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12
Jan

December 2004 Subscriptions Beat Expectations

December 2004 brought astonishing results: total cellular subscriber net additions in the country climbed to 8.3 mln - almost 2 times higher than in previous month and 3 times higher compared to December 2003. The cellular penetration in the country passed 50% milestone(!) - more than two times higher compared to 2003 results.

According to our esimates the total number of cellular subscribers in Russia reached 73.9 mln as of year-end 2004!

Russian Mobile Subscribers

Mobile Subscribers December 31, 2004 November 30, 2004 December 31, 2003
Total Russia 73,855,000 65,590,000 36,230,000
  Penetration 50.9% 45.2% 25.0%
Moscow 16,854,605 15,105,908 11,487,308
  Penetration 99.2% 92.1% 67.6%
St.Petersburg 5,644,334 5,313,694 3,532,859
  Penetration 89.0% 83.8% 55.7%
Subscribers outside Moscow and St.Pete 51,356,061 44,641,478 21,209,833
  Penetration 42.1% 36.6% 17.4%
Russian Cellular
Market Breakdown, December 2004
Russian Net Additions,
December 2004

Top 10 Mobile Operators

# Company December 31, 2004 November 30, 2004
1 MTS 35,395,000 30,595,000
Moscow
7,470,000 6,985,000
Ukraine (UMC)
7,400,000 6,266,000
Belarus
1,215,000 1,100,000
Uzbekistan
310,000 287,000
2 Vimpelcom 26,550,000 23,160,000
Moscow
7,475,000 6,960,000
Kazakhstan
859,000 745,000
3 MegaFon 13,647,807 12,756,890
Moscow
1,817,314 1,603,751
Tajikistan
47,891 38,817
4 Uralsvyazinform 2,058,100 1,937,300
5 SMARTS Group 1,815,000 1,690,640
6 Sibirtelecom 1,001,900 861,600
7 N.Novgorod Cellular 656,441 596,945
8 Ekaterinburg Cellular Communications - MOTIV 405,467 354,572
9 New Telephone Company 262,205 236,800
10 Skylink 190,200 189,000

Note: Although Tele2 has approximately 1.05 mln subscribers in Russia we do not list the company in the Top-10 table as the company does not provide officially confirmed figures for its Russian branch. Nevertheless, we do account our Tele2 subscriber estimates in Russia total numbers.

Moscow and St.Petersburg

Moscow License Area

The penetration in the Russian largest market - Moscow - was 99.2% (!) as of 31-Dec-04 (68% in 2003). With both MTS and Vimpelcom signing almost equal number of subscribers, the latter did slightly better and re-gained leadership in the capital. MegaFon's contribution to the Christmas sale campaign in Moscow was 18% or 215 thsd subscribers.

Moscow Market Breakdown
December 31, 2004

Net Additions in Moscow,
December 2004

St.Petersburg and Leningrad Region

MTS led in subscriber addition race in St.Petersburg signing up record high 131 thsd users. Vimpelcom came second with 117 thsd which is also a record high net adds for the company in St.Petersburg.

St. Petersburg Market Breakdown
December 31, 2004
Net Additions in St.Petersburg
December 2004

Regions outside Moscow and St.Pete

MTS came #1 in regional net sales. Please note that MTS' regional additions also included subscribers of the two regional telcos acquired in December - Horizont RT (~100,000) and Telesot Alaniya (~50,000). In terms of the regional market breakdown Vimpelcom has maintained leadership with 17.2 mln customers with MTS following with just a few dozen thousands less.

Regional Market Breakdown
December 31, 2004
Regional Net Additions
December 2004

Notice on Subscriber Accounting Policies

As penetration in Moscow approaches 100% there is a growing concern over the widening gap between the human penetration and what is reported based on the churn policy by the operators themselves.

Based on the end user surveys, AC&M believes, that the difference between the actual number of active users and combined subscriber numbers reported by the operators in Moscow license area is about 22%. However, several market observers are even more conservative. They reckon that the gap is between 25% and 35%. This gap is the result of marketing actions (including SIM-card give-aways) by operators.

There is also some discrepancy in the subscriber numbers caused by the difference in the churn policies by the operators. MTS, for example, terminates their pre-paid subscribers after one of the two events occur, whichever comes first: (i) their balance remains $0 or below for 183 consecutive days or (ii) they demonstrate no chargeable transactions within 183 days. Vimpelcom follows similar churn policy, but with a minor modification: provided there is no chargeable activity but the balance still remains positive, the customer is first blocked for 180 days and terminated only after the following 180 days. MegaFon has been historically practicing the strictest churn policy among the "Big Three". They unconditionally terminate the user's account if subscriber is blocked for more than 90 days.

