Isles (the Pacific Ocean). In total roaming for contract subscribers of MegaFon is available in networks of 429 operators in 198 countries.
1.4. The Major Companies’ Potential (capitalization, profit)
According to the data of the Ministry of IT and Communications of Russia, for 9 months of 2006 Russian communications operators’ revenue has been 592.58 bn roubles, increasing by 23 % as compared to the same period of 2005. Mail service operators’ revenue has increased by 27% up to 36.746 bn roubles. Revenue of foreign, trunk and interzone communications has increased by 16.8% up to 68 bn roubles. The revenue of local telephone communications in cities has grown by 15 % up to 80.2 bn roubles, and in rural area – by 16.2% up to 7.8%. Cellular operators’ revenue has grown by 32.7% up to 273.3 bn roubles. Most of the revenue has been got from the population (221.2 bn roubles). The operators revenue from a traffic connection and admission services has been 55.5 bn roubles, increasing by 9%.
By preliminary assessments, in 2006 MTS consolidated proceeds increased by 20% approximately, up to 6.013 bn roubles. In 2006 the operator is planning to increase proceeds by 15-17% and hold OIBDA profitability on the level of the previous year (50%). They believe in MTS, the proceeds growth will be contributed by a transfer to rouble tariffs, increasing revenue from other operators (since 2006 they have began to pay for calls delivery to MTS subscribers) and increase of consumers’ activity. The net profit of the company has been more then 500 bn USD, allowing to pay large regular dividends. At the same time in 2006 investment went down by 18% to 1.8 bn USD as compared to the previous year. In 2007 the company intends to invest 1.785 bn USD (1 bn USD in Russia) to improve the communications quality first.
In 2006 The total turnover of CyberPlat payment system reached 2.639 mln USD. Thus, CyberPlat company has strengthened a status of the largest payment system in Russia. The company takes more then 20% of the Russian leading cellular operators’ proceeds, being the largest partner of Bee Line, MS and MegaFon according to volumes of received subscribers’ payments.
According to statistics, 96% of Cyberpalt annual turnover falls to the share of payments receiving from subscribers of mobile operators and 1% to the share of payments from subscribers of commercial TV operators. The rest part includes payments for wired communications, intrusion protection systems, public utilities, credit repayment and access to Internet.
For 2006 669 mln payments have been arranged through the universal payment system Cyberplat. By the end of the year more then 3 mln payments a day had been carried out. According to the volume of daily payments, CyberPlat s presently the largest payment system of the country, excelling the Central Bank of Russia in transactions number.
In February 1, 2007 on New York Stock exchange the share price of Russian companies was as following: MTS – slightly more then 55.8USD, Vimpelcom – 87.25 USD.
The international rating agency Standard & Poor’s has changed a forecast on ratings of Sistema and the subsidiaries (MTS and MGTS) from “Stable” to “Positive”. The long-term credit ratings
MegaFon’s rating has been raised by Standard & Poor’s to “BB” due to continuous improvement of the company’s operating and financial characteristics, the forecast is “Positive”.
1.5. The Market Extension Due to Overseas Expansion
According to he information of “The Ukrainian Radiosystems” (100% subsidiary of Vimpelcom), in 2006 the subscriber base of Bee Line has multiplied by more then seven. In December 31, 2006 the base of Bee Line has been 1.876 thousand people. By the results of 2006, Bee Line has been called the most runaway cellular operator on the telecommunications market of Ukraine.
By late January of 2007 MTS subscriber base in Uzbekistan has exceeded 1.5 mln users among the total amount of 2.7 mln users.
Euroset has opened the first store in Baku and the first two stores in Erevan, planning to increase the number up to 30 by late 2007.
2. The Regulator Activity and the Legal Field Dynamics
2.1. The Struggle with Illegal Entrepreneurship
In January 30 FAS ordered to MTS to eliminate the violation of the law on advertising in tariff “The First” advertisement. According to the advertisement, MTS offered subscribers a new tariff plan, including free incoming calls and 0.07 USD for the first minute of outgoing calls. The text of the explanation saying the sum does not include a fee for connection was hardly visible. Thus, including the fee for connection, the price must be 0.18 USD instead of 0.07 USD mentioned in the ad. According to FAS, information about the first minute price, including a fee for connection, is essential, and lack of the information could mislead subscribers.
