Global Insight Perspective | |
Significance | After years of trying, persistence has paid off for VimpelCom, which has been granted previously elusive licences to offer services in two Far Eastern regions. |
Implications | Within the country's mature mobile market, the opportunity to tap into a fresh subscriber base represents a cause for celebration for the country's second largest mobile operator. |
Outlook | There remain gaps in VimpelCom's Far Eastern coverage, not least in the huge constituent republic of Yakutia. Attempts to obtain more licences can therefore be expected, possibly through acquisitions of other operators' assets. |
Russia's second-largest mobile operator by subscriber numbers, VimpelCom, has finally achieved some success in its long-running battle to obtain licences for GSM service provision in Russia's Far Eastern regions. Russia's Federal Communications Agency (Rossvyaz) has awarded the operator licences to operate in two regions, the Jewish Autonomous District and Magadan, as part of a programme that will see licences awarded by tender in more than 60 of the country's 85 regions by the end of the year (see Russia: 17 April 2007: Tenders for GSM Licences to Be Held in 62 Russian Regions). VimpelCom already had licences for 4 of the 10 Far Eastern regions—Amur, Kamchatka, Kharbarovsk, and Sakhalin—but for several years had been rebuffed in its attempts to enhance its footprint in the area. Following the awarding of the two new licences VimpelCom now only lacks coverage in Chukotka, Koryakia, Primorsky, and Yakutia.
Rossvyaz also awarded GSM licences to Summa Telecom, in the Jewish Autonomous District and the Sakhalin, Khabarovsk, Magadan, and Amur regions; to Dalsvyaz subsidiary BIT in the Sakhalin region; to minor companies Esotel-Rustelecom and SVTCom in the constituent republic of Sakha; and to minor company Streamton in the Jewish Autonomous District and Magadan.
Outlook and Implications
Welcome Boost for VimpelCom in Mature Market: This is a cause for celebration for VimpelCom. The maturity of Russia's mobile market, particularly in the capital Moscow and second city of St Petersburg, has left limited scope for organic subscriber growth. At the end of the first quarter of 2007, VimpelCom's 38.6 million subscribers left it lagging well behind market leader Mobile TeleSystems, with 51.5 million subscribers. The operator is also in danger of being overtaken as the country's second-largest mobile revenue generator, by MegaFon, which reported first-quarter revenue of US$1.127 billion—an annual increase of 49.0%—compared with VimpelCom's US$1.278 billion, an annual increase of 46.8% (see Russia: 2 July 2007: MegaFon Reports Q1 Profit of US$236 mil.). The opportunity to roll out services to a fresh customer base therefore provides new opportunities for both subscriber and revenue gains, with an estimated 6 million inhabitants in the Far East. MegaFon is currently the only operator with complete nationwide coverage.
A Long-Running Saga: VimpelCom's previous, repeated efforts to gain licences in the Far East had turned into something of a saga. The operator's applications for licences in the region date back to 2005, but have been repeatedly refused by the Federal Service for Communications Oversight (Rossvyaznadzor) (see Russia: 8 November 2006: VimpelCom Denied Far East Licence Again). VimpelCom had gained the support of several Russian courts, the country's Federal Antimonopoly Service (FAS), and even, apparently, IT and Telecoms Minister Leonid Reiman, but had nevertheless failed to secure the licences (see Russia: 20 September 2006: Moscow Court Again Supports VimpelCom's Far-Eastern Licence Application and Russia: 6 December 2005: VimpelCom to Have First Right to Far East Frequencies - Telecoms Minister). Often the reason cited was lack of availability of frequencies. However, the slightly opaque regulatory system in Russia has led to speculation that the true reason may have been a higher level reluctance to allow an Alfa-owned company to expand, given a reported fall-out in the mid-1990s between the oligarch Mikhail Fridman, owner of Alfa, and Reiman. Alternatively, another potential reason might simply have been excessive bureaucracy.
VimpelCom Will Seek More Far-Eastern Coverage: Given the numerous obstacles that have previously littered VimpelCom's path to obtaining coverage in the Far East, the news that it has now obtained two more licences is a little surprising. However, if the operator submitted the highest bid in a tender, then it is barely possible for any potential opponent to prevent the licence from being issued. It should also be noted that large gaps remain in VimpelCom's Far Eastern coverage, not least in the massive constituent republic of Yakutia. The operator is likely to continue its pursuit of licences, an aim that could be achieved by strategic acquisitions. Such an approach might be facilitated by the recent news that national fixed-line holding Svyazinvest is planning to divest all its mobile assets within 18 months, with Dalsvyaz already making clear that it intends to sell up in the Kamchatka, Primorsky, and Sakhalin regions (see Russia: 6 April 2007: Dalsvyaz's Divestment Could Open Far East Door for VimpelCom and Russia: 25 June 2007: Svyazinvest Considers Sale of All Mobile Assets).