Despite the fact that Vimpelcom's and MTS churn policies differ we believe that at the moment the subscriber base of two largest Russian operators are quite comparable:

  • Vimpelcom has performed a significant clean-up of subscriber base back in July-August 2004 when the company was short of numbering capacity. In the effort to free unused numbers Vimpelcom decreased inactivity period for subscribers to 3-4 months (depending on the region) from its normal inactivity time of 180 days. All subscribers inactive for the longer period were terminated. After receiving required numbering capacity the company returned to its usual churn policy in August-September 2004. Therefore, the maximum inactivity time for Vimpelcom subscriber with positive account balance was around 7 months in December 2004, which is pretty close to MTS subscribers maximum inactivity period of 183 days.
  • According to our information the share of Vimpelcom subscribers who have positive cash balance at the moment when they may be blocked is insignificant. The company states that this number is less than 5% of users which account is blocked or terminated after 180 days of inactivity.

We expect that cellular penetration will be over 100% in Moscow already in January 2005. One should understand that this is effectively a number of user accounts which are active according to operator's churn policy. The correlation between human penetration and number of active user accounts differs from region to region.

Although AC&M have estimations on the subject and conduct regular end-user survey, we do not publish this information as it is always a subject for additional research. If you are interested in more information on any particular region please do not hesitate to contant us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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05
Dec

New Year Sales Started

November 2004 brought record high net additions in Russia (3.8 mln). It seems this year operators decided to start Christmas campaign in advance. This could pay off as this Christmas promises to generate absolute maximum number of cellular additions in Russia ever.

Russian Mobile Subscribers

Mobile Subscribers November 30, 2004 October 31, 2004
Total Russia 65,590,000 61,770,000
  Penetration 45.2% 42.5%
Moscow 15,634,828 15,105,908
  Penetration 92.1% 88.9%
St.Petersburg 5,313,694 5,170,722
  Penetration 83.8% 81.6%
Subscribers outside Moscow and St.Pete 44,641,478 41,493,370
  Penetration 36.6% 34.1%

MTS was number one in net sales in St.Petersburg, while Vimpelcom led (for 9 months in a row!!) in regional net additions as well as in total Russia adds!

Russian Cellular
Market Breakdown, November 2004
Russian Net Additions,
November 2004

Top 10 Mobile Operators

# Company November 30, 2004 October 31, 2004
1 MTS 30,595,000 28,835,000
Moscow
6,985,000 6,830,000
Ukraine (UMC)
6,266,000 5,894,000
Belarus
1,100,000 1,041,000
Uzbekistan
287,000 264,000
2 Vimpelcom 23,160,000 21,580,000
Moscow
6,960,000 6,645,000
Kazakhstan
745,000 702,000
3 MegaFon 12,756,890 12,155,280
Moscow
1,603,751 1,514,166
Tajikistan
38,817 34,700
4 Uralsvyazinform 1,937,300 1,867,200
5 SMARTS Group 1,690,640 1,647,000
6 Sibirtelecom 861,600 782,700
7 N.Novgorod Cellular 596,945 554,388
8 Ekaterinburg Cellular Communications 354,572 336,185
9 New Telephone Company 236,800 224,450
10 Skylink 189,000 186,600

Moscow and St.Petersburg

Moscow License Area

Moscow passed 90% penetration mark (!). Vimpelcom grabbed more than half of total November net adds in the capital and came very close to its major competitor - MTS. The company announced that it had completely resolved numbering capacity issue and switched to its original 6-month churn period for pre-paid customers (up from 4 months introduced in June 2004). That translated in stronger than usual net additions for Vimpelcom in November.

Moscow Market Breakdown
November 30, 2004

Net Additions in Moscow,
November 2004

St.Petersburg and Leningrad Region

St. Petersburg Market Breakdown
November 30, 2004
Net Additions in St.Petersburg
November 2004

Beyond Russia

Quite by coincidence it turned out that in November Ukraine became an arena for both intensive political clashes and fierce competition between the rival GSM operators who rushed to capitalize on unprecedented subscriber growth. As of November 30, 2004 there were 12.2 mln subscribers or 26% penetration. In November MTS (UMC) returned leadership in net additions - 372k vs. 348k of its major rival Kiyvstar.

MTS continues to lead in Belarus and Uzbekistan both by market share and net additions.

There are a few acquisition deals pending in the CIS (Azerbaijan, Georgia).

