9 июня '07
The Russian Telecommunications Market Development in May 2007
The Russian Telecommunications Market Development in May 2007 1. General Trends of the Market Development
1.1. The Saturation Rate of the Cellular Communications Market in Russia
According to AK&M, by April 30, 2007 the amount of cellular communications users in Russia had been 156, 790 thousand according to the number of sold SIM-cards, i.e. more by 1.1% as compared to late March 2007. The penetration of cellular communications was 108%.
In Moscow the number of cellular communications users was 27, 531 thousand people. The penetration level was 162.1%. In St. Petersburg the number of users was 8, 984 thousand people and the penetration level was 141.7%.
According to the rating among operators, MTS took the first place (51, 839 thousand subscribers). MTS is followed by Vimpelcom (48, 802 thousand), MegaFon (31, 292 thousand), Tele2 (7,390 thousand) and Uralsvyazinform (4, 514 thousand).
By the end of the first quarter of 2007 the subscriber base of MTS has reached 74.16 mln people, the growth is by 21.5% as compared to the same period of the previous year. The subscribers were divided as following:
Russia
- 51.5 mln (+12.4%)
Including
Moscow and the Moscow region – 11.5 mln (+12.2%)
St. Petersburg and the Leningrad region – 2.61 mln (+2.8%)
Other Russian regions – 37.4 mln (+13.1%)
Ukraine
– 20.75 mln (+43.5%)
Buelorussia
– 3.37 mln (+44.2%)
Uzbekistan
– 1.7 mln (+154.1%)
Turkmenistan
– 0.2 mln (+120.7%)
MegaFon has published the data about its subscriber base by the end of the 1st quarter of 2007. It is 31, 061 thousand (29,749 thousand by late 2006). The largest network belongs to the North-Western subsidiary (6, 538 thousand), MSS Povolzhye (5, 979 thousand), Sonnic Duo (Moscow and the Moscow region – 5, 365 thousand) and Mobicom Caucasus (4, 363 thousand). Among overseas assets the company only owes TT Mobile in Tajikistan (160 thousand subscribers).
For the 1st quarter of 2007 Sibirtelecom has increased its subscriber base by 8.9% up to 3.4 mln people. By the end of the year the operator is planning to attract 600 thousand subscribers more. In 2006 the operator’s base increased almost by 40% from 1.9 mln to 3.1 mln users. About 2.9 mln subscribers belong to the subsidiaries Baikalinvestcom and Yeniseitelecom.
In 2006 the subscriber base of Bee Line increased by 10 mln users ad is now 55 mln users. For the first time the growth of the base was equal in Russia and the CIS countries. The largest growth was in Kazakhstan (1.8 mln people) and in Ukraine (1.6 mln users). According to the operator’s forecast, in future the subscriber base will mostly grow behind Russia.
By the end of 2006 on the market of cellular communications in regions the share of SMARTS has reached 9.4% as compared to 7.5% by the end of 2005. The growth of commercial subscribers was almost 56%.
Because of the stagnation and high saturation rate of the market the largest Russian cellular retailers have started reorganizing of their network by suspension of development or reduction of franchising and service quality improvement.
We speak of DIXIS company, the network of which contains 560 franchise stores in 60 regions of the country.
Cifrograd, whose 1039 of 1450 stores are franchise, has also started redemption of the franchise business.
1.2. Demand Evaluation
J’son & Partners has summed up the results of development of the cellphone market in Russia in the 1st quarter of 2007. The retail sales of mobile phones were about 6.8 mln phones at about 1.4 bn USD.
The amount of sold cellphones has reduced by 4% as compared to the same period of the previous year and by 25% approximately as compared to the 4th quarter of 2006.
Despite the reduction in sales by the piece, the market volume in money terms has increased by 9% approximately as compared to the 1st quarter of 2006, that is caused by growth of the demand for cellphones in high and middle price segment.
In the 1st quarter of 2007 an average retail price for a cellphone has been 204 USD, i.e. by 13 % higher than an average price in the 1st quarter of 2006.
1.3. The Offer of New and Standard Services
Experts have different opinions regarding the victory of Big3 operators in the tender for 3G services providing. Some specialists suppose the services providing may already start in 1.5-2 years. At the same time, according to the most of analysts, at present some 3G services can be provided in the existing 2-2.5 G networks. 3G will only substitute for GSM according to growth of the demand for non-voice services and their share in revenues, development of applications, based upon data communication. Services, having been already provided in GSM networks (mobile Internet, data communication, downloading of films and music), will be demanded in 3G networks. The share of non-voice services will be no more than 30%.
