FOCUS: Mobile connection market to rise 3–5% annually when pandemic ends

By Yekaterina Yezhova

MOSCOW, Jun 7 (PRIME) -- MTS and T2 RTK Holding, a Rostelecom family member, released the strongest January–March results on the Russian mobile connection market that is still struggling with the pandemic hurdles, and analysts think that the industry would rise by 3–5% annually in the next several years if COVID is gone.

“The best results were certainly shown by Rostelecom and MTS. In case of Rostelecom, it is the synergy from the purchase of Tele2, T2 RTK Holding’s brand, that works, and in case of MTS, it is the leader’s position on the mobile connection market. In both cases, the scale played a key role in favor of the majors. The smaller players were having a tougher time,” investment company Finam analyst Leonid Delitsyn told PRIME.

Investment company Veles Capital analyst Artyom Mikhailin said that MegaFon managed to show a positive result in January–March both in total revenue and the service one, although it was small. VimpelCom, working under brand Beeline, reported the weakest figures.

MTS’ mobile service revenue grew 2.3% on the year to 82.3 billion rubles in January–March out of the total nationwide revenue of 122.5 billion rubles, up 5.6%.

Rostelecom’s revenue from mobile services increased 13% to 46.1 billion rubles “mainly due to a higher volume of mobile Internet data consumption and standard voice services,” the company said. Rostelecom’s total revenue rose 9% to 132 billion rubles.

MegaFon said its service revenue rose 0.9% to 74.1 billion rubles and was “driven by an increase in revenue from data and digital services,” the company said, as its total revenue went up 2% to 81.1 billion rubles.

VimpelCom’s mobile services revenue edged up 0.3% to 58.4 billion rubles, including service revenue of 51.3 billion rubles, down 2.3%. Total revenue rose 1.4% to 68.4 billion rubles.

 “All the operators were hit by the pandemic last year. Amid the COVID-19 spread and the restrictions, the industry’s incomes from international roaming and migrant workers have decreased significantly. In January–March, these factors weakened somehow, but are still in force, and the market rises slower than before. In the quarters to come, by our estimates, the rise in the operators’ incomes may speed up thanks to a low base effect,” Mikhailin at Veles Capital said.

As of the end of March, MTS serviced 78.4 million clients in the country; Rostelecom’s joint mobile base exceeded 46.6 million users; MegaFon had 70.5 million clients; and VimpelCom had 50 million users.

“It seems there will be no new subscribers in Russia, and higher average revenue per user at the expense of hiked tariffs and provision of more services will be the main source of growth,” Mikhailin told PRIME.

“The implementation of 5G networks could speed up total growth of the market thanks to an increase in demand by the corporate segment, but it is still a far perspective. During the next several years, as we believe, the mobile connection market in the country will rise 3% to 5% on the year if all negative factors of the pandemic are gone,” he said.

Delitsyn at Finam said that 5G, which is the industry’s main driver, is almost absent in the country and undergoing the stage of experiments. The telecom companies are reporting about the introduction of less prominent innovations, such as eSIMs, and neither the operators nor analysts dare to value their effect, he said.

With no room to move directly, the companies grow sidewise – they dive into system integration, information security, cloud computing services, and e-commerce.

“Strategies are built not aggressively, but in compliance with the opportunities that are still on the plate. After the acquisition of Tele2, Rostelecom has posed itself as the largest operator by revenue, beyond reach by the others. The state-controlled operator is active on large and emerging markets – cloud services, information security, artificial intelligence, biometry, and is far ahead in fixed-line broadband services,” Delitsyn said.

MTS avoided being entangled in a straightforward rivalry and remained the leading mobile operator with a loyal client base. It raises its share on the broadband market and is successful in the banking business.

MegaFon earlier announced its transformation from a classical operator into a digital industry player with a loyal base and high-quality services, while strengthening digital technologies. As to VimpelCom, first of all, it is one of the regional branches of VEON, and the head company will set a strategy, Delistyn said.

“We don’t think that strategies of the ‘big four’ differ significantly. They all stress the introduction of convergent tariffs, expansion of ecosystem products and services. The Russian market has always seen high churn rates, and the operators’ goal is to minimize it and maximize incomes,” Mikhailin at Veles Capital told PRIME.

“In this climate, offering a great deal of products and services under a single tariff plays well, extending a subscriber life cycle in the network hugely,” he said.

(73.2721 rubles – U.S. $1)

End %%ee/jst%%