Raft of Fixed-Line Licences Awarded in Russia

Mobile subsidiaries of GSM operators Mobile TeleSystems (MTS) and Megafon and of regional fixed-line operator Sibirtelecom have each been awarded a number of licences for the provision of local fixed-line services in Russia, reports Prime-Tass. The licences expire in October 2011, and exclude payphones.

The country's leading mobile operator by subscriber numbers, MTS, and its unit Primtelefon have been awarded licences in a combined total of 26 regions and districts. These are the Krasnoyarsk, Yaroslavl, Ivanovo, Astrakhan, Rostov, Krasnodar, Chelyabinsk, Perm, Kurgan, Tomsk, Novosibirsk, Altai, Samara, Orenburg, Nizhny Novgorod, Kirov, Khabarovsk, Amur, Sakhalin, Primorsky, and Irkutsk regions; the constituent republics of Tatarstan, Sakha, and Komi; and the autonomous districts of Taimyr and Khanty-Mansi. The country's third-largest mobile operator, Megafon, has, through its subsidiary MSS Povolzhie, been awarded licences in the southern regions of Samara and Saratov. Three licences have also been issued to mobile subsidiaries of regional fixed-line operator Sibirtelecom, itself a subsidiary of national fixed-line holding Svyazinvest. The Baikalvestcom subsidiary has received a licence in the Irkutsk region, while Yeniseitelecom has received licences in the Krasnoyarsk region and the constituent republic of Khakassia.

Outlook and Implications

Fixed-Line Licences Enable Lucrative "Direct" Number Tariffs: One reason for the trend of mobile operators obtaining fixed-line licences is the quest to issue "direct" numbers to mobile phones. Direct numbers consist of seven digits plus a three-digit prefix, but can be dialled from local lines without the three-digit prefix. They contrast with "federal" numbers, which consist of seven digits plus an obligatory three-digit prefix. From January 2006 legislation was introduced which prohibited mobile operators from issuing direct numbers. Mobile operators therefore had to introduce federal numbers for all users who previously owned direct numbers, while all existing direct numbers became fully owned by fixed-line operators. From 1 January 2007 mobile operators will have to make payments to fixed-line operators for the use of direct numbers. Issuing direct numbers generates substantial revenue, with VimpelCom earlier this year announcing plans to introduce a US$25 monthly tariff, despite monthly ARPU remaining at single-digit level throughout 2006 (see Russia: 31 August 2006: VimpelCom Raises "Direct" Number Tariffs, Urges Interconnection-Fee Dialogue with Minor Operators). It would therefore be in the financial interests of mobile operators to issue direct numbers. While Russia's IT and Telecommunications Ministry indicated earlier this week that it will consider an amendment to the law, which might allow mobile operators to issue tariffs with direct numbers, for the moment such tariffs can only be issued if the mobile operator owns a fixed-line licence. This appears to be a major driver behind the requests for local fixed-line licences.

Mobile Operators Targeting the Fixed-Line Market: The push by mobile operators for fixed-line licences could also be because mobile operators are seeking to churn the subscribers of fixed-line operators. The Russian mobile market was last week estimated by a ministry spokesman to have around 140 million subscribers, equating to penetration of around 100%. This has seen the country's mobile operators switch their focus from subscriber uptake to revenue and voice-traffic generation in the mobile sphere. However, the fixed-line segment is an area of possible subscriber growth. By acquiring fixed-line licences, MTS and Megafon have placed themselves in a position to offer discounted calls between mobiles and fixed lines, thereby making it financially and practically expedient for fixed-line subscribers to switch to their networks.