6 мая '07
The RussianTelecommunications Market Development in April 2007
1. General Trends of the Market Development
1.1. The Saturation Rate of the Russian Cellular Market
According to RBK with reference to the consulting agency Advanced Communications & Media (AC&M), in March 2007 the amount of cellular communications users in Russia has increased by 1% up to 155.05 mln subscribers as compared to the previous month.
The penetration level of cellular communications has grown by 1.1% up to 106.8% for the same period of time, including the growth by 1.6% in Moscow (up to 161.2%) and by 0.8% in St. Petersburg up to 139.5%.
In Moscow the number of cellular communications users has increased by 0.99% up to 27.372 mln people, in St. Petersburg – by 0.56% up to 8.844 mln people.
In other regions of Russia the amount of cellular communications users has grown by 1.07% up to 118.833 mln users, the penetration level has increased by 1% up to 97.5%.
1.2. The Demand Evaluation
Altimo holding, managing telecommunication assets of Alfa Group, has finished studying of investment appeal of mobile communications markets in 52 countries. The company was using data for 2002-2006 period.
According to a mobile development index (MDI), reflecting financial condition of the world’s cellular markets, Bangladesh has become a leader. Asian countries and the CIS have taken top positions. African countries has been declared the leased attractive. Russia has taken the 5th place in the rating.
Analysts has agreed with Altomo’s figures of appeal of mobile markets of Asia and the CIS. However, they say the rating procedure does not take into account political factors. The analysis, carried out by Altimo, is only based upon statistics and does not take into account a number of important “qualitative” factors, for instance, administrative barriers when entering the country, political and macroeconomic risks.
3G licenses distribution among Big3 companies has generated interest in the sector, because the amount of new subscribers as well as the amount of sold cellphones has gone down significantly for the previous year. The market of mobile content is saturated, the demand for melodies and pictures is going down. Cellular retailers are looking forward to the turnover growth due to increase of sales of expensive 3G phones. That concerns mostly Moscow, St. Petersburg and other big cities.
According to the data of Euroset, for the 1st quarter of 2007 about 6.7 mln cellphones have been sold in Russia. Suppliers and producers have managed to earn 1.41 bn USD for 3 months that is by 12% more than for the same period in 2006. That can be partially explained by 10%-increase of an average retail price of a cellphone (now the price is 212 USD). In the 1st quarter 2007 Sony Ericsson became one of the three leaders of the market. The company has managed to double almost its share in the Russian segment (16.9%).
Euroset also said that clients buy less cellphones in the segment “ less than 200USD”. Phones of 300-390 USD segment are being bought more actively by consumers.
In the 2nd quarter Euroset is planning to sell about 7 mln cellphones, i.e. by 5% more than in the 1st quarter. The sale proceeds must be about 1.5 bn USD (the growth by 6%)/
The company’s specialists suppose, that this year about 28 mln cellphones at 6 bn USD will be sold in Russia.
According to data of Mobiset.ru sales of cheap (“budget”) cellphones is reducing, while expensive cellphones are being sold more actively. Thus, in the 1st qurter of 2006 a share of sales of cellphones in the segment “less than 199 USD” was 62.3%. In the 1st quarter of 2007 this share of sales was 52.8%. In the 1st quarter of 2006 the share of 300-399 USD segment was 11%, while in the 1st quarter of 2007 the share of the same segment was 14%.
Cellphones in 200-299 USD segment are the most popular (21.6%).
J’son & Partners company has summed up the results of development of the Russian market of smartphones in 2006. More than 1.2 mln smartphones were sold at more that 0.5 bn USD.
The market of smartphones continues growing fast. The market has been doubled almost as compared to 2005: the growth in sales is 80%, the growth in total proceeds is more than 100%. While the cellphone market is reducing, the smartphone segment is increasing its share: according to the results of 2006, the segment got about 4 % of total sales of mobile phones, i.e. twice as many of the same figure for 2005. In 2006 an average retail price for a smartphone was 495 USD, i.e. more by 11% than the average price in 2005. According to J&P assessment, in 2007 in Russia sales of smartphones may exceed 2 mln phones.
According to results of the preference analysis of internet audience, carried out by Sotovik information agency, the most popular cellphone brand in March 2007 was Nokia-76. The top positions were also taken by Nokia, Sony Ericsson and Samsung.
