Mobile phones have long since ceased to be a luxury, and are now a daily aspect of the life of modern people. It is therefore not surprising that the number of mobile-phone users in the world has topped 1.5 billion people, out of which about 52 million are Russians, and according to the analytical firm EMC, the number of global mobile-phone users is expected to reach 2 billion by 2006.
Mobile connectivity is an effective tool to mobile-services subscribers and, of course, a source of huge revenues to telecom companies providing mobile services. Not only that, according to mobile operators, the upswing in the industry has yet to reach its climax.
According to Troika Dialog’s daily market report on October 7, the local mobile market set a new record in September, adding 3.41 million new subscribers. The most obvious explanation for this phenomenal result is new contracts bought by parents for children starting a new school year.
"The active growth on the Russian mobile-services market is expected to continue because mobile penetration in Russia, an index that measures the number of mobile users in the total population, currently stands at 38 percent, compared to 20 percent in 2003," said Pavel Nefedov, the public-affairs director at Moscow TeleSystems (MTS), the largest mobile services operator in Russia and Eastern Europe. "Bearing in mind that penetration indices in most regions are significantly lower than the national average — disproportionately lopsided in favor of Moscow and St. Petersburg, thanks to huge concentrations of mobile operators in these two cities — the huge market potential for further growth becomes more evident."
Nefedov knows exactly what he is talking about because his company is currently rated the largest in terms of subscriber volume. On the whole, MTS’ customer base has increased by around 9.9 million this year, from 16.7 million to 26.6 million, while VimpelCom’s clientele is up 9.1 million, from 11.4 million to 20.6 million — reducing the gap between the two companies from 32 percent in the beginning of the year to 23 percent by the end of September. This is expected to taper off at 20 percent at end of 2004, according to Troika Dialog. MegaFon rounded up the Top Three list with 9.76 million.
In terms of revenues in 2003, MTS was also the runaway leader with a net profit of 430 million euros on gross revenues of 2.215 billion euros. VimpelCom earned a net profit of 195 million euros on revenues of 1.11 billion euros, while MegaFon came in third with a net profit of 82.49 million euros on revenues of 678.84 million euros.
And, according to iKS Consulting, Moscow and Moscow Oblast accounted for 1.73 billion euros, or 43 percent, of revenues earned by all operators on the local mobile-service market in 2003, followed by St. Petersburg with 535 million euros, the Krasnoyarsk region with 232.5 million euros, Samara Oblast with 124.2 million euros, Sverdlovsk Oblast with 100 million euros, Tyumen Oblast with 95.2 million euros, Novosibirsk Oblast with 78.3 million euros and the Primorsk region with 64.2 million euros.
Cost comparative analysis
One of the positive factors behind the growing lure of mobile phones is the fact that the cost of mobile services has been decreasing since the 1998 financial crisis, which completely demystified the mobile phone and its image as an accoutrement reserved only for the super rich.
Prior to the crisis, between $500-$1,000 were needed to buy a cell phone and make the initial subscription payment, while monthly bills for phone connections and other complementary and auxiliary services ran into hundreds of dollars — trends that placed the new telecom services at the reach of the then-budding class of so-called "new Russians."
The rates are more moderate today, with huge signs of decreasing rates in the future as local mobile operators are forced to roll out more enticing tariffs in their struggle to outdo one another on the market for more subscribers. The end result is that mobile services now cost a lot less that the asking rates on similar services in countries with the world’s highest mobile penetration indices. For instance, average Russian subscribers spend about 10-15 euros on mobile services per month against average Italians’ 80-126 euros a month, Japanese users’ 60 euros and U.S. citizens’ 40 euros.
Attracting new subscribers
Tariff policies are being tailored to meet the needs of different people, depending on their social status, daily needs and other parameters. For instance, MTS offers so-called economy tariffs such as Jeans, BeeLine offers Bee+, while MegaFon offers O’Light. "A major phenomenon in the past few years has been the appearance of tariffs targeting the masses, such as the MTS Jeans Tariff, which targets a large portion of the population. This tariff currently accounts for the lion’s share of MTS’ new subscribers, " said Nefedov. Major advantages of this tariff include simplicity in getting connected, easily affordable rates, the absence of subscription fees and practically no pre-payment requirements."
