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. Last Updated: 07/27/2016

Mobile Phone Giants Grab Regional Ears

NIZHNY NOVGOROD, Central Russia -- A chilly breeze ran through the crowd as they waited for the ribbon-cutting ceremony to begin.

Just above the winding Volga River, about 200 impatient people stood under overcast skies waiting at 10 a.m. for the launch of Nizhny Novgorod's second GSM mobile operator. Some had been waiting more than three hours.

A techno jingle for Mobile TeleSystems, Russia's largest cellular provider and the object of the wait Wednesday, blared from speakers atop a bus.

Mayor Yury Lebedev announced he was pleased about the fresh tax revenue that a new business would bring and happy his residents would have a fourth provider to chose from.

Then the ribbon was cut, the doors were opened and the shoving began.

By closing time, MTS had signed up 545 customers.

Similar but much smaller scenes are playing out around Russia as the country's leading GSM operators -- Moscow-based MTS and Vimpelcom, with its Beeline brand, and St. Petersburg's Northwest GSM -- set out from their home cities for the less predictable and less lucrative regions.

Equipped with vast marketing experience, macro-region licenses from the federal government and cash from stock floats, bank credits or investors, they are going in search of new subscribers.

The impact the aggressive expansion will have on the dozens of regional operators is anyone's guess. The more successful ones, like SMARTS in Samara and Kuban-GSM, are already acquisition targets, while those operating on less popular AMPS or NMT standards could fade out.

Some less populous areas might remain untouched by the so-called bolshaya troika, or big three, though market observers are predicting gradual consolidation over the next few years.

Less than 2 percent of the Nizhny Novgorod region's 3.7 million people have subscribed to mobile phones, compared to 21 percent in Moscow and the surrounding region and almost 10 percent in St. Petersburg and the Leningrad region, according to J'son and Partners consultantcy.

MTS is predicting the 2 percent will shoot up to 12 percent in Nizhny Novgorod in the not-so-distant future.

Growth in Russia's two largest cities is leveling out -- analysts predict saturation in two years for Moscow and three years for the northern capital -- while in the rest of the country penetration stands at less than 2 percent.

MTS says that monthly ARPU, or average revenue per user, in the regions is 20 percent lower than in Moscow, where at the end of the second quarter MTS reported $39 compared to Vimpelcom's $27. But in regions with a monopolist operator or just a handful of wealthier subscribers, ARPU can reach $60.

In some regions, an operator has held onto a license for years but has been unwilling or unable to launch, either because the 1998 crisis has not faded enough to find customers with money or enough to find customers with money or because the companies themselves lack investment.

Vimpelcom began pushing ahead only in May when Alfa Group came on board as a major investor.

In August, when NWGSM merged with Moscow's Sonic Duo and other regional companies, it announced a $600 million investment plan and began calling itself a national operator because its license portfolio covers 80 percent of the country's population. NWGSM has significantly fewer subscribers than Vimpelcom or MTS.

"Russia-wide operator" has become the catchphrase, as has shuttling journalists to operation launches from the Northern Caucasus to Lipetsk.

They tout the savings of belonging to a far-reaching operator -- roaming on the same network can be a dollar cheaper than picking up another provider -- and all have lists of the cities where they will be debuting in the coming months. At news conferences, mobile operators typically hang up country and regional maps highlighting their coverage or license areas.

On Wednesday, MTS president Mikhail Smirnov stood beside a blown-up map of the Nizhny Novgorod region and ran his hand across the navy blue spots showing MTS' coverage like a weatherman. As a relatively well-off industrial area, Nizhny Novgorod has the most potential for MTS behind Moscow and St. Petersburg, Smirnov said.

After previously predicting MTS would sign up 5,000 regional customers by year end, an enthusiastic Smirnov declared Wednesday that company expectations would likely be exceeded.

Analysts predicted Thursday that MTS will have 10,000 to 15,000 new regional customers this year.

Currently, the bulk of Nizhny's mobile users are with GSM operator Nizhny Novgorod Cellular Communications, whose 50 percent shareholder MCT Corp. claims 61,000 subscribers.

Several people in the crowd at the MTS office said they were there not to buy but compare prices with their current provider. "I've heard that Beeline is coming here too, so we may just wait until then and compare all of them," said Alexei, 24, who after an hour was nearing his turn with a sales representative.

Vimpelcom plans to enter the region in December.

But others said they were already switching from Nizhny Novgorod Cellular Communications because of better price plans or the draw of cheaper roaming when they travel to Moscow.