1.3. The Offer of Standard and New Services
In 2007 MForum Analytics are predicting reduction in an average price per minute (APPM) on the cellular communications market of the Moscow region. For 2004-2007 period average annual reduction in tariffs on the Moscow cellular communications market will be about 13%.
In contrast, the local fixed-line communications is going up in price. According to data of MForum Analytics, in 2006 APPM on the Moscow fixed-line communications market was 0.013 USD (the growth 20% as compared to 2005).
MTS has declared about close-out of work for communications providing of all stations of the Moscow Underground. Vimpelcom informed, the company has covered about two-thirds of the stations and they are working over coverage of the whole underground. In 2006 MegaFon covered all stations within the Circle, i.e. about 50 stations.
Vimpelcom is launching a new rouble billing system with postpaid charging. Subscribers can pay for services within 25 days after billing. They are sure in the company that first of all the new offer will be used by consumers, whose income is higher than average.
MTS has published a rating of 10 largest content-partners of MTS according to results of the 1st quarter of 2007.
1. Inform-Mobil
2. MOBICOM (Rustar Holding)
3. Neva line
4. Avant Mobile
5. Shemrock Games
6. i-Free
7. Solvo International
8. the 1st City Referral Service
9. Teleport OOO/ Nikita Mobile OOO
10. Forte-IT
By late 2007 DIXIS is planning to set a network, consisting of 100 payment terminals in the biggest cities of the RF. The first 10 terminals have already been set in Moscow DIXIS stores.
DIXIS payment terminals allow to pay for services of cellular communications, fee TV, Internet-providers, safety systems as well as utility services, fixed-line communications and consumer crediting. Clients of 12 leading Russian banks (Alfa-bank, Russki Standard, Renaissance Capital, GE Money Bank, Home Credit and Finance Bank, CityBank, etc) can cancel their credits via DIXIS payment terminals.
Vimpelcom, the international cellular operator, has declared about the launch of HSDPA standard (3.5G) network of the mobile operator Tacom in Tajikistan.
In 2007 Euroset will invest 6 mln USD in development of the own network of payment terminals, which will be set not only in the company’s stores, but in other stores as well. The number of terminals will increase from 200 to 2000.
1.4. The Major Companies’ Potential (Capitalization, Profit)
For the 1st quarter of 2007 a subscriber base of the Swedish TELE2-Russia has increased by 644, 000 subscribers (the growth 81% as compared to the same period of 2006). At present the amount of subscribers is 7, 097 thousand people.
The company’s operation income has grown by 135% up to more than 1 bn Swedish crowns as compared to 448 mln crowns in the 1st quarter of 2006. EBITDA of the company has been 297 mln crowns as compared to 22 mln crowns in he 1st quarter of the previous year.
Carl-Magnus Stenberg, the president of TELA2-Russia, believe that the company continues developing fast on the Russian cellular communications market. The company is still taking the 4th place among the leading Russian operators and they intend in the company to increase actively their presence on the market.
Shares quotations at the New York Stock Exchange (
Vimpelcom: April 30 – 96.75; max for the month – 97.5; min for the month – 95.75.
MTS: April 30 – 55; max for the month – 56.4; min – 55.0.
1.5. The Market Extension Due to Overseas Expansion
MTS
2. The Regulator’s Activity and the Legal Field Dynamics
2.1. News in the Legislation and Other changes in the Legal Field
In the early April the staff of the commission for consideration of requests for 3G services providing was approved. Chairman of the commission is Alexander Krupnov, president of Infocommunication Unit (the former 3G Association).
As a result of the commission’s work Big 3 companies (Vimpelcom, MegaFon and MTS) have become winners of the tender among 12 candidates.
In Russia 3G networks will be constructed in the basis of the European standard UMTS(WCDMA).
2.2. The State Assets Privatization
Svyazinvest holding has not been included in the programme of the state assets privatization for 2008-2010, worked out by the Minister of Economic Development and Trade German Gref. According the minister, privatization of Svyazinvest will be held not earlier than 2010.
In late 2005 the company’s blocking holding (25%+ 1 share) was bought by AFK Sistema for 1.3 bn USD. Since then the state holding (75% minus 1 share) is regularly included in the privatization plan, approved by the government, but every time the tender is postponed.
Most investors and experts assess Svyazinvest as a state company and do not expect the company will be bought by a private shareholder in the nearest future. Thus, the market position of the holding and its interregional companies (IRC) remains the same.
