Consolidation of operators’ business is the dominant trend of Russian mobile market starting from 2000 year. As a result of consolidation process, the number of mobile operators providing services in Russia decreases. The consolidated entities are having better possibilities to attract domestic and foreign investments and to accelerate the introduction of new communications services.
The extensive development of Russian mobile sector is predetermined by high activity of the investors working in this market. The following main investors and investment groups are operating in the market:
• Holding company Sistema Telecom (AFK Sistema / Deutsche Telecom);
• VimpelCom / Alfa Group / Telenor;
• Telecominvest / Telia-Sonera Group / TsT-Mobile
• MCT Corp. (Indigo);
• Tele2;
• OJSC Svyazinvest;
• Holding company Accord–Tel;
• RTDC (Gamma Group investment bank);
• Large independent regional operators (SMARTS and others).
Figure 24. GSM Market Shares of Holding Companies, 2003 Total 21.3 million subscribers
MTS 41.4%
Other 1.8%
VimpelCom 30.8%
SMARTS 3.4%
MegaFon 17.2%
Svyazinvest MCT Corp. 5.1%
(Indigo) 0.3%
Source: Sovremennye Telekommunikatsii, 2003
The mentioned holding companies control practically the whole Russian mobile market.
Figure 24 demonstrates the GSM market shares of holding companies in the end of first quarter of 2003.
8.1 Leading Mobile Operators
The main participants in the consolidation processes in Russia are the largest nation-wide operators: MTS, VimpelCom and MegaFon, which activity is supported by holdings Sistema Telecom, Alfa Group and Telecominvest correspondingly (Figure 25). The market share of independent operators has decreased from 29% at the end of 2001 to 18.9% at the end of 2002 and totaled 15% at year-end 2003 (Figure 26) [22].
Figure 25. Current Strategic Partnerships
AFK SISTEMA
?
Source: Sistema Telecom, 2003
MTS and VimpelCom continued acquisition of regional operators and licensors in 2002 and 2003 (Table 20). MTS spent US$ 850 million for regional acquisition during 2002 and the first half of 2003. VimpelCom bought regional mobile assets for US$ 110 million in the same period.
Figure 26. Operators’ Market Share, 2001-2003
37%
Source: AC&M, J’son & Partners, 2002-2003
VimpelCom plans to merge with its 100% owned subsidiary KB Impuls in order to settle a conflict with regulatory authorities. A public conflict between VimpelCom and regulators started in December 2003 when regulators challenged VimpelCom’s Moscow license arrangements. A VimpelCom subsidiary KB Impuls nominally holds Moscow license.
Regulators have claimed that an agreement allowing VimpelCom to provide services on behalf of the subsidiary is inadequate and that the breach must be rectified [14].
MegaFon, which is the only operator owning the licenses for all Russian territory, has completed the consolidation of its mobile assets. MegaFon bought from the company Accord-Tel its shares of Mobikom-Kavkaz (licensor for providing GSM-900/1800 mobile services in North Caucuses macroregion), Mobikom-Novosibirsk (licensee owner for Siberian macroregion) and Mobikom-Khabarovsk (licensee owner for Far East macroregion) in 2002 and 2003 years. Now, MegaFon has 100% share of these companies and controls in full all its subsidiaries.
Table 20. Regional Acquisitions of MTS and VimpelCom, 2002-2003 Operator Regional operator
or licensor License region Share
(%) Kuban GSM Krasnodar Territory and Adygeya Republic 100.0
BM-Telecom Bashkortostan Republic 100.0
Mobicom-Barnaul Altai Territory 100.0
DonTelecom Rostov region 100.0
BIT Tuva Republic, Sakhalin region, Chukot
autonomous region, Kalmykia Republic 100.0
UMC Ukraine 100.0
Taif-Telcom Tatarstan Republic 51.0
SibCheleng Krasnoyarsk Territory 100.0
Primtelefon Far East macroregion 50.0
Uraltel Ekaterinburg, Sverdlov region 43.741
Volgograd Mobile Volgograd region 50.0
Mar Mobile GSM Mariy El Republic 80.0
Astrahan Mobile Astrakhan region 50.0
Tomskaya Sotovaya Svyaz
Tomsk region 100.0
MTC
Telecom 900 Ekaterinburg, Novosibirsk region, Khabarovsk Territory
19.0
Orensot Orenburg region 99.0
BeeLine-Samara Samara region 1.0
Ekstel Kaliningrad region 100.0
Vostok-Zapad Telecom
Ural macroregion 100.0
VimpelCom
StavTeleSot Stavropol Territory, Karachi-Cherkess Republic, Kabardino-Balkaria Republic
90.0 Source: J’son & Partners, companies’ data, 2002-2003
41 MTS already owned 53,2% of Uraltel’s share.
There is a cooperation trend between competing operators in Western Europe. Unlike Western firms, Russian operators prefer to do business on their own. The only cooperation existing in Russian regions is joint use of base station towers by competing companies.
However, the development of third-generation networks requires large-scale expensive investments. Thus, the future cooperation among operators is needed in order to provide modern technologies toward users.
8.2 Svyazinvest
The state owned company Svyazinvest started its active operations in Russian mobile market in 2002, and emerged as a strong competitors to the nation-wide operators. Its strategy is to develop mobile business in Ural, Volga, Siberia and Far East macroregions. Svyazinvest intends to organize two mobile companies by consolidation of assets in geographically close areas: Ural with Volga (where Svyazinvest is represented by companies Uralsvyazinform and VolgaTelecom) and Siberia with Far East (where Sibirtelecom and Dalsvyaz operate).
Uralsvyazinform - the first of Svyazinvest’s subsidiaries - has started consolidation of its mobile assets in 2002. The company merged with several regional operators, providing services in different standards. As a result, Uralsvyazinform’s subscribers base increased its by 772% [18].
Svyazinvest plans investments to the consolidation of its GSM assets. For example, nowadays, Sibirtelecom’s mobile companies have 19% of Siberian mobile market, and the company’s management intends to reach the share of 25% at the year-end 2006 by consolidation.
The consolidation of Svyazinvest’s GSM assets will be continued and the funds will be invested in this process, while the investment plan is not extended to NMT operators.
Since Svyazinvest’s mobile operators are part of the integrated companies providing all range of communication services, they might have competitive advantages owing to diversified business.
8.3 NMT-assets
There are 63 NMT-operators providing services in Russia. The key owners of NMT-assets in Russia are Svyazinvest, Accord-Tel and RTDC. Svyazinvest’s subsidiaries are shareholders of 29 NMT-operators. Accord-Tel and its daughter company MS-Direct have shares of 39
NMT-operators. RTDC is a shareholder of Delta Telecom, Moscow Cellular Communications and Uralvestcom.
Numerous Russian NMT-operators have finally got the possibility to change to the modern digital IMT-MC-450 standard. The largest NMT companies have declared their interest for NMT-assets consolidation.
New nation-wide operator, providing services in IMT-MC-450 standard may be formed. Still it is unclear which company will be the center of consolidation. Currently, only off-shore Telco Overseas Ltd. has bought shares of the largest Russian NMT-operators Moscow Cellular Communications and Delta Telecom.