Russia’s mobile market is impressively resilient. It is not every market that could boast ARPU growth at atime when penetration is in excess of 100%. Whilst strong usage levels are driving this increase, so tooare rapidly growing disposable incomes in Russia’s dynamic economy. What is also notable aboutRussia’s mobile market is the absence of price wars - usually in a market such as Russia’s, wherepenetration is high and competition is intense, a series of price wars drive down tariffs, and thereforeARPU rates. However, this has not happened in Russia, with leading operators MTS, VimpelCom andMegaFon all refusing to hike up tariffs in the country’s largest cities. In some regional parts of Russia,where competition can be even more intense with the presence of smaller alternative operators, lowertariffs can come into play, leading to a slowdown in ARPU and profitability.
During the first six months of the year, Russia’s mobile market grew, in terms of subscriber numbers, by5.5%. At a time when official penetration is 110%, this represents strong growth. A slowdown willhappen, but BMI still estimates 4% growth in the second six months of 2007, which would leave Russiawith 166.5mn subscribers and 117% penetration at the end of the year. From there, we estimate anaverage growth rate of about 3% between 2008 and 2011. Powering this will be the rising number ofmobile customers across Russia’s regions, where mobile telephony has become the primary form ofcommunication, and the emergence of 3G technologies.
All three of Russia’s leading mobile operators are planning to invest in preparation for the commercialdeployment of their 3G networks. MTS is expecting 3G services to be hugely popular in Russia, with asmany as a third of all Russians to be using 3G services by the end of the decade. This, BMI doubts - ittook three years for 12% of the UK’s mobile market to subscribe to 3G offerings and a similar time forjust 8% of the German market to do the same. We would expect progress in Russia to be no faster.However, sustained growth in Russia’s mobile market and the possibility of 3G take-up has seen MTSand VimpelCom amend their strategies, with much of their focus remaining on a domestic market thatthey had previously thought offered little in way of more potential. That is not to say that these operatorsare not continuing their push across CIS states, with MTS hopeful of rapid growth in Uzbekistan andArmenia, while VimpelCom is performing well in Kazakhstan and plans to acquire a stake in Velcom, thesecond largest mobile carrier in Belarus. Intriguingly, VimpelCom has also spoken of its plans outsideRussia and the CIS. Having just signed an agreement with the Vietnamese government over a jointventure, it has expressed its interest in entering China. The Russian government is supportive of this andlobbied for the country’s three largest mobile operators at a recently held Russian-Chinese investmentforum in China.
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