The head of Svyazinvest Alexander Kisilev said that plans of AFK Sistema to reform the holding’s charter are incorrect and no constructive. In his opinion, the amendments, concerning extension of minority shareholders’ authority, and Sistema’s representatives’ wish to take an active part in the holding’s IRC activity, contradict to the longstanding practice of management. According to Kisilev, Sistema’s proposal to increase the holding’s capitalization is incompatible with the plans of AFK to participate in Svyazinvest’s privatization
2.3. Struggle with Illegal Entrepreneurship
Since April banks will be able to get an access to D-Telecom system, which contains information about subscribers – non-payers of MTS, Vimpelcom and Megafon. The data from the non-commercial partnership NKB will be delivered to the National Credit Bureau and then they will be available to banks. D-Telecom started working in autumn of 2005 and was only used by Big3 operators to exchange information about non-payers. Recently Transtelecom and Golden Telecom have connected to the system , too.
The Khabarovsk Department of FAS has fined Euroset Khabarovsk for violation of the federal law “On Advertising”. The company used expletives in its ads.
2.4. The Regulator’s Activity Assessment by Entrepreneurs and Mass Media
The portal “Telecommunications of Russia” has carried out an integrated survey, devoted to the analysis of activity of the sector regulator – the Ministry of Information and Communications. Analysts assessed the following directions of the Ministry’s activity: mobile communications, fixed-line communications, mail service, digital technology, the legal field regulation and development of the sector’s social projects.
According to analysts, the regulator affects stable development of the mobile communications segment. Experts assess positively the Ministry’s activity.
According to experts, the tender for licensing of 3G services providing is a key positive moment in the activity of the ministry. They say that, in spite of some companies’ statements in mass media, the tender conditions were precise and quite transparent.
At the same time analysts speak of not very clear reasons, for which Vimpelcom cannot get the Far East frequencies, put up to the tender by the regulator.
CPP principle introduction has been assessed positively by analysts. They say, that is a benefit for operators as they increased prices for their services, but that is unprofitable for consumers as they started spending more on communications.
Regarding the legal field regulation, experts say that for last year the Ministry has not passed any statutory act, important for the sector. The Ministry has just corrected and updated regulations on the basis of the present legislation.
In the end of March MTS registered a claim to the Moscow Arbitration against Rospatent and the Chamber on Patent Disputes. The operator is trying to contest the Chamber’s refusal to declare MTS brand famous to secure it against plagiary.
3. The Companies’ Actions and Decisions, Influencing Most the Market Development
3.1. Success and Failure in New Assets Buying
The board of directors of the Far East interregional company of Svyazinvest has approved an intention to sell cellular subdivisions of Dalsvyaz. The company is going to invest the received money to development of more prospective additional services: broadband access to Internet and entertaining services.
MTS, Vimpelcom and Summa Telecom (an owner of the licenses for WiMAX services in Russia) have applied for the purchase of cellular assets of Dalsvyaz (Akosa and BIT). Each company has offered about 100 mln USD. Earlier the highest price, offered by St. Petersburg financial structure Skif-Invest, was 30 mln USD.
The federal operator Vimpelcom and the Primorye operator “Novaya Telefonnaya Kompaniya” (NTK) have assessed their chances to win in the tender for GSM frequencies in the FAR East as minimal. No one of the companies has licenses for communications services providing in the region.
Vimpelcom
ArmenTel provides services of fixed-line and cellular communications in GSM-900 and CDMA standards on the territory of Armenia. By late 2006 the operator’s subscriber base was about 608.5 thousand users of fixed-line communications and 452 thousand of cell subscribers.
3.2. Distribution of Securities Overseas
The Board of directors of Vimpelcom has authorized its indirect subsidiary VK ESOP N.V. to buy up to 1, 600, 000 American Depositary Shares (ADS), equal to 400 000 of the company’s simple shares, by December 31, 2008. Nominal value of one ADS is 0.5 kopeika. Vimpelcom and VK ESOP intend to use the acquired shares for a bonus programme for employees. Vimpelcom is planning to buy the shares regularly to provide the redemption up to 800 000 ADS.
3.3. Personnel Changes in Major Companies
The Board of directors of MTS has decided to hold an annual meeting of shareholders in June 29. The company has approved the list of candidates to the new board of directors, consisting of 10 people, 4 of which are independent:
Abugov Anton Vladimirovich, the 1st vice president, chief of the strategy and development complex of AFK Sistema.
