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. Last Updated: 07/27/2016

Moscow Gets Third Cellphone Operator

Sonic Duo ended Moscow's GSM cellphone-service duopoly Wednesday.

Selling services under the Megafon brand name at some 700 dealers around the city, the company officially opened for business with a target of grabbing 30,000 subscribers by New Year's and 20 percent of the market by 2005.

In announcing its tariff plans, which are comparable with established competitors Mobile TeleSystems and Vimpelcom, the company laid to rest more than a year of uncertainty over whether its entrance would usher in a new price war among GSM operators.

Sonic Duo said it has invested around $100 million in the network this year and will put in $260 million by 2004 -- partly financed by a planned $138 million loan from the EBRD, International Finance Corporation and other banks.

Sonic's owners, Finnish Sonera and Moscow investment bank LV Finance, cheered the addition of another consumer choice and said it is ready to be a competitive force on the market.

"Today I'm happy to announce that the duopoly of two operators is ending. For customers it means more modern services, more competitive tariffs and more choices," LV Finance head Leonid Rozhetskin told reporters.

"I think the competition for the leadership in the Russian mobile market has been launched today, and my firm belief is that we will be fighting for first place in this marketplace," said Sonera vice president Martti Huttunen.

But analysts were left searching for any advantages that the newcomer has to offer, aside from free incoming calls from any phone after the first minute and, with two tariff plans, 50 percent discounts on local calls if a subscriber talks more than five minutes a day.

Analysts said that Megafon's entrance isn't likely to put a huge dent in competitors' market share in the near future. The company's forecast of 30,000 subscribers by year's end is a fraction of the combined 200,000 to 300,000 MTS and Vimpelcom have the possibility of attracting from now until Jan. 1.

"What a third operator will do is push up penetration. It will provide a kick to the market," said Deutsche Bank analyst Iouli Matevossov.

With Moscow's mobile subscribers totaling some 3.5 million and saturation estimated at 6 million to 8 million, there is room for a third operator, though analysts said Sonic would most likely be attracting low-end users as the heavy spenders have been scooped up.

With network coverage a cornerstone for building a subscriber base, Sonic Duo is by far the laggard. Currently it covers the area inside the Moscow Ring Road, main highways, airports and several towns near Moscow, as opposed to MTS' and Vimpelcom's virtually complete coverage in the region, including farther stretches into dacha land.

Sonic's Moscow regional map shows coverage spidering far outside the center by mid-2002. But for now the company is laying low on marketing. Its web site was not functioning Wednesday, billboards are set to go up Dec. 1 and television ads won't be seen until early next year.

The company was founded last year by Sonera and CT-Mobile, which was then owned by state-controlled Central Telegraph and LV Finance. In July LV Finance announced it had acquired almost 100 percent of CT-Mobile, giving it 65 percent of Sonic, with Sonera retaining its 35 percent.

Then in August, the operator joined the Megafon project, which includes Northwest GSM and several regional companies and has a three-year $600 million investment plan. The company should be formed next year and is already talking about an IPO.

Anchored by the well-connected St. Petersburg holding TelecomInvest -- founded by current Communications Minister Leonid Reiman and Svyazinvest president Valery Yashin -- Megafon's shareholders will also include LV Finance, Sonera and Telia.

The ministry in May 2000 surprised the market by issuing Sonic Duo a GSM license without a tender, and in the fall drew scorn from the investment community when it attempted to commandeer frequencies from Vimpelcom and MTS with the intention of handing them over to Sonic Duo.