FOCUS: Subscribers’ appetite for data pushes big 3 operators’ mobile revenue up in Q2

By Yekaterina Yezhova

MOSCOW, Sep 11 (PRIME) -- Data-driven mobile services secured a solid rise in total revenue of MTS and VimpelCom in Russia in April–June, and MegaFon showed some mobile revenue growth for the first time in five quarters. Analysts liked MegaFon’s rates of cutting its monobrand retail chain ahead of incorporating handset seller Euroset and warned that the same strategy could reduce MTS’ market share in the long-term.

The country’s three major mobile operators enjoyed higher mobile service revenue thanks to soaring data exchange. MTS kept leadership by revenue and the subscriber base.

Below is a breakdown of the companies’ main nationwide results for April–June:

Operator/Indicator	MTS, Amount, bln rbl	MTS, Change YoY, %	MegaFon, Amount, bln rbl	MegaFon, Change YoY, %	VimpelCom, Amount, bln rbl	VimpelCom, Change YoY, %
Revenue	99.0	+1.6	76.9	-0.9	68.4	+3.0
Mobile revenue	75.1	+3.1	64.3	+0.1	55.7	+3.6
Fixed-line revenue	15.2	-0.7	6.5	+2.9	9.9	-8.8
Subscriber base, mln	78.0	+0.3	75.8	+1.4	58.3	+1.4

Amsterdam-headquartered VEON released figures of its Russian unit, VimpelCom, in early August.

VimpelCom showed the highest revenue growth in the reported period driven by a 3.6% increase in mobile service revenue thanks to data revenue, which “continued its strong growth, increasing 17.8% to 14.5 billion rubles, resulting from deepened penetration of integrated bundles and smartphones together with data traffic growth,” VEON said.

Otkritie Broker analyst Timur Nigmatullin expects a further revenue growth since prices of old tariffs have risen since July 12. “Meanwhile, the move could provoke a reaction from regulators with an unpredictable impact on business,” he said in a research note.

MTS’ total revenue was underpinned by a 3.1% growth, a record over recent years, in mobile service revenue. “Data remains the key growth engine for our core mobile business,” the operator said in its statement.

“Despite the fact that the mobile subscriber base in Russia added a modest 0.3% on the year to 78 million, mobile revenue growth was evidently backed up by a direct rise in prices for connection services, including old tariffs, under the more-for-more principle, when more services are sold for higher prices,” Nigmatullin said.

The operator cut the number of its stores in the country by 2.5% on the year to 5,692, which could be provoked not only by an intention to ñut costs, but also be a result of the end of Samsung’s conflict with other retailers, like Euroset, Svyaznoy, MegaFon, and VimpelCom, the analyst said. The companies resumed sales of the South Korean brand’s products, putting an end to MTS’ monopoly.

“Despite a better margin, cutting down the chain in current conditions does not look rational. Retail sales fell 4.7% against a 54% jump of VimpelCom, while the smartphone market, boosted by multiple credit offers, rose 18% (on the year in money in April–June),” Nigmatullin said.

“On the horizon of two–three quarters, a smaller chain and the end of the Samsung conflict, along with lower sales of contracts with expensive gadgets could reduce MTS’ market share in Russia by subscribers with the remaining net churn rate of 9–11% per quarter. However, a lot depends here on the operator’s marketing activity.”

MegaFon’s mobile service revenue showed a 0.1% growth for the first time over five quarters to 64.3 billion rubles. Sales of equipment and accessories plunged 13% to 6.2 billion rubles, which pulled total revenue downwards.

The operator closed more than 10% of stores to over 3,600, which is more than MTS. MegaFon closed many monobrand stores, but plans to consolidate Euroset and possibly phone retailer Svyaznoy, which would allow the operator to raise its market share gradually in the long-term with a smaller outflow of clients. Expenses on maintaining the stores will be reasonable, Nigmatullin said.

“I think that from the point of view of the business-to-customer marketing strategy, the announced approach to the development of multi-brand retail looks rational. On a saturated market, which the national mobile connection market is at present, it’s more effective to attract new subscribers from rivals via multi-brand channels,” the Otkritie Broker analyst said.

Monobrand chains also proved to be effective channels to deal with clients to reduce a net churn rate of 45–55% per year depending on the operator, which forces companies to bear extra expenses, he said.

Finam analyst Leonid Delitsyn said that MegaFon has succeeded in getting a key advantage by  buying control in Internet giant Mail.Ru Group, which “became a permit to a digital future for the operator, which all the operators declared, but not all could secure.”

“Minor variations in results suffice to create an illusion of a boiling life in the telecom industry, but in reality the situation is best described by MTS’ President Andrei Dubovskov as ‘a zone of bad stability’. Organic growth disappeared long ago, and operators work hard to invent new tariffs,” the analyst told PRIME.

The antitrust watchdog added trouble to the operators’ life by forcing them to cancel intra-network roaming with national roaming on the agenda as well, and the data retention law is menacing with costs to store exchanged data.

“At that, the carriers have passed through an active phase of building networks, pay generous dividends to shareholders, and some of them buy back their cheapened shares from the market,” Delitsyn said.

(56.9966 rubles – U.S. $1)

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