MTS has published the rating of 10 largest content-providers of the operator according to the results of the 1st quarter of 2007.
The rating is made according to MTS partners’ proceeds of content services providing to the operator’s subscribers. The goal of the rating is to inform regularly people about the market of content services and the largest Russian content providers.
1. Inform-Mobil
2. MOBIKON (Rustar Holding)
3. Neva line
4. Avant Mobile
5. Shemrock Games
6. i-Free
7. Solvo Interantional
8. the 1st City Referral Service
9. Teleport/Nikita Mobile
10. Forte- IT
1.4. Major Companies’ Potential
Vimpelcom has summed up results of the 4th quarter of 2006. The growth of proceeds has been more than 50% (5 bn USD). ARPU has increased by 27 % up to 8.9 USD as compared to 7.1 USD for the same period of 2005.
OIBDA has grown significantly up to 689.8 mln USD, increasing by 64.4% as compared to the same period of the previous year and by 50.4% for the whole year up to 2, 451, 8 mln USD.
In the 4th quarter of 2006 net operation proceeds has reached 1, 451, 4 mln USD, increasing by 59.4% as compared to the same period of 2005 and by 6.8% as compared to the 3rd quarter of 2006. For 2005 OIBDA of the operator had increased by 51.6%.
In the 4th quarter net profit of the company was 198 mln USD, increasing by 30.4% as compared to the same period of 2005. For 2006 net profit has been 811.5 mln USD, growing by 31.9% as compared to 2005.
In May, 2 MegaFon published the financial statements according to US GAAP standards for 2006. Growth rates of almost all financial figures were higher than those of MTS and Vimpelcom. MegaFon’s proceeds have increased by 56% (Vimpelcom – 51.6%, MTS – 27.4%), the operator’s net profit has increased by 107% (31.9% and 10.6% correspondingly). OIBDA has grown by 66% (56% and 27.2%).
OIBDA profitability of Megafon has increased by 2.9% (Vimpelcom – by 1.5%+, MTS – by 0.1%-). However, according to OIBDA profitability MegaFon has been still behind the competitors (49.5% against 50.4% of Vimpelcom and 50.6% of MTS).
For the first time MegaFon has left behind Vimpelcom according to the size of net profit (812.8 mln USD against 811.5 mln USD). But in Russia Vimpelcom’s net profit is higher than that of MegaFon (855 mln USD).
Aсcording to analysts, MegaFon has succeeded due to the company’s rigorous approach towards attraction of subscribers. As a result, for 2006 ARPU (average revenue per user) of the operator is 11.8 USD per month. In Russia Vimpelcom’s ARPU is 7.9 USD and ARPU of MTS is 7.2 USD.
According to some commentators, the company’s rigorous financial policy is caused to a certain extent by lack of free funds because of the conflict between shareholders. They suppose, in future the Moscow market saturation can lead to problems of the company’s subscriber base growth.
The consolidated net profit of Vimpelcom is a little bit lower than MegaFon’s net profit because the operator is working in 6 CIS countries, where the company’s expenses have exceed revenue within the first years of work.
According to analysts, MTS gambles on efficiency. But the failed 4th quarter of 2005 and 1st quarter of 2006 as well as the written off 150 mln USD, spent on 51% of the Kirghiz operator Bitel in late 2005, lead to weak financial results for 2006.
According to the assessment of CEO of MegaFon Sergey Soldatenkov, the company’s capitalization has reached approximately 12 bn USD.
For 2006 ARPU of SMARTS has been 4.8 USD. A great fall of ARPU happened in the 1st quarter of 2006, but later on ARPU was increasing each quarter and according to the results of the year, ARPU growth has been 6.5%.
In 2006 the proceeds of SMARTS increased by more than 18% and was 2, 934, 486 thousand roubles. Growth of the proceeds from communications services exceeded 26%. Sales income (216, 947 thousand roubles) is 30 times as much as the same figure of 2006.
According to the results of 2006, EBITDA of the operator is 1, 385, 695 thousand roubles, exceeding by 5.6% the figure of 2005.
