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. Last Updated: 07/27/2016

Prepaid Service Nets Little Cash

VedomostiA young mobile-phone user purchasing a Bee+ card from a vending machine.
No. 2 cellular operator Vimpelcom has been outstripping its main rival, Mobile TeleSystems, in attracting business thanks to its prepaid service, but the new clients are proving of little benefit to the company's finances.

Vimpelcom, which operates under the Beeline brand, has signed up more new clients than No. 1 operator MTS for the past five months, according to the J'son & Partners research company, and beat out MTS in the Moscow region for the first time ever with 180,000 new customers in January, compared with MTS's 20,000.

The key to Vimpelcom's success is the Bee+ prepayment plan, which enables subscribers to pay only for calls and does not bind them on a contractual basis. An individual prepaid customer, however, brings the company just a fraction of the income from a contract client.

In the third quarter of 2001, about 65 percent of subscribers used the prepaid service package, said Vimpelcom first deputy vice president Nikolai Pryanishnikov. MTS offers no analog.

"Prepaid has given Vimpelcom a unique opportunity to enter the mass market, which on the one hand has considerable potential," said Alexander Manin, commercial director for the Telecom-Expert research company. "But on the other hand, it is much less sensitive to the quality of services provided."

MTS is technically ready to launch prepaid services but considers the move inexpedient.

"The implementation of prepaid enables operators at a particular level of development to increase statistics for new subscriptions," said MTS spokesman Kirill Lubnin. This service, however, is used mostly by clients who use their mobile irregularly, he said, resulting in lower revenue.

MTS concentrates on signing up and keeping big-spending clients. The company's average monthly return from an individual client is higher than in Western Europe operators -- reaching $39 a month in the third quarter of 2001.

MTS is avoiding the market because costs in servicing prepaid subscribers would be higher than for Vimpelcom, which has a greater volume in its Moscow network, said Andrei Inshutin, analyst with Morgan Stanley Dean Witter.

One prepaid subscriber in his entire time using the company's services nets Vimplecom a total of around $100, Inshutin said, while for MTS the figure is $1,700. Vimpelcom's contract subscribers bring the company between $900 and $1,200.

In Western and Central Europe, prepaid services have led to high growth on the cellular market since 1999, and that trend is expected to continue.

In 2001, Switzerland's Tele2 cellular operator saw large growth thanks mostly to prepaid clients, which accounted for 65 percent of subscribers. Some 45 percent of worldwide leader Telia's subscribers chose the prepaid tariff plan.

Prepaid subscribers account for 65 percent of the Hungarian cellular market and 75 percent in the Czech Republic.

"Though all operators prefer contract subscribers since they generate the highest fees and rarely switch to competition, in many countries they are faced with a choice -- implement prepaid or lose the market," said Svetlana Isayeva, an analyst with Pyramid Research.