It’s a busy time for the Russian wireless market - and, as our statistics page indicates, that doesn’t just mean GSM. A modest slice of the market belongs to CDMA450 and 800 - and even a number of (declining) AMPS and TACS operations.

Why the market is growing at such a pace is easily explained. As Alexander Izosimov, CEO of Vimpelcom, one of the country’s big three operators (alongside MTS and MegaFon), points out: “Wireless in Russia is in a good position due to the relatively low penetration of fixed telephony, and as such has the opportunity to play an even bigger role in society than wireless in western Europe and the US. In Russia, wireless is already providing, and will increasingly provide, the ability to make phone calls for many parts of the population that have simply not had this opportunity in the past. Similarly, wireless will likely also play a bigger role than in the West in providing access to internet content.”

It’s no surprise, then, that operators in general – and the three big guns in particular, are enjoying a purple patch. Mobile TeleSystems (MTS) remains the largest operator in the country, adding 3.66 million subscribers in 4Q04 to bring its total subscriber base to 25.97 million and give it a 37.5 per cent share of the market. MTS' profits doubled in 2004, to US$1 billion, up from $517 billion in 2003, and revenues increased 52.7 per cent, to $3.88 billion. Meanwhile, VimpelCom's total customer base reached 21.76 million in 4Q04, giving it a 31.4 per cent share of the market.

While third-placed MegaFon managed to generate more subscriber growth than any other operator in central and eastern Europe outside of Russia, it lags behind its larger rivals with a 19.8 per cent market share, or 13.79 million subscribers.

Figures from February show a slight slowdown since January, but the trend remains positive, according to analysts.

There are a number of caveats, however. For example, even though GSM subscriber numbers could hit the 90 million level later this year, many new subscribers are multiple-SIM-holding prepaid users. Nor are opportunities outside the region trouble-free, as VimpelCom discovered when the Turkish government claimed the operator’s Kazakh subsidiary owed back taxes through its previous owners, the Uzan family. There were further problems for VimpelCom when it was caught up in an unsightly spat between its owner, the conglomerate the Alfa Group, and its minority shareholder, Norway’s Telenor, over a planned move into the Ukrainian market, where both companies already have stakes in another operator. The Alfa Group is also in a dispute with shareholders of MegaFon regarding its ownership of a 25.1 per cent stake in Russia's third-largest operator.

Meanwhile, Russia's largest operator, MTS, has also been affected by shareholder wranglings after the president of another conglomerate, Sistema, which owns 50.6 per cent of the operator, was reported as saying that the company might purchase Deutsche Telekom's remaining stake in the operator.

Nor are things simple on the regulatory side. Communications minister Leonid Reiman has been quoted as saying that licensing for 3G mobile networks in Russia should begin when the subscriber base for the current 2G service stops growing, thus pouring a little cold water on the immediate prospects for WCDMA in the market. Interestingly, IS-95 CDMA operator Delta Telecoms has plans to deploy EV-DO on its (fairly small) Skylink network before the end of the year although, somewhat confusingly, the Russian government has said it will not implement digital cellular technologies in the 450MHz band as a standard for 3G. A lot has evidently changed since Reiman’s 2003 suggestion that 3G licenses could be issued as early as the first quarter of 2004.

Reiman was also quoted recently as saying that the emergence of a fourth federal mobile telecommunications operator in Russia is technically and economically impossible, at least until 3G networks arrive.

All of which may explain the continuing scramble by Russia’s operators (and their owners) to expand their reach, causing capital-raising exercises to vie with actual network expansion and new service offerings for news space in recent months.

Sistema is keen to make further investments in Russia and other CIS countries after successfully listing on the London Stock Exchange. It derives nearly 70 per cent of its revenue from MTS, which is a major player in Ukraine, Belarus and central Asia, as well as Russia. It also has its eye on regional fixed line operator Svyazinvest, which happens also to have some mobile assets, including some regional subsidiaries with sizable mobile franchises. However, according to rumours, the Alfa Group may also be interested in the soon-to-be-privatised Svyazinvest. Other likely targets for Sistema could be Ukraine, where it controls the country’s number one mobile operator, UMC, and Kazakhstan, a promising yet underserved market, and even a stake in Aircel Televentures of India.

It’s not all about the big three, however. Regional GSM operator SMARTS, with over two million subscribers at present, is understood to be planning an IPO later this year, the revenue from which it hopes to use in funding new acquisitions.

With so much wheeling and dealing going on, it’s easy to overlook the mobile services which underpin them, but, 3G aside, much is happening in that area too. VimpelCom, MTSand MegaFon have all announced the launch of EDGE services in selected areas, while MTS has hopes that up to seven per cent of its subscriber base will be using i-mode by 2008.

And of course, there is GSM subscriber growth. Figures from the Informa Telecoms and Media World Cellular Information Service indicate continuing headlong growth in all technologies to nearly double the present 66.8 million by 2010. Of that total, some 65 million were GSM users at the end of 2004, and nearly 105 million will be by the end of 2009, putting the otherwise impressive estimate, for a European country, of 2.4 million CDMA2000 users by 2009 into some sort of perspective.

So there’s a lot to play for and, in a market of some complexity and multiple operators, a lot of room for changes and, perhaps, consolidation. There are still a number of challenges too, which takes us back to the vexed question of 3G. As Izosimov points out: “Most of the challenges in Russia are connected to the licensing of spectrum. The historical approach, with licensing on a regional level, has left the three main players in the market with insufficient spectrum in many regions (e.g. only 1800 licences), and even the lack of licences in certain important regions. This is a challenge, as the three main players, which have the real resources to introduce new technologies and value added services, at times lack the appropriate spectrum to provide the user experience that customers should expect. Furthermore, 3G licensing will also be complicated by the fact that the frequency bands are already used by the military and will need to be freed up, a process that is not yet clearly defined.”

This article is based on material from Eastern Europe Wireless Analyst and Global Mobile, research and newsletter services from Informa Telecoms and Media (www.telecoms.com)

© "Informa" based on material from Eastern Europe Wireless Analyst and Global Mobile, research and newsletter services from Informa Telecoms and Media (www.telecoms.com)

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