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03
Nov

MTS Wins Net Additions in Moscow while Vimpelcom Takes Regions

For the past several years October and November cellular sales in Russia were slow with following significant rebound in December. October 2004 wasn't an exception. Net sales decreased 20% to 2.7 mln compared to September results. The present trend, whereas the net sales are expected to remain flat in November and almost double in December, will bring the total number of Russian cellular users to 70 mln by the end of 2004.

We estimate the cellular services penetration in Russia at 42.5% as of October 31, 2004 - 20.6% increase y-o-y and 17.6% since the beginning of 2004.

Russian Mobile Subscribers

Mobile Subscribers October 31, 2004 September 30, 2004
Total Russia 61,770,000 59,040,000
  Penetration 42.5% 40.7%
Moscow 15,105,908 14,852,613
  Penetration 88.9% 87.4%
St.Petersburg 5,170,722 5,028,259
  Penetration 81.6% 79.3%
Subscribers outside Moscow and St.Pete 41,493,370 39,159,128
  Penetration 34.1% 32.1%
Russian Cellular
Market Breakdown, October 2004
Russian Net Additions,
October 2004

Top 10 Mobile Operators

# Company October 31, 2004 September 30, 2004
1 MTS 28,835,000 27,600,000
Moscow
6,830,000 6,700,000
Ukraine (UMC)
5,894,000 5,530,000
Belarus
1,041,000 970,000
Uzbekistan
264,000 260,000
2 Vimpelcom 21,580,000 20,550,000
Moscow
6,695,000 6,645,000
Kazakhstan
702,000 676,500
3 MegaFon 12,155,280 11,487,353
Moscow
1,514,166 1,448,832
Tajikistan
34,700 28,000
4 Uralsvyazinform 1,867,200 1,778,000
5 SMARTS Group 1,647,000 1,600,400
6 Sibirtelecom 782,700 759,800
7 N.Novgorod Cellular 554,388 523,300
8 Ekaterinburg Cellular Communications 336,185 326,713
9 New Telephone Company 224,450 211,605
10 Skylink 186,600 182,000

Moscow and St.Petersburg

Moscow License Area

The number of cellular customers in Moscow passed 15 million milestone! MTS was the leader in the net sales race in the capital attracting more than 50% of net additions. MegaFon was runner-up, while Vimpelcom showed modest results, mainly due to the company's strict churn policy (4 months) aimed to "clean up" inactive subscribers. Cellular penetration in Moscow will break 90% already in November.

Moscow Market Breakdown
October 31, 2004

Net Additions in Moscow,
October 2004

St.Petersburg and Leningrad Region

MegaFon signed the largest number of subscribers in St.Petersburg among competition, while for the 3rd month in a row Vimpelcom was the leader in overall net additions

St. Petersburg Market Breakdown
October 31, 2004
Net Additions in St.Petersburg
October 2004
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07
Oct

Russia Reaches 40% Penetration

The total number of cellular subscribers in Russia reached 59 mln as of September 30, 2004, which is a record monthly increase of 3.4 mln users. Total of 22.8 mln subscribers joined Russian cellular networks this year. Current mobile services penetration in the country is at 41% while it was only 25% in December 2003 and 21% in September 2003.

Russian Mobile Subscribers

Mobile Subscribers September 30, 2004 August 31, 2004
Total Russia 59,040,000 55,630,000
  Penetration 40.7% 38.3%
Moscow 14,852,613 14,333,793
  Penetration 87.4% 84.4%
St.Petersburg 5,028,259 4,830,395
  Penetration 79.3% 76.2%
Subscribers outside Moscow and St.Pete 39,159,128 36,465,812
  Penetration 32.1% 29.9%

MTS has the largest market share in Russia, though Vimpelcom is catching up agressively, mainly thanks to successful sales in regions. Vimpelcom has the largest number of regional networks in operation - 72 compared to 63 of MTS (excluding CIS subsidiaries) and 69 of MegaFon.

Russian Cellular
Market Breakdown, September 2004
Russian Net Additions,
September 2004
Top 10 Mobile Operators
# Company September 30, 2004 August 31, 2004
1 MTS 27,600,000 26,440,000
Moscow
6,700,000 6,535,000
Ukraine (UMC)
5,530,000 5,267,000
Belarus
970,000 895,150
Uzbekistan
260,000 244,200
2 Vimpelcom 20,550,000 18,470,000
Moscow
6,645,000 6,430,000
Kazakhstan
676,500 647,000
3 MegaFon 11,487,353 10,508,263
Moscow
1,448,832 1,312,901
Tajikistan
28,000 26,593
4 Uralsvyazinform 1,778,000 1,709,000
5 SMARTS Group 1,600,400 1,555,000
6 Sibirtelecom 759,800 735,100
7 N.Novgorod Cellular 523,300 503,720
8 Ekaterinburg Cellular Communications 326,713 315,840
9 New Telephone Company 211,605 180,920
10 Skylink 182,000 180,100

Moscow and St.Petersburg

Moscow License Area

Despite the overall subscriber increase in Russia in September compared to August, net adds in Moscow, the Russia's largest market, decreased slightly. We believe one of the reasons for that is that more and more families purchase mobile phones for their children in August, before the start of the school year, thus accelerating August sales to a more than usual level.