Buyanov Alexey Nikolaevich, senior vice president, chief of the financial and investment complex of AFK Sistema
Drozdov Sergey Alekseevich, senior vice president, chief of the property complex of AFK Sistema
Evtushenkova Tatyana Vladimirovna, vice president on strategy and development of MTS
Mohanbir Singh Giani, a candidate to independent members of the Board
Melamed Leonid Adolfovich, president of MTS
Sir Peter Middleton, an independent member of the Board of directors of MTS
Paul J. Ostling, a candidate to independent members of the Board of directors of MTS
Helmut Royshenbah, an independent member of the Board of directors of MTS
Shebetov Sergey Dmitriyevich, CEO of Sistema Telecom
In April 12, 2007 at the special meeting of Sky Link shareholders a new composition of the company’s Board of directors was elected. The Board of directors consists of:
Anton Abugov, the 1st vice president of AFK Sistema
Vladislav Vasin, the 1st deputy general director of Sky Link
Dmitry Kononov, a representative of RTK-leasing
Shamil Kurmashov, deputy general director of Sistema Telecom
Viktor Ustuzhanin, director on telecommunication objects development of RTK-leasing
Gulnara Hasyanova, deputy general director on commercial activity of MTT
Sergey Shabetov, CEO of Sistema Telecom
Sergey Shebetov
Since May 1 Vimpelcom has made personnel changes in the company’s management.
Sergey Avdeev, having held the position of executive vice president on business development in the CIS countries, was appointed executive vice president on international development. He will be responsible for international project development and will provide expert support to the company’s business in the CIS.
Dmitry Pleskonos, having held the position of vice president, general manager of the Moscow region, was appointed executive vice president on business development in the CIS. By the end of 2007 he is also responsible for mutual activity between operators.
The company will continue forming of a subdivision, responsible for the company’s business management in all regions of the country. The Moscow region will be included in the subdivision as well, though previously it had been a separate business subdivision of the company. The subdivision will be headed by the company’s vice president Nikolay Pryanishnikov.
4. Conflict Zones and Interests Opposition Fields
4.1. Contradictions between Entrepreneurs During and As a Result of the Property Structure Changing, Merges and Absorptions.
Leonid Rozhetzkin, the former owner of 25.1% of Megafon shares, has registered a claim against Leonid Reiman, the minister of information of the RF, to the New York Circuit Court.
Rozhetzkin declares, that the minister tried to lay hold of MegaFon’s shares and caused a damage of 500 mln USD for him. Rozhetzkin explains he has a right to appeal to the USA court as he has American citizenship and lives permanently in New York.
According to Rozhetzkin, he is claiming against Reiman as against an entrepreneur, supposedly having illegal business overseas. The business, called by Rozhetzkin “Reiman’s group”, is “ the big network for money-laundering” and the central company of the group is IPOC fund.
Rozhetzkin says that since 2001 Reiman’s group has been trying to get the blocking share holding of Megafon (25.1%), which belonged to Rozhetzkin’s company LV Finance. They used corruptive and illegal measures. In July 2003 as a result of “extortion and psychological pressure” LV Finance was sold at the understated price, that led to loss of profitable relations and prospects in business and caused “a huge economic damage”.
Kirill Babaev, vice president of Altimo, has confirmed officially that the negotiations between the holding and TeliaSonera have been broken off. The parties agreed nor on a size of exchanged assets neither on their value. At the same time both parties say they are still planning to continue the negotiations. According to analysts, the prospects of cooperation between the companies are vague, though most experts suppose that the negotiations breaking off is temporal.
According to rumors in mass media, Alfa Group has offered its partner in Vimpelcom the Norwegian Telenor to buy its share at the market price with a bonus for control. Representatives of both parties do not confirm the information.
has been elected again chairman of the Board of Directors of Sky Link. has bought 10% share holding of ArmenTel from the government of Armenia and got 100% share in the operator. The 10% share holding was sold for 38.6 mln euro. In addition Vimpelcom will pay 10% of undistributed net profit of ArmenTel for the period after buying of 90% of the operator’s shares and before buying 10% of the shares. has declared the company received frequencies in the 2,500-2,700 MHz bond to provide WiMAX services for the subsidiary Uzdunrobita in Uzbekistan. They believe in the company, the necessity to develop WiMAX network is caused by the growing demand of MTS subscribers for high-speed mobile access to Internet, that is limited now by insufficient development of fixed-line networks.USD):