According to CEO of SMARTS A.Gireev, selected positioning of the company, the move to a new commercial strategy (family tariff orienting), justified the hopes. Besides, despite growing competition on the cellular market and 2-year opposing of the company to raiders, the company has covered the loss of the 1st quarter and got profit in the end of 2006.
Due to the published initiative of the Ministry of Economic Development and Trade to take in stock 51% of the largest telecommunication operator Rostelecom from the state holding Svyazinvest, quotations of Comstar’s floater increased significantly during the bidding at the London Stock Exchange. Comstar-OTS owes 25%+1 shares of Svyazinvest. GDR for Comstar’s shares went up by 4.3% up to 8.66 USD. At the same time capitalization of Vimpelcom and MTS reduced by 0.2% and 2.2% correspondingly at the New York Stock Exchange.
1.5. The Market Extension Due to Overseas Expansion
For 2006 Vimpelcom has entered 3 more CIS markets: in Uzbekistan, Georgia and Armenia. In Kazakhstan, after 2 years of work the company has become a leader of the market (the share of the market is 49.5%).The annual growth has been 12% in Kazakhstan. Speaking of progress in the CIS countries, it is necessary to mention 3G network launch in Tajikistan, the purchase of 90% of ArmenTel shares and the first experience in fixed-line communications in Armenia. In the 4th quarter the proceeds from fixed-line communications (16.92 mln USD) exceeded the proceeds from mobile communications (10.45 mln USD)
According to CEO of Vimpelcom Alexander Izosimov, at present the business portfolio of the company is 240 mln USD, 100 mln USD of which fall to licensed coverage of the CIS countries, including a great share in Kazakhstan and Ukraine.
In the 4th quarter of 2006 the operator’s turnover was 5 bn USD, the most successful period for the whole work of the company.
Izosimov said the company’s future activity was evolutional, targeted to growth. The company is targeted to search and realization of new development opportunities. Further development of the Russian and CIS markets as well as development of new fields of business remain among the priorities of the company. Besides, their goal is to increase ARPU and proceeds of the company and to train qualified personnel.
The Russian mobile operator Bee Line has started working in Adjaria (Georgia).
2. The Regulator’s Activity and the Legal Field Dynamics.
2.1. News in the Legislation and Other Changes in the Legal Field
According to the Minister of Information and Communications Mikhail Reiman, calls to mobile phones, made by fixed-line communications subscribers, using an unlimited tariff plan, should be free of charge. The Ministry has already been developing amendments to the present legislation, according to which calls from fixed-line phones, having the unlimited tariff plan, will not be rated separately in cellular networks. The amendments to the government regulation “On the State Regulation of Tariffs for Communication Services” may be approved this autumn.
2.2. The State Assets Privatization
The Ministry of Economic Development and Trade
The market analysts say that the Ministry’s proposal is quite appropriate in the frames of the impending privatization of Svyazinvest.. They believe, taking in stock of Rostelecom from the state holding will accelerate the sale of Svyazinvest.
2.3. The Regulator’s Activity Assessment by Entrepreneurs and Mass Media.
The cellular operator Sky Link and its 100% subsidiary “Moscow Cellular Communications” (MCC) have filed a claim against the Federal Service of Stock Markets to the Moscow Arbitration. In 2006 both companies gave documents to the Service for the additional share emission, but they were refused. They said in the Service the documents were not corresponding to the legislation about securities and demanded to make a number of amendments. The companies believe the claims of the Service are not valid.
3. The Companies’ Activity and Decision Making, Influencing Most the Market Development
3.1. Distribution of Securities
MegaFon management does not exclude the possibility to carry out an IPO. Analysts suppose that due the expected resolution of the conflict between the company’s shareholders in favour of Alfa IPO carrying out may be more probable. However, the shareholders may not be interested in MegaFon’s entering the stock market: TeliaSonera is only trying to get control over the operator, Altimo is ready to exchange its share for shares of the overseas holding.
DIXI Group has declared the price corridor of the impeding IPO – 16.5 – 22 USD per a share. Distributing about 40% of the shares, the company intends to attract from 412.5 mln USD to 550 mln USD and to achieve the capitalization of 1.03-1.375 bn USD.
4. The Conflict Zones and the Interests Opposition Fields
4.1. The Fields of the Most Active Struggle for Division and Revision of Markets and Assets
The management of the Taiwan company BenQ has decided to liquidate the company BenQ Mobile Russia. The main reason is an unsuccessful attempt to agree on acceptable conditions for the mobile phones delivery to Russia by a new producer, a plant in Shanghais.
