FOCUS: Russia’s Rostelecom to act soon as MVNO on Tele2 network

By Yekaterina Yezhova

MOSCOW, Feb 20 (PRIME) -- Russia’s Rostelecom is consistent in its strategy to expand services, which vary from fixed line connection to IPTV, and will soon debut as a mobile virtual network operator (MVNO). Analysts said the project will not consume much investment and money will be mostly spent on advertisements.

State-controlled Rostelecom will sign an agreement to start operating as an MVNO on the network of T2 RTK Holding, its own joint venture with Tele2, functioning under the latter’s brand, within the nearest months. Rostelecom keeps 45% in the joint venture.

“I can say that the negotiations are at the most active stage. We see that we’ve done good progress that is why I think you’ll hear news in the next few months. In general, not so many issues are left,” Svetlana Smirnova, Tele2’s director for strategic planning, told reporters.

The agreement will enable Rostelecom to provide and sell mobile services in a package with fixed line, broadband and pay TV.

An MVNO is a wireless communications services provider that does not own infrastructure, but enters into an agreement with a mobile network operator to provide services. It sets its retail prices independently.

“At present the share of virtual operators by the number of active SIM cards in the country does not exceed 1%, and penetration of this business model in Russia is much lower than in developed countries,” Promsvyazbank senior analyst Ilya Frolov told Russian Connection.

“When attracting clients, companies, which work in this niche, bet on either loyalty to a certain brand, like Svyaznoy Mobile, or target a precise subscriber niche, like Sim Telekom, which focuses on selling SIM cards to working migrants, or A-Mobile, whose SIM cards are sold at hypermarkets Auchan.”

The development of this model is sometimes disadvantageous for the Big Three – MTS, MegaFon and VimpelCom – because a mobile operator only receives a fixed royalty from an MVNO, but handles extra load on the network, while expansion of throughput capacities requires serious investment, the analyst said.

Subscribing clients directly brings a higher margin for the Big Three, in particular after the expansion of geographical presence of outlets, he said.

“However, Rostelecom could have a different story. The thing is that an MVNO here is a unit in which Rostelecom owns 45%, and interests won’t collide. Moreover, Tele2 is ambitious to attract new subscribers and spend money on its networks. I think we are talking about the creation of the first national MVNO, which could help Tele2 fulfil its strategic plan,” Frolov said.

“To some extent, cooperation of Tele2 and Rostelecom will be similar to the one of MegaFon and Scartel, known as Yota: common network, but different positioning and tariffs. The project will not need much investment, and key expenses would be the dealer commissions. SIM cards could be sold via the already existing Tele2 network. That is why the main clause of primary investments is advertising.”

Rostelecom earlier estimated its subscriber base potential as of an MVNO at 2.5 million clients by 2020. The initiative is one of the growth drivers for the operator in the middle-term, as it will help it expand its market share and raise average revenue per user, according to Rostelecom’s strategy.

Smirnova at Tele2 said that the MVNO project will be launched “in a large number of regions.” “For Tele2, it’s a chance to cover a wider segment of population and work with it,” she said.

Rostelecom’s revenue from telephony shrank 10% on the year to 24.2 billion rubles in July–September 2015, while its revenue from digital and content services rose 7% to 28.7 billion rubles, and revenue from broadband services also grew 7% to 15.9 billion rubles.

The operator’s telephony subscriber base contracted 9% on the year to 22.7 million clients in July–September, and its broadband subscriber base expanded 6% to 11.4 million.

(76.3657 rubles – U.S. $1)

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