Moscow Market Breakdown
September 30, 2004

Note: Skylink's (MCC) market share is less than 0.5% as of September 2004
Net Additions in Moscow,
September 2004

St.Petersburg and Leningrad Region

St.Petersburg market demonstrated impressive growth. In our view that was mainly thanks to the resolution of the Vimpelcom's numbering capacity problem which ceased the market development for the company in August. In September Vimpelcom outperformed competitors in St.Pete attracting more than 75 thsd new users.

St. Petersburg Market Breakdown
September 30, 2004
Net Additions in St.Petersburg
September 2004

Beyond Russia

Vimpelcom finalised the acquistion of KaR-Tel (K-mobile), 2nd largest operator in Kazakhstan. That brought 670,000 subscribers in to Vimpelcom portfolio.

MTS' unconsolidated subsidiary in Belarus became the market leader in September. The company started operations in the country in June 2002 while its major rival, GSM operator Velcom, works since April 1999. MTS was a leader in terms of net additions for last 17 months in a row (!) and finally won the largest market share.

Operations of MTS' daughter company in Ukraine (UMC) have also been quite impressive. Monthly net adds were above 200,000 for last 6 months and the company has been outperforming its major competitor, Telenor-controlled, Kyivstar for 9 months in terms of net adds.

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13
Sep

Mobile Sales Soar in August

Despite the traditional August slowdown in mobile sales observed in previous years, the last summer month of 2004 brought as many as 3.1 mln new subscribers, outperforming record July 2004 sales. The subscriber net additions were also 1.5 mln (!) higher than a year ago. Penetraton in the country is growing steadily. According to our estimates it has reached 38.3% as of August 31, 2004 (36.2% in July 2004 and 19.6% in August 2003).

Russian Mobile Subscribers

Mobile Subscribers August 31, 2004 July 31, 2004
Total Russia 55,630,000 52,520,000
  Penetration 38.3% 36.2%
Moscow 14,333,793 13,759,384
  Penetration 84.4% 81.0%
St.Petersburg 4,830,395 4,684,195
  Penetration 76.2% 73.9%
Subscribers outside Moscow and St.Pete 36,465,812 34,076,421
  Penetration 29.9% 28.0%

Vimpelcom revs up sales both in Moscow and in the regions encouraged by the resolution of the numbering capacity problem. MTS keeps leading positions in the Moscow License Area. Impressive net adds in Moscow demonstrated by MegaFon should be attributed to introduction of a new tariff whereby customers are being charged for connection only rather than actual air-time used.

Russian Cellular
Market Breakdown, August 2004
Russian Net Additions,
August 2004
Top 10 Mobile Operators
# Company August 31, 2004 July 31, 2004
1 MTS 26,440,000 24,937,500
Moscow
6,535,000 6,350,000
Ukraine (UMC)
5,267,000 4,960,000
Belarus
895,150 817,500
Uzbekistan
244,200 230,000
2 Vimpelcom 18,470,000 17,300,000
Moscow
6,430,000 6,204,000
3 MegaFon 10,508,263 9,758,995
Moscow
1,312,901 1,145,484
Tajikistan
26,593 25,300
4 Uralsvyazinform 1,709,000 1,617,500
5 SMARTS Group 1,555,000 1,491,000
6 Sibirtelecom 735,100 710,175
7 N.Novgorod Cellular 503,720 453,000
8 Ekaterinburg Cellular Communications 315,840 304,906
9 New Telephone Company 180,920 203,543
10 Skylink 180,100 178,100

Moscow and St.Petersburg

Moscow License Area

Moscow Market Breakdown
August 31, 2004
Net Additions in Moscow,
August 2004

St.Petersburg and Leningrad Region

So far Vimpelcom failed to fully capitalise on additional numbering capacity in St.Petersburg. The operator increased the churn in order to free numbers for new customers, while MTS and MegaFon performed quite well in the city, signing 45 thsd and 70 thsd net additional subscribers respectively.