3. The Companies’ Activity and Decision Making, Influencing Most the Market Development
3.1. Success and Failure in New Assets Buying
Sistema
At the time, according to forecasts of some analysts, Sistema may sell its 53% share holding of the largest Russian cellular operator MTS in the first half of 2007. such a conclusion has been caused by statements of Sistema management, concerning their interest to shares in Deutsche Telecom and Telecom Italia. The president of the company Alexander Goncharuk has called those suggestions wrong. Most commentators mention that the rumours about MTS control Western share holding selling are rather frequent on the market, because a merge with the large telecommunications holdings may be insurance for the business owners. And we must take into account that MTS is the largest asset for Sistema.
Alfa Group is negotiating the participation in buying of the Indian mobile operator Hutchisin Essarc with representatives of families, involved in the concern Essar and Hinduja Group. According to the information of the financial director of Altimo , the holding is ready to sponsor the families’ offers in exchange to a minority share. The British Vodafon has already proposed to buy shares of Hutchison Essar. Vodafon’s competitors are the second largest Indian cellular operator Reliance Communications and the Egyptian company Orascom Telecom. In the market analysts’ opinion, Altimo has small chance in the struggle with the large overseas operators.
3.2. Personnel Changes in Major Companies
Gzhegozh Esh
4. The Conflict Zones and Interests Opposition Fields.
4.1. Fields of the most Active Struggle for Markets and Assets Division and Redistribution.
4.2. Contradictions between Entrepreneurs as a Result of Property Structure Changes, Merges and Absorptions.
In January 16, 2007 the Federal arbitrage of the Volga region (Kazan) dismissed answering the appeal of Marshal Capital Partners to the verdict of the arbitrage of the Samara region on the claim K. Kirushin to A. Skvortzov and Marshal Capital Partners (now Sigma Capital Partners) for the transfer of a buyer’s rights and responsibility on SMARTS shares alienation.
The Arbitrage in Geneva ordained that Altimo can propose 4 candidates for Vimpelcom’s board of directors, while Telenor can propose 5 candidates. Thus, the court has confirmed legality of Vimpelcom shareholders’ contract.
4.3. Competition in the Struggle for New Assets and Markets Overseas
Alfa Group and Telenor are struggling about the Ukrainian cellular operator Kievstar. The Merchant’s court of Kiev has prolonged the prohibition of the company’s financial account by the audit company Ernst&Young. The corresponding decision was taken on the claim of Storm company, Altimo’s subsidiary, owing 43.5% shares of the operator. The final decision has not been taken yet. The Court has set security measures, postponing next hearings sine die.
The Geneva Arbitrage has made a decision, according to which Turkcell must be controlled by the Scandinavian Teliasonera. The decision does not defeat Alfa’s right for 13.22%, but cancel Alfa’s clams for control in Turkcell. Thus, the Court answered to the claim of TeliaSonera by validating the agreement, having been made by the company and Cukurova Group in 2005. Then the Turkish group promised to sell 53% of Turkcell Holding shares for 3/1 bn USD and the control over Turkcell. In tote TeliaSonera had to get 64% shares of the Turkish operator.
Euroset, M.Video. Mir. Svyaznoi, Technosila and Eldorado has withdrawn their declaration about moving Panasonic goods out from their stores and started working with the company again. The action was caused by unwillingness of the Russian representative of office of Panasonic to suppress “grey” schemes, used by some importers. The conflict was settled due to Panasonic consent to turn to direct delivery practice since January 2007.
may become a co-owner of the Italian largest operator of communications Telecom Italia. According to information of the British agency Mergermarket, the agreement about the shares buying can be made in March during an official visit of president of Russia Putin to Italy. The company has confirmed interest to the shares of Telecom Italia. Sistema plans to charge the Italian investment bank to start negotiating Telecom Italia’s shares with Chairman of the Pirelli Group board of directors Marco Tronketti. Pirelli possesses 80% shares of the financial company Olimpia, a single asset of which is 18% of Telecom Italia. The interest to the shares of Telecom Italia was confirmed by president of Sistema Alexander Goncharuk. According to data by September 30, 2006, TI was a leader on the Italian market of wired 72.8%, 24 mln numbers) and mobile (40.3%, 31.5 mln subscribers) communications. Te company also possesses TV channels La7, MTV Italia, and the electronics producer Olivetti. 17.99% shares of IT belong to the Italian industrial holding Pirelli, 0.94% belong to the company itself, and the rest 81.07% are divided between Italian (52.79%) and foreign (28.28%) investors.
