FOCUS: Russian operators find expansion success in CIS
Cellular-News, UK
July 25, 2006
MOSCOW, July 24 (Prime-Tass) — Nearly five years have passed since
Russian mobile operators began to expand beyond the domestic market and
operators have made great strides in the countries of the Commonwealth
of Independent States (CIS). In the meantime they all failed to have
made any non-CIS acquisitions.
Russia’s first and second largest mobile operators, MTS and VimpelCom
have made very successful acquisitions across the CIS but are still
not present in Armenia, Azerbaijan, Moldova and Tajikistan. MTS is
also not present in Georgia and Kazakhstan while VimpelCom has no
presence in Belarus and Turkmenistan. Russia’s third largest operator
MegaFon is present only in one country outside Russia, Tajikistan,
the poorest in the CIS. And its presence there is largely due to the
fact that Russian troops are stationed in the country.
A few days ago VimpelCom entered Georgia through the purchase for
$12.6 million of a 51% stake in Georgian mobile operator Mobitel,
which holds a license but does not have a network. Yevgeny Golossnoi
at Troika Dialog said that this acquisition was "very cheap." "It is a
very interesting acquisition, whether you look at it from a price per
potential subscribers or price for the GSM license," he said adding
that VimpelCom will probably have 800,000 users in Georgia in 2-3
years compared to almost zero now.
VimpelCom or MTS may also soon enter the Armenian market if either
company wins a tender for Armenia’s incumbent fixed-line operator
ArmenTel, which also has a mobile arm.
"All (Russian) operators are interested in entering mobile markets in
CIS countries not only because these markets develop rather rapidly,
but also because the Big Three operators will get an opportunity to
increase their subscriber bases, revenues and they will be able to
offer cheaper roaming tariffs to Russian subscribers," said Irina
Astafieva, analyst with J’son&Partners.
Ukrainian mobile operator Ukrainian Radiosystems, or URS which
was recently acquired by VimpelCom reported this month that its
revenue soared to 52.646 million hryvnas in January-June from 19.289
million hryvnas in the same period last year. In June, URS expanded
its network to cover territory where 50% of Ukraine’s population
resides and plans to increase it further to cover territory where 80%
of the population resides by the end of the year, the company said.
VimpelCom’s success in attracting clients in Ukraine shows that its
goal to achieve 10% of Ukraine’s market is "hard, but can be done,"
Uralsib commented. "Expansion into former Soviet Union will give
Russian mobile phone operators additional growth opportunities,"
Uralsib said.
The revenue of Ukraine’s second largest mobile operator Ukrainian
Mobile Communications (UMC) controlled by MTS rose 21.1% on the year
to 3.864 billion hryvnas in January-June, the company said this
month. In 2005, the company’s revenue increased 44.4% on the year
to U.S. $1.2 billion. UMC had 15.112 million users as of June 30,
according to Advanced Communications & Media.
VimpelCom, as well as MTS, is on the short list of four companies that
are bidding for a 90% stake in ArmenTel, put for tender by Greece’s
telecommunications company Hellenic Telecommunications Organization
SA, or OTE.
The remaining 10% stake in the operator is held by the Armenian
government. OTE did not say why it decided to sell the company, but
the decision was rumored to have been taken due to the fact that the
Greek company did not manage to reach an agreement with the government
on the development of the incumbent operator.
ArmenTel is a fixed-line and long-distance monopoly in Armenia. As of
April, ArmenTel’s fixed-line subscriber base stood at about 595,000
users and its mobile subscriber base at about 320,000 users.
The two Russian operators are competing for ArmenTel with a consortium
of Emirates Telecommunications Corp., or Etisalat, Istithmar PJSC,
Emergent Telecom Ventures and a consortium of VTEL Holdings and
Knightsbridge Associates.
The Russian companies have a good chance to win the tender as they are
more likely to find a common language with the local authorities and
they are more aware of peculiarities of the market, Anton Pogrebinsky,
senior analyst at Advanced Communications & Media (AC&M), said.
However, it is more difficult to say whether VimpelCom or MTS has
the upper hand in the tender, Astafieva with J’son&Partners said.
"It is hard to project which (Russian) company has a better chance,
as the tender results are influenced by lots of factors, both formal
and informal," she said.
The Greek company did not specify the amount it wanted to sell ArmenTel
for, but analysts estimated the Armenian operator to be worth about
U.S. $150 million.
MTS looks to be more interested in ArmenTel, as it may share the
fixed-line business with Russian telecommunications operator Comstar
United Telesystems, or Comstar UTS. Both MTS and Comstar UTS are
owned by major Russian holding AFK Sistema.
MTS and VimpelCom’s owners also seem to continue fighting for the
Kyrgyz GSM mobile market.
MTS and a little-known Russian company Rezervspetsmet are currently
in a legal dispute over ownership rights to Kyrgyz largest mobile
operator Bitel, which controls about 90% of the cellular market in the
country. The remaining market share is controlled by a CDMA operator,
Aktel, and a DAMPS operator, Katel.
However, even if MTS wins the legal battle for Bitel, it may get only
a shell company, as Bitel in early July publicly offered to sell
all its assets to Sky Mobile, which was bought by Russia’s Altimo,
the telecommunications arm of Alfa Group, on June 29.
