Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Sliding MTS Set to Hit St. Pete

While the No. 1 mobile operator launches in the country's No. 2 market, St. Petersburg, its fortunes in Moscow are on the skids.

Mobile TeleSystems gained around 10 percent of net subscriber additions in Moscow in November, with the lion's share going to second-place Vimpelcom, according to the J'son & Partners consultancy.

MTS had 15,000 net additions in Moscow in November, compared with Vimpelcom's 135,000, J'son & Partners said. The operators command more than 95 percent of the Moscow market.

A frequently congested network and perceptions of poor service have contributed to MTS attracting fewer net additions, United Financial Group wrote Tuesday in a report. The recent appearance of Moscow's third GSM operator, Sonic Duo, may have also played a part, the brokerage said.

UFG downgraded MTS stock to hold, saying "the market could be sharply overestimating the company's growth prospects."

MTS in late November dropped prices by 10 percent, while both companies have introduced new lower tariffs in recent months.

"But it appears that MTS' rounds of tariff cuts in November have not had a significant impact on volume growth in Moscow," UFG wrote.

MTS thinks that marketing played a role in the recent trend.

In September, Vimpelcom launched a heavy ad campaign that earned kudos around the industry. However, an MTS spokeswoman deemed the ads as "misleading" and "unethical" for their implicit attacks on MTS.

That month, for the first time in almost two years, Vimpelcom beat out its competitor for net additions in Moscow.

MTS considered legally disputing the advertising, but held back because the ads do not explicitly mention the company, said MTS spokeswoman Eva Prokofyeva.

Vimpelcom spokesman Mikhail Umarov shot back, recalling an earlier MTS commercial and slogan that seemed to take a dig at Beeline, Vimpelcom's trademark.

Subscriber numbers appear more evenly split between the leaders beyond Moscow, with 33,000 regional net additions for MTS and 26,000 for Vimpelcom, UFG reported.

Anton Pogrebinsky, a consultant at J'son & Partners, estimated that there were some 420,000 new mobile sign-ups in all of Russia in November.

Sonic Duo, which launched in Moscow under the Megafon brand name two weeks ago and so far has minimal coverage, has taken a marginal slice of new sign-ups. The company had around 5,000 customers at the beginning of December, said Roman Prokolov, adviser to Sonic's general director.

In mid-November, MTS reported 2.466 million subscribers in Russia, including 1.982 million in Moscow, while Vimpelcom reported last week 1.8 million subscribers, with 1.635 million in Moscow.

The question remains whether MTS's Moscow woes will trickle up to the northern capital. MTS has the upper hand for now, as Vimpelcom does not yet own a license for the northwest. The market is currently dominated by North West GSM.

With just 11 percent mobile penetration, St. Petersburg appears to have ample room for competition and growth.

"I don't think potential subscribers in St. Pete are following this Moscow story," Pogrebinsky said.

MTS starts selling to corporate clients Wednesday, and holds its grand opening with fireworks Dec. 11. Roaming also began this week, which means MTS clients travelling to the region will pay two to three times less for calls.

However, MTS' increasingly negative image could hamper the company's position outside of Moscow, said Renaissance Capital analyst Andrei Braginsky.

"It may take some time for MTS to reassure both existing and potential customers that it indeed offers fair billing," Braginsky said.