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. Last Updated: 07/27/2016

3rd GSM License Won't Rock Market

While it would appear that competition on the already fiercely contested Moscow mobile phone market could intensify with the granting of a third GSM license, newcomer Sonik Duo will not pose a threat to existing cellular companies, analysts said Monday.

Instead, Sonik Duo, the local subsidiary of Finnish telecom giant Sonera, will probably reach out to a completely new segment of the population with ground-breaking 3G services - such as the ability to transmit video images and the Internet - instead of trying to take a bite out of the subscriber bases of rivals Vimpelcom and MTS, they said.

The Communications Ministry announced Friday that it had awarded the Moscow region's third GSM license to Sonik Duo and that Sonera would invest $300 million over 10 years into building a mobile telephone network and a mobile phone factory.

Analysts said the granting of a third license does not mean that drastically reduced tariffs will follow in the near future.

"There will be price cuts, and price wars are inevitable," said a telecoms analyst at Troika Dialog. "But there will not be dramatic price cutting because of Sonera's slow roll out."

"I think Sonera realizes that with tariffs falling as much as they have, one doesn't want to invest $300 million just to run itself or its competition into the ground," said Alexander Kabanovsky, telecommunications analyst with Brunswick Warburg investment bank. "I think this will probably be a platform for setting up 3G."

"Value-added services are the future of cellular," he added. "If you are not in it, you cannot survive."

Apart from its investment in the factory and development of the network, Sonera is also to set aside $25 million to build housing for the military, the ministry said. The practice of handing funds to the military is common, because often the army has to give up some of its frequencies in order to free up airspace for cellular companies. Vimpelcom contributed $30 million for military housing when it was awarded a GSM-900 license in 1997.

Sonik Duo, 35 percent held by Sonera and 65 percent by Svyazinvest-owned Central Telegraph, plans to ease its way into the market at a snail's pace. The company says it will build a GSM-900/1800 dual-band network that will cover some 60 percent of the Moscow region by June 1, 2001. By that point it intends to have a mere 15,000 subscribers.

"That isn't very many subscribers," said a telecommunications analyst at a leading Moscow brokerage who asked not to be identified. "I don't think a third license means very much for the market at this point."

"We do not see this as a major threat for either of the two incumbents, much of whose growth is expected to come from regions outside Moscow," Troika Dialog said in a research note Monday.

Vimpelcom and MTS together have an estimated 1.2 million clients and are expected to have each signed up 1.3 million by June 2001, according to Brunswick Warburg.

By 2003, Sonera aims to have 160,000 subscribers and by 2010, when 95 percent of the greater Moscow area should be covered, it wants to have only 780,000.

"It doesn't sound like a very aggressive roll out, and quite frankly one of the reasons I think the roll out is not as rapid as one might expect is because they might have to wait for the military to vacate some of the frequencies," said Brunswick Warburg's Kabanovsky.

In any case, Sonera does not appear to be interested in getting into the market just to jump into a fray with Vimpelcom and MTS, but to provide services just being introduced in the West, analysts said.

For more than a year Vimpelcom and MTS have been aggressively slashing tariffs in a bid to widen their market shares, and along the way done a fine job of destroying margins on tariffs, analysts said. Vimpelcom, with its brand BeeLine, stunned Muscovites last October by introducing a complete subscription - subsidized handset included - for $49.

Vimpelcom plans to invest $100 million in its GSM network this year alone, while much small competitor Moscow Cellular Communications intends to sink $100 million into setting up a GSM network should it ever get a license.

Both Vimpelcom and MTS have derided the Communications Ministry's decision to grant a third license.

"The granting of a third license will lead to catastrophe," an MTS representative said in February. "After this, there will be no stopping them from granting a fourth and a fifth. It couldn't be worse for the market."