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Rouble fall to test Russian mobile price power

12 марта 2009

While Russians are facing their first fall in income for a decade, the country's largest cellular providers may be able to stay profitable by making them pay more for calls.

The sharp depreciation of the ruble has made it more expensive for these operators to service their foreign debt. Executives must now satisfy shareholders in the U.S.- almost half of the shares of OAO Mobile TeleSystems and a quarter of those of OAO Vimpel Communications are traded on the New York Stock Exchange - without sacrificing subscribers in Russia, a task made easier by these companies' dominance of the market.

MTS, VimpelCom and privately-held Megafon together serve more than three quarters of Russia's 190 million cellular subscribers. These companies have been among the most profitable in their sector, reporting around a fifth of their revenue as profit, whilst at the same time providing cheap talktime - averaging around 5 cents a minute for all outgoing and incoming calls.

"Most likely, the big three will increase tariffs incrementally rather than in a single major hit, in order to prevent sharp drops in usage and accusations by the (antimonopoly) regulator of cartel agreements," said Troika Dialog's telecoms analyst Evgeny Golossnoi.

Late last month, VimpelCom did just that, hiking call prices on some of its most popular tariffs by a quarter.

Analysts said that VimpelCom raised prices before MTS and Megafon, because of its $9 billion debt, most of which is in dollars.

MTS said now is a difficult time to ask consumers to pay more. But, judging by company Chief Executive Mikhail Shamolin's comments in a conference call in November, it will increase prices as well.

"I do believe that if we see a substantial devaluation...35 rubles per dollar or above, definitely we will take steps in adjusting prices and I think we will not be alone," Shamolin told investors during the call. A dollar is now worth 35.5 rubles.

The reversal of Russia's 10-year-long economic boom, is making some consumers look more closely at the prices they pay for goods and services.

VimpelCom's marketing manager points out that subscribers who don't like the more expensive tariffs can change to newer ones that offer better value than even the original rates.

This option may stop VimpelCom's most price-sensitive subscribers from switching to other networks, but many analysts say that it won't change the aggregate effect of the tariff changes, which will leave subscribers paying, on average, more per minute.

Anton Pogrebinsky, who studies Russia's mobile telecommunication industry on behalf of consultancy AC&M, said that it's uncommon for Russian subscribers to shift tariff plans.

"The majority of subscribers don't really know which tariff they're on, and won't instantly run to change tariff plans when their operator increases prices," Pogrebinsky said.

Even were one of Russia's big three operators inclined to maintain lower prices, the way the market is structured could make it counterproductive to compete for subscribers from its rivals.

"Three major operators have consolidated Russia's mobile market. This makes price wars less pronounced than in markets like India where there are four or more operators," said Pavel Kroujiline a partner at management consultant Bain & Company in Moscow.

The price of mobile calls in Russia falls under the joint responsibility of two authorities: the Communications Ministry and the Federal Antimonopoly Agency.

Officials at both authorities have said that they will look closely at call prices over the next few months. But, if Russian mobile operators are less inclined to cut prices than peers elsewhere in the world, this may be a legacy of how the industry evolved locally.

"Russia's government clearly 'chose' to encourage an accelerated (cellular network) infrastructure build-out by allowing 'abnormal' returns as opposed to greater competition," said Alexei Yakovitsky, VTB Capital's head of research.

In 1999, the last time Russia's economy contracted, the number of cellphone subscribers in Russia grew exponentially when operators cut prices and introduced new technologies for their networks. For several years following, the total number of subscribers doubled annually.

Troika's Golossnoi said that the government's telecommunications policy over this period ensured that the country had three major operators, which he calls "the optimal number".

"There might be less competition in the Russian market than elsewhere in Europe, but cellular markets everywhere in the world are oligopolies," he said.

Источник: Total Telecom

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