In August 2006 BenQ stopped budgeting of the unprofitable enterprise BenQ mobile in Germany, producing cellular phones BenQ and BenQ Siemens.
In December 2006 the company declared they were planning to transfer BenQ and BenQ Siemens phones producing from the unprofitable phones in Germany to the plant in Shanghais.
In February 2007 they declared the failed German subdivision of BenQ Mobile would be liquidated and all assets would be sold.
4.2. Contradictions between Entrepreneurs During and As a Result of Property Structure Changing, Merges and Absorptions
CEO of MegaFon Sergey Soldatenkov is anxious that the position of Alfa Group shareholder, who is blocking the operator’s restructuring, can impede the development of MegaFon’s 3G networks. According to the Russian legislation, the license for 3G communications services providing, received by MegaFon, is only aimed for the mother company. Thus, until the regional subsidiaries join MegaFon, the North-Western subsidiary of MegaFon will only be able to construct 3G network.
In April Alfa Group, owing 25.1% of the operator via CT-Mobile, blocked the re-organization of MegaFon again, not approving the joining of the company’s subsidiary Mobicom-Center. If Alfa continues impeding the joining of Megafon’s subsidiaries, it will close an access to 3G market for the company, Soldatenkov says. The market analysts have different opinions on the question. However, they say, it is quite possible.
4.3. Competition in the Struggle for New Assets and Markets Overseas.
The Turkish company Cukurova Group has declared about an intention to get a credit at 1.4 bn USD to make an advanced repayment of the debt to the Russian company Altimo. The investment bank JP. Morgan Chase will be an organizer of the credit. Thus, Altimo will not be able to get shares of the Turkish operator Turkcell as compensation. The market analysts think, Cukurova has chance to get the credit. At the same time they think, Altimo is not interested much in the direct control over Turkcell. Nevertheless, the company may continue the struggle for the share holding. Thus, court examinations between the companies will probably continue. In April Altimo registered a claim to the court of the British Virginia Isles against the Turkish Cukurova Group, demanding to make an advanced repayment of the debt at 1.35 bn USD. Altimo charged the Turkish holding of violation of the credit agreement, made by the companies in late 2005. At that time Alfa’s subsidiary bought 49% of shares of Cukurova Telecom Holdings (CTH), which controls 27% of Turkcell shares. The sum of the deal was 1.593 bn USD. Simultaneously, the Russian company gave Cukurova a credit at 1.707 bn USD for 6 years. The security of the credit was 51% of CTH shares, equal to 13.85 of Turkcell. Altimo decided to demand the advanced repayment of the debt because of numerous violations of the agreement by the Turkish party. The Russian holding demands to return the funds by May of 2007. The newspaper Business Times Singapore said about the aggressive lobbying of Alfa Group’s interests at the level of high-ranked officials and political leaders. According to the newspaper, the company’s target is a coercive sale of the share in the Singapore state holding Temasek, either direct or via the government of Indonesia. The newspaper also supposes, Alfa Group is concerned with the publication of the letters, reflecting negatively Temasek’s role on the cellular market of Indonesia. Altimo’s representatives deny the information of the newspaper. They say the publication is “black PR, initiated by those, impeding foreign investment in Indonesia”. At that the vice-president of Altimo Kirill Babayev emphasized attractiveness of the Indonesian market and said the company was ready to invest up to 2 bn USD in it. However, he said, they has not made a decision about the project yet. Earlier Alfa Group had already declared they were interested in the purchase of 42% of shares of the Indonesian cellular company Indosat, the subsidiary of Temasek. In the middle of March 2007 Altimo made an agreement with Deutsche bank on a credit at 1.5 bn USD to buy cellular assets in Asian countries.
has initiated an idea to take 51% of shares of Rostelecom, the largest telecommunications operator, in stock from the state holding Svyazinvest. According to the Ministry’s proposal, the state intends to redeem Rostelecom shares and then sell them to private investors. Terms of the project realization are not declared. At that shareholders will be given share holdings of Svyazinvest, equal to their shares in Rostelecom. AFK Sistema is interested much in such a proposal as the company will get an opportunity to increase its share in Svyazinvest by 17%.
