FOCUS: State control over mobile prices may depress operators’ margin, service quality

By Yekaterina Yezhova

MOSCOW, Jul 23 (PRIME) -- Inspired by a successful ban on internal roaming, which is said to save clients some 30 billion rubles per year, social democratic party A Just Russia intends to cement the victory by slapping state control on mobile connection prices. The relevant ministry and operators are appalled, and analysts say the idea could cut operators’ revenue and undermine connection quality, but would benefit the consumer.

“We hope the bill will be fully approved until the end of the State Duma session, and internal roaming will become a thing of the past,” party leader Sergei Mironov said at a briefing.

“Knowing that the roaming’s end is unavoidable, (mobile operators) try to cheat. They introduce extra payments for SMS here, for calls to fixed-line numbers there. Moreover, operators added charges for incoming calls from other regions on some tariffs.”

Over the recent months, all the country’s three major mobile operators – MTS, MegaFon, and VimpelCom – have raised prices or introduced new payments, Mironov said, adding that the companies could be in cahoots.

The State Duma, the parliament’s lower house, approved on July 10 the party’s bill on cancellation of national and intra-network roaming in the country in the first out of three mandatory readings.

National roaming applies when an operator uses other carriers’ networks in the regions where it lacks its own resources, and intra-network roaming applies when an operator uses various tariffs for different regions of the country. Moreover, the Federal Antimonopoly Service has already been actively fighting against internal roaming.

Mironov said, “We see that the current law does not practically limit mobile operators’ pricing. If the companies use this freedom for new unfair charges from subscribers, it should be restricted. On the basis of a detailed analysis of the situation, we’ll draft a bill on state regulation of tariffs of mobile connection.”

The idea was immediately blasted by the Digital Development Ministry, which sees regulation as superfluous since the country’s prices of mobile connection services are among the lowest in the world. MegaFon said the party’s initiative is dangerous and could slow down introduction of new technologies, while MTS and VimpelCom declined to comment.

Investment company Freedom Finance analyst Anastasia Sosnova said, “State regulation of tariffs usually pursues several goals, including protection of consumer interests, affordability of goods, creation of conditions for development of competition and economic incentives, for example, to cut costs.

“State regulation would help avoid situations when mobile operators revise tariffs unilaterally. We see efforts to centralize state regulation of tariffs: to shape single principles of tariff regulation, an order of making tariff decisions, an order of approval of the investment programs funded by tariff sources.”

Mobile operators are guided in their strategies by the average revenue per user (ARPU) indicator. “In such a way, the most acceptable format of setting tariffs for mobile operators could be a single level of subscriber fees,” the analyst said.

Investment company Zerich Capital Management senior analyst Viktor Markov explains the idea to regulate tariffs by an intention to make services more affordable for people.

“However, regulation can be applied only to state firms and hardly to private business, which lacks state funding and cannot work at a loss. Moreover, the major mobile operators were created with private money and work for shareholders. Regulation of tariffs could be introduced for the operators providing services to law enforcement entities, for example,” he told PRIME.

Sosnova at Freedom Finance said the advantage of state regulation for mobile operators could be an incentive to optimize costs, but the disadvantage is a possible loss of margins and slow growth. “Activities of mobile operators in conditions of non-regulated tariffs equip them with quite a high operating margin of some 40%,” she said.

Markov at Zerich is sure that “if tariffs are regulated by the state, operators won’t be able to maintain the quality of connection at a decent level, which will result in failures and unreliable connection.

“Regulation would dwarf the volume of services offered by operators and undermine their quality. It could have a positive impact only in some cases, like free incoming calls and SMSs.”

Investment company Finam analyst Leonid Delitsyn said, “the market was designed for strong competition, which made mobile connection affordable nationwide and forced it to expand quickly. We see that mobile operators are not big companies as such. They lag by capitalization, for example, behind local Internet company Yandex and their foreign counterparts by three–five or even 10 times, without growth drivers or prospects of innovative development.

“Mergers would save the situation. Perhaps, lawmakers are aware of looming movements in the industry, like its consolidation, and want to be ready in advance. The regulation could cap price growth.”

(63.4888 rubles – U.S. $1)

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