A Look at the Russian Mobile Market
By Carlo Longino, Thu Sep 30 20:45:00 GMT 2004

With India and China getting a lot of attention for their mobile growth, Russia's market has rather quietly exploded.

Mobile penetration in Russia was under 1 percent in 1999, but is estimated to exceed 46 percent by the end of the year. Since the beginning of 2004 alone, the total number of subscribers has leapt by more than half to 55.63 million. The battle has now moved to the countryside, where smaller regional operators are trying to stave off competition from Russia's big three operators, MTS, Vimpelcom and MegaFon, which are looking to expand from urban areas. Those three carriers represent 88% of the country's total mobile revenues.

While rural operators face challenges very similar to those in other developing markets, some small Russian towns are generating healthy ARPUs -- one operator in Siberia is already getting 4% of its revenues from nonvoice services, more than the national operators, whose average users spend roughly $11-14 per month. The local carriers also often feature wider coverage of the sparsely populated areas, though national carriers undercut their prices and offer national roaming plans. Some companies are rolling up their regional units to form national operators in an attempt to leverage cost savings as well.

The growth doesn't look like slowing anytime soon, either -- the government recently postponed issuing 3G licenses until at least the end of 2005, saying it wants to focus operators' efforts on expanding 2G coverage. One market researcher says penetration will reach almost 70% by 2006, a view that expects a lot of short-term growth, and one that looks to have influenced the government. So while 3G may remain several years away, expect the runaway growth to remain for a few years yet.