Global Insight Perspective | |
Significance | MTS's launch of 3G services in St Petersburg comes more than a year after it was awarded its licence, and will soon be followed by further roll-outs elsewhere in Russia and the Commonwealth of Independent States. |
Implications | MTS follows MegaFon into the 3G market, with VimpelCom also due to launch services this summer. However, none is yet able to offer services in capital and economic hub Moscow. |
Outlook | Data usage is on the rise amongst MTS subscribers, while a relatively weak physical infrastructure landscape also bodes well for the operator's 3G plans. |
Russia's leading mobile operator by subscriber numbers, Mobile TeleSystems (MTS), has announced that it has commercially launched its first 3G network in the country, in St Petersburg. The three tariff plans available offer 100 MB of prepaid traffic for 190 roubles (US$8.0), 500 MB for 1,000 roubles, and 1 GB for 1,500 roubles, according to the company's Head of North-Western Operations, Ivan Zolochevsky, quoted in Prime-Tass. The operator intends to achieve full coverage of St Petersburg by the end of the year.
MTS aims to further its 3G roll-out on 2 June with the launch of services in Kazan, where it claims that its network is technically prepared for commercial launch, as are its Sochi and Yekaterinburg networks. It is targeting the launch of networks in 10 cities by the end of 2008 and up to 40 cities in 2009. Its investments in 3G will total around US$1.6 billion by 2011. MTS was awarded its Russian 3G licence in April 2007, along with rivals VimpelCom and MegaFon, which have respectively pledged to invest US$350 million in 2008 and US$1 billion by end-2009 respectively. Only MegaFon has to date launched commercial services, in St Petersburg in October 2007 (see Russia: 25 October 2007: MegaFon Wins Russian 3G Race with St Petersburg Launch). Roll-outs of 3G networks in the capital Moscow have been delayed indefinitely, because of disputes with government and military bodies over the availability of frequencies for civilian use.
Beyond Russia, MTS has already revealed plans to launch 3G services in Uzbekistan in the first quarter of 2009 and Armenia by the end of 2009, having been awarded licences in these countries in April 2007 and October 2007, respectively.
Outlook and Implications
Right Move at Right Time: MTS's large-scale roll-out plans indicate a confidence that that 3G roll-out in Russia is the right move at the right time. The operator has been encouraged by strong uptake of data services in 2007, and 3G HSPA technology promises to deliver content at 3.6 Mbps, some 10 times faster than the 2.75G EDGE technology it previously used. With personal income levels rising in Russia, mobile use is increasing amongst consumers, as evidenced by the increase in monthly minutes of use (MoU) to 193 in the first quarter of 2008, compared with 134 the previous year (see Russia: 21 May 2008: Subscriber Growth and Traffic in Core Russian Market Drives MTS Q1 Profit Up 36%). The percentage of MTS's revenues from value-added services reached its highest level in the first quarter of 2008, at 14.8% compared with 13.9% the previous year. Moreover, a lack of fixed-line infrastructure has proved slightly inhibitive to fixed broadband uptake in the country. Although subscriber uptake in the fixed broadband segment was strong in 2007, there remains plenty of room for further growth, and operators are ploughing money into infrastructure deployment to capitalise on a lucrative sector and meet consumer demand. The lack of infrastructure has also seen a spate of wireless broadband roll-outs, but with its strong existing brand MTS is well-placed to muscle in on the Russian broadband sector. Moreover, on a broader scale the global trend for 3G uptake, which has for several years been sluggish, is beginning to gather momentum as subscribers increasingly use data services, and operators increase their focus upon this sector to offset the lack of organic subscriber growth opportunities.
Prepaid Majority and Moscow Frequencies Provide Reasons for Caution: There are nevertheless some reasons for MTS to approach its 3G adventure with caution. At the end of the first quarter only 12% of its subscribers were higher end post-paid users, generating monthly ARPU of US$24.3 compared with the US$5.1 of the lower end prepaid user majority. The difference in ARPU rates suggests that 3G service provision will generally have to be targeted at this limited percentage of users, although the range of tariffs made available by MTS may yet prove appealing to lower end customers. The absence of frequencies in Moscow is also a blow to MTS, as well as its rivals as they launch 3G services. CDMA operator SkyLink recently reported that its first quarter ARPU in Moscow was US$59.5, compared with US$43.2 in St Petersburg and US$33.5 in other regions. This is illustrative of the economic primacy of Muscovites, and ordinarily the capital would have been the most obvious target for pioneering 3G.
Outlook Positive for 3G Uptake in Russia: After a year of speculation since the awarding of licences, quite how the 3G battle is played out in Russia will be fascinating to observe. MegaFon has stolen a march on its rivals with an early launch, and VimpelCom is expected to enter the arena this summer. As well as these, SkyLink has upgraded its technology in 24 of the 31 regions in which it operates, from CDMA 2000 1X EV-Do Rev O to Rev A, thereby increasing data-transfer speed from 2.4 Mbps to 3.1 Mbps. With data service usage now becoming more fashionable, and broadband uptake in Russia strong while fixed infrastructure availability is relatively weak, Global Insight expects MTS to benefit from healthy uptake of 3G services in the country.