St. Petersburg Market Breakdown
August 31, 2004
Net Additions in St.Petersburg
August 2004

Beyond Russia

Steady cellular growth is observed in the rest of CIS markets where cellular boom either just started or is to start within the next 6 to 12 months.

Vimpelcom has won the tender for the 2nd largest Kazakhstan operator KaR-Tel . The acquisition deal is to be closed shortly and probably already in September we will add KaR-Tel subscribers to Vimpelcom statistics. That will bring 600+ thsd users under Vimpelcom umbrella.

MTS is about to outnumber its major competitor Velcom in Belarus. MTS has been leading in net additions since April 2003 and finished August with 48% market share. The difference between the two market leaders is just 5,000 subscribers (Velcom had 900 thsd subscribers at the end of August according to Mforum.ru). The remaining 4% of the market is being held by BelCel - NMT/CDMA-450 operator in Belarus. The announcement of the tender results for the 3rd GSM national license may also give a new momentum to the cellular market development in the Republic.

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05
Aug

New Record Set in July 2004

Cellular subscriptions soared in July setting new net additions record. Subscriber additions totaled 3.05 mln, 16.3 mln YTD increase or 25.64 mln growth (95%) from July 2003. Total number of cellular customers in the country reached almost 53 mln. Russian cellular penetration stood at 36.2% as of 31 July 2004 (18.5% in July 2003).

Moscow alone brought 360k new customers or 12% of the overall Russian additions. Vimpelcom adopted a stricter churn policy in the Moscow License Area. The company reduced deactivation period of inactive (with zero balance) subscribers from 5 to 4 months, which resulted in modest net additions for the second month in a row. MTS attracted over 230k new customers in July and returned the leadership in Moscow that was lost to Vimpelcom back in January 2002. MegaFon signed up more than 110k net new users - record high result for the company on the Moscow market.

Vimpelcom was the leader in St Petersburg net sales, and attracted the largest number of subscribers in other regions (outside Moscow and St.Petersburg). MegaFon outperfomed our expectations and is to reach 10 mln subscribers already in August.

Russian Mobile Subscribers

Mobile Subscribers July 31, 2004 June 30, 2004
Russia 52,520,000 49,470,000
  Penetration 36.2% 34.1%
Moscow 13,759,384 13,397,720
  Penetration 81.0% 78.9%
St.Petersburg 4,684,195 4,425,304
  Penetration 73.9% 69.8%
Russian Cellular
Market Breakdown, July 2004
Russian Net Additions,
July 2004

Beyond Russia

On 16 July 2004 MTS announced an acquisition of Uzdunrobita - leading GSM/AMPS operator of Uzbekistan. The deal was closed on August 2, 2004 and we plan to start consolidation of Uzdunrobita's subsciber numbers in MTS starting August 2004. Currently Uzdunrobita serves around 224,000 subscribers.

Very tough net additions race has been observed in Ukraine. So far MTS (UMC) leads the market with Kyivstar following it closely. The competition may intensify further as DCC and WellCOM roll-out nation-wide networks and get into the hunt for low-budget customers.

In Belarus MTS is close to win the leadership from the incumbent GSM operator - Velcom. MTS started providing service in Belarus in June 2002. Acceleration of cellular development in the country is also expected after the 3rd GSM player comes into arena (based on the tender that is currently under way). However, the majority of CIS contries are still lagging far behind Russia both in terms of the growth rates and penetration levels.

Put together all CIS cellular players had ~65 mln (including Russia) customers as of 30 June 2004 with Russia and Ukraine serving 76% and 13% subscribers respectively.

Top 10 Mobile Operators

# Company July 31, 2004 June 30, 2004
1 MTS 24,937,500 23,534,000
Moscow
6,350,000 6,120,000
Ukraine (UMC)
4,960,000 4,634,000
Belarus
817,500 744,700
2 Vimpelcom 17,300,000 16,300,000
Moscow
6,204,000 6,183,000
3 MegaFon 9,758,995 9,046,320
Moscow
1,145,484 1,035,405
Tajikistan
25,300 24,180
4 Uralsvyazinform 1,617,500 1,492,600
5 SMARTS Group 1,491,000 1,410,000
6 Sibirtelecom 710,175 677,800
7 N.Novgorod Cellular 453,000 451,834
8 Ekaterinburg Cellular Communications 304,906 294,231
9 Skylink 184,000 183,550
10 New Telephone Company 180,920 160,886

Moscow and St.Petersburg

Moscow License Area

Moscow Market Breakdown
June 30, 2004
Net Additions in Moscow,
June 2004

St.Petersburg and Leningrad Region

St. Petersburg Market Breakdown
June 30, 2004
Net Additions in St.Petersburg
June 2004