Global Insight Perspective | |
Significance | The new tariff prices will be set at the same rate as those at which the connection fees had been planned. |
Implications | In this way MTS has sidestepped the potential legal difficulties which connection fees had seemed set to bring about. |
Outlook | Russia's mobile operators have continually been searching for ways to offset the revenue losses expected in the wake of Calling Party Pays, but the country's regulatory bodies continue to monitor the situation, |
Russia's leading mobile operator Mobile TeleSystems (MTS) has scrapped plans to introduce connection fees for calls to its network in the wake of the recently launched Calling Party Pays (CPP) system. MTS had announced that from 4 August 2006 a charge of between US$0.01 and US$0.0177 would be introduced for most users. Instead, the operator will now hike tariffs for the first minute of a call, by the same amount at which it had planned to set the connection fee. The first-minute tariff hike will be introduced on all tariff plans with certain exceptions. These include "First", which already has a connection fee; all of MTS's corporate tariff plans and tariff plans with unlimited calling; the "Profi" tariff plans, excluding the Moscow Licence Area (MLA); MTS.OPEN; Universal; and Guest (only in the MLA). These tariffs had also been initially excluded from the company's planned connection-fee introduction.
Outlook and Implications
Initial Plans to Introduce Connection Charges: In the wake of CPP, Russia's major mobile operators had predicted that the loss in revenue would amount to around US$1 billion annually, and they therefore set out to offset these losses. Each of the big three announced plans to introduce connection charges, with MTS intending to introduce fees of between 0.34 rouble (US$0.013) and 0.60 rouble. The suspicion of Russia's Federal Antimonopoly Service (FAS) has been aroused by the fact that each of the big three had planned to introduce these fees virtually simultaneously. The FAS has therefore begun to probe the issue, but it is unclear whether there has been any legal wrongdoing by the troika (see Russia: 28 July 2006: Telecoms Ministry to Investigate New Mobile Connection Fees). The country's IT and Telecommunications Ministry has also weighed in, pointing out that there is no such service as "connection" in the law, and that, in theory, connection fees therefore cannot be charged separately from basic tariffs. The FAS investigation is ongoing.
Alternatives to Connection Charges: Seemingly in response to the FAS investigation, Russia's major mobile operators have sought ways to bring in the revenues of connection fees without running the risk of breaking the law by instituting those particular fees. MTS's decision to introduce a tariff hike for the first minute of a call will effectively bring in the same amount of revenue as the connection fee would have done. VimpelCom has decided to introduce a charge for the first three seconds of any call lasting more than three seconds (as, by law, any call lasting less than three seconds cannot be charged). In this way VimpelCom, too, has sidestepped the potential legal mire of connection-fee introduction. To date, Megafon's plans to introduce a connection fee in August have not altered, but this intention may soon change. Regional mobile operator SMARTS has also dismissed the option of connection fees while seeking to make up revenue by alternative means, having moved its per-second billing to the second rather than first minute of calls, thereby effectively hiking its first-minute charges (see Russia: 2 August 2006: SMARTS Plans Alternative to Connection Fees).
Further Tariff Adjustments Cannot Be Discounted: Given the potential legal problems incurred by the introduction of connection fees, Russia's mobile operators have simply decided to hike up their call tariffs instead. This represents one of several avenues that have been explored with the aim of offsetting the losses brought about by CPP (see Russia: 13 June 2006: MTS Launches Flat Exchange Rate for U.S. Dollar Tariffs and Russia: 20 June 2006: Fixed-to-Mobile Tariff Set at 1.5 Roubles per Minute in Russia). It seems likely that further plans will be introduced as the troika adjusts to life after CPP, particularly within the climate of Russia's saturated mobile market which leaves little room for subscriber growth and is encouraging moves towards ARPU stabilisation. However, Russia's regulators are likely to continue to monitor the situation closely.