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. Last Updated: 07/27/2016

Beeline Introduces $49 Cell Phone

In a bid to make mobile phones accessible to average Muscovites, one of Russia's biggest service providers, Vimpelcom, announced Monday that it is slashing the price of its basic cell phone package, handset included, to $49.

Officials at Vimpelcom, which markets cell phones under the Beeline brand name, said the company will sell the basic service package as part of an all-in-one boxed set as a means of reaching a broader swath of the market and to create an entirely new market segment.

"This gives us access to an absolutely new group of customers," said Nikolai Pryanishnikov, deputy director of Vimpelcom. "The market will be significantly broader now.

"Every car owner who can afford gasoline will also be able to buy a $49 cell phone. People in newly built apartment blocks will also look at this as an alternative to waiting for [the city phone service] to install a traditional telephone. Even many students might choose to buy one."

Tom Adshead, a telecoms analyst with the Troika Dialog brokerage, said the new marketing initiative marked a major change in the Russian cell-phone market.

"It is a further step toward turning the cell phone into a mass market good," he said.

The boxed set, which includes the service contract, handset and a calling card worth $10, will be sold both at long-established dealerships and at retail outlets, such as the Partiya electronic appliances chain.

Having initiated the new marketing campaign, Vimpelcom is the first Russian service provider to offer subsidized handsets, which have become commonplace in Europe in recent years, Adshead said, adding that the decision to make the phones available outside the established dealer network would help sales.

"You're reaching people who might be coming to the store to buy some other electronic appliance," he said. "Compared with other things you can buy for $50, a cell phone looks pretty good."

Cell phone dealers in Moscow said that at $49, the service package was easily the most affordable deal currently being offered.

However, not all were impressed by the initiative.

Svetlana Sobeleva, manager of an MTS dealership, a direct competitor of Vimpelcom, said she did not expect to lose any business.

"Our phones have different reception and roaming capabilities, and our clientele is different as well, so we are not worried," she said, adding that the cheapest introductory service package offered by MTS retailed for $307.60.

However, MTS users have access to a GSM band network, which provides better reception and wider roaming capabilities than the D-AMPS network Vimpelcom uses for its $49 package.

Analysts have said that the upper end of the cell phone market suffered less fallout from last year's financial crash than the middle segment that Vimpelcom occupies.

Even so, MTS has lowered prices by an average of $200 since the crisis, following an industry-wide trend towards cheaper cell-phone service.

Pryanishnikov refused to make sales predictions for the new $49 service package or otherwise estimate Vimpelcom's future financial performance.

Vimpelcom suffered severely from the August 1998 financial crash, reporting first-quarter 1999 profits of $100,000 which were a fraction of the $16.5 million it cleared in the first three months of 1998.

Pryanishnikov admitted that the new initiative might lower already slim profit margins on a per-customer basis, but expected that overall earnings would increase with the expected influx of new customers.

At $49, the price covers only half the cost of providing the handset, Pryanishnikov said. However, he added that in most cases, Vimpelcom would make up that loss within three months once customers started paying for phone calls. Offpeak rates start at 15 cents a minute.

"Even at this price, it makes financial sense for us," he said.

Adshead, of Troika Dialog, agreed, saying, "The important thing is customer acquisition."

"The key elsewhere in Europe has been creating a broad customer base. In most cases, people use their cell-phones more than they planned to, and stay loyal to the brand they are used to," he added.