Evident signs that local mobile operators are ready to go the extra mile to attract new clients, including those directed at tapping competitors’ subscriber bases, are everywhere — from telecom offices, shops, and commercials in the media to outdoor billboards. One of these is reducing tariffs on services — a strategy that has seen the average subscriber’s monthly expenditures fall six times compared to their value in early 1990s. For instance, the average revenue per user (ARPU) in Russia fell to 12.5 euros in 2003, a decrease of 25 percent compared to 2002’s data. Among local providers, the average monthly cost of MTS services, at about 14.25 euros, is the most expensive, followed by MegaFon at 12.5 euros and BeeLine at 11.3 euros. And, according to the Information Technologies and Communications Ministry’s reports, the downward trend is still largely expected to continue because the level of ARPU, below which operators cannot operate without profits, is still lower — at 8-10 euros, compared to the current value of 12.5 euros.
Mobile operators spend money on attractive new clients, with MTS heading the list of the highest spenders in terms of expenditures on attracting new subscribers. For instance, MTS, on average, spent 21.7 euros to attract a new client in 2003, compared to 16 euros spent by BeeLine for the same purpose. However, these expenditures are easily offset by new subscribers, who pay for their phone bills and other complementary services such as SMS and a myriad of other service numbers. MTS subscribers talk longer on their phones, with each subscriber spending, on average, about 144 minutes a month, followed by MegaFon subscribers at 130 minutes per user per month and BeeLine at 89.9 minutes per user per month.
The boom in the mobile industry, however, does not mean that operators provide top-quality mobile services to subscribers, a phenomenon that prompted a nationwide protest on September 2.
According to protest organizers, all subscribers that were not satisfied with the quality and volume of services switched off their mobile phones for two hours in a demonstration against what the protesters described as the "non-partnership behavior" of mobile-phone operators toward their subscribers. "We are not told of breakdowns in service. We do not get good connections, and on top of everything, we are billed for services that were not provided! In short, mobile phone operators indulge in all sorts of schemes to strip us of our hard-earned money," the organizers said.
On their advertisements and promotional bronchures, operators present attractive tariffs with barely legible footnotes indicating that such tariffs are exclusive of an 18 percent value-added tax and that they retain the rights to change such tariffs without informing subscribers. Also, operators offer tariffs which declare all incoming calls, irrespective of the place of origin and provider, free-of-charge to subscribers. The trick, however, is that there is a limit to the number of free incoming calls — most often fixed at 20-25 minutes a month, after which subscribers start footing the bill, protesters said. Other complaints highlighted during the protest included frequent breaks in connections, unfriendly subscriber-service departments, unclear tariffs and the inability to retain previous numbers when leaving one operator for another.
Regulators come to subscribers’ aid
In an attempt to verify the growing charges against mobile operators, the Transportation and Communications Department, Moscow City Hall’s telecom watchdog, set up a hotline between August 10-24 to receive complaints against mobile telephone firms in Moscow. According to the department’s data, over 2,000 people levied grievances against the nation’s top mobile-phone service operators.
Most complaints — about 47 percent — were levied against MTS, about 30 percent against BeeLine and 17 percent against MegaFon, while others, so-called second-tier mobile-services operators, collectively accounted for the rest. These data and concrete complaints received from the callers have been forwarded to RosSvyazNadzor, the federal watchdog in the sector, and also to management of mobile companies named in the complaints to take appropriate measures and improve the quality of their services, the department said.
There are also signs that the federal government will be more active in enforcing the provisions of the Federal Law on Communications, which came into effect on Jan. 1, 2004. Most importantly, these provisions oblige operators to allow subscribers to retain their numbers after changing operators, and compensate losses suffered by subscribers as a result of their failure to provide required services as laid out in subscription agreements.
The Internal Affairs Ministry also plans to set up a national IMEI database of stolen telephone numbers. However, this move has already drawn protests from mobile phone operators as such programs are expected to cost them about $1-2 million — both for installing new equipment to trace these numbers and from lost revenues through losing such clients in the process.