Rezervspetsmet is widely believed to be linked with Alfa Group. A
spokesperson with Altimo said that the company was considering the
offer but no decision had been made.
Some analysts suggested that Altimo may eventually sell Bitel to
VimpelCom if it gets control over the Kyrgyz company through Sky
Mobile. In January, Altimo sold its stake in Uzbek mobile operator
Buztel to VimpelCom. Altimo holds a 32.9% stake in VimpelCom.
"Kyrgyzstan is of interest to Russian players not only as a way
to expand their CIS geography, but also because Bitel is, in fact,
a monopoly on the market and such companies have, as a rule, a good
outlook," Astafieva from J’son&Partners said. Russian troops are also
stationed in Kyrgyzstan.
Bitel, which used to be the only GSM operator in the country, has
already faced competition from BiMoCom, created by Cyprus-registered
investment fund Eventis Telecom. The fund is rumored to be controlled
by a group of Russian and foreign individual investors, including
Vladimir Androsik and Dmitry Ivanter, reportedly close to the so-called
St. Petersburg telecom group.
BiMoCom started providing its services under the MegaCom brand
in late April with both the brand and the logo being similar to
MegaFon’s, which is also affiliated with the St. Petersburg group.
BiMoCom’s General Director Oleg Primak said that MegaFon provided only
consultations and technical support to the newly-established operator.
Meanwhile, Altimo also has indirect exposure to mobile markets of
four CIS countries through its 13% stake in Turkish mobile operator
Turkcell. Turkcell holds a 41.55% stake in Fintur Holdings B.V. (the
rest is owned by TeliaSonera), which has controlling stakes in Azeri
mobile operator Azercell, Georgian mobile operator Geocell, Kazakh
mobile operator Kazakhstan GSM and Moldovan mobile operator Moldcell.
While Russian mobile operators have made progress in expanding
throughout the CIS, none of the operators has yet managed to enter
a non-CIS country.
On several occasions MegaFon officials said that the expansion on
foreign markets was not the key company’s focus. But its competitors
have always been looking for opportunities beyond Russian borders.
VimpelCom indicated that it was interested in some Asian countries,
including Vietnam and Afghanistan, but has not made any direct steps
towards acquisitions there. MTS is the only one of the Big Three
that has undertaken expansion attempts outside the CIS. The company
planned to participate in a tender for a 70% stake in Serbian mobile
operator Mobi 63, but has later opted out of the tender. MTS also
bid for a GSM license in Egypt this year, but failed. The company
had grandiose plans for Indian and Turkish expansion but failed to
make acquisitions there as well.
Analysts said that it would be difficult for Russian operators to
expand beyond the CIS because they were not very well-known there
and had no international experience.
While the Russian Big Three operators focus on CIS expansion, they face
increasing competition on the domestic market from foreign players.
Sweden’s mobile operator Tele2 last week purchased four Russian
regional operators with a total consolidated subscriber base of
about 270,000 users and with exposure to 3.8 million people. The deal
includes a 100% shareholding in Arkhangelsk Mobile Networks, a 100%
holding in Novgorod Telecommunications, a 75% holding in Murmansk
Mobile Network, and a 75% holding in Parma Mobile based in the Komi
republic. Tele2 also acquired the remaining minorities of Murmansk
Mobile Network as well as Parma Mobile and consequently increased
its stakes to 100% in all four companies.
Tele2’s license portfolio now covers more than 38 million people
worldwide. In addition, Tele2, which is the fourth largest operator
in Russia in terms of subscriber base with 4.64 million people as
of June 30, is rumored to be negotiating the purchase of Russian
regional mobile operator SMARTS, which had about 3.3 million users as
of June 30. The possible acquisition may boost the Swedish operator’s
subscriber base further up and expand its coverage to about one-third
of Russia.
Though Tele2 is unlikely to become the fourth federal player on the
Russian mobile market, it may become a force that the Big Three would
have to take into account, analysts said.
"If Tele2 buys SMARTS it will become more noticeable (on the market).
It will cover more than 30 regions, but it is (still) few compared
with about 80 regions that are covered by each of the federal
operators. Tele2 does not have a license for Moscow but it will become
a strong regional player," Pogrebinsky of AC&M said, adding that it
would be easier for Tele2 to negotiate interconnection tariffs with
the Big Three and it would have economies of scale when purchasing
telecommunications equipment.
Nadezhda Golubeva, telecoms analysts at Aton Capital, doubts that Tele2
will become a federal operator, as it would not be able to get federal
coverage because there are no free frequencies in most Russian regions.
"In the case Tele2 consolidates its subscriber base with SMARTS and
reproduces its recently successful marketing policy in regions where
SMARTS operates, the new consolidated operator will be able to offer
competition to the Big Three. However, it is a risk for Tele2, at
the same time, as until now its development was supported by the fact
that major operators did not view it as a competitor on the federal
level and did not create any specific strategy to resist (Tele2),"
Astafieva from J’son&Partners said, adding that Tele2 and SMARTS
together accounted for 16% of net subscriber additions in Russia
in January-June.
In the meantime, Troika Dialog said that Tele2’s acquisition of
MCT Corp.’s assets in Russia and plans of further consolidation is
positive for MTS and VimpelCom "as it reduces the risk of pricing
wars being launched by the smaller companies.?