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. Last Updated: 07/27/2016

Niche Operators Struggle for Place on Market

While Russia's top GSM cellular operators battle for market share throughout the country, there is a fight for survival under way among smaller companies operating on non-GSM standards -- so-called niche operators.

Moscow Cellular Communications, Delta Telecom, Personal Communications and Beeline-800 -- perhaps unfamiliar to many cellphone customers -- are trying to keep their market share from being snapped up by one of the "big three" -- No. 1 operator Mobile TeleSystems, No. 2 Vimpelcom and Megafon.

MMC and Delta, meanwhile, are in the middle of switching to a new standard altogether.

"A big operator has colossal advantages -- gigantic savings of scale, already-built networks," said Andrei Braginsky, an analyst at Renaissance Capital.

It's unclear how operators with unfinished networks and without economies of scale and a large subscriber base can compete, he said.

Moscow-based MCC -- Russia's second-oldest cellular company -- operates on the NMT-450 standard but is planning to switch to CDMA-450 later this year.

The company has 90,000 subscribers in the capital, MCC spokesman Alexander Manoshkin said. MTS has 2.06 million subscribers in Moscow, according to the NIKoil brokerage, while Vimpelcom has 2.12 million.

The company says, though, that its small segment of the market is the most lucrative. "While MTS and Vimpelcom attract a significant number of low-income subscribers, MCC emphasizes work with subscribers with medium and high incomes who spend a lot on cellular communications," Manoshkin said.

The company's average revenue per user is about $51, he said, while MTS reported $39 per user in the third quarter of 2001.

MCC has high customer loyalty, Manoshkin said, driven by the special attention the company pays to customer service.

"The marketing policy of MCC is targeted at every single subscriber. We want to build good relations with all subscribers," he said.

MCC's strategy may not be working, however, and the loyalty of its customers is questionable.

According to Anton Pogrebinsky, a consultant at J'son & Partners, the company's subscriber base is dropping; and rather than the 90,000 subscribers it claims to have, MCC actually has around 70,000, he said.

St. Petersburg's Delta Telecom, like MCC, is planning to switch to the digital CDMA-450 by the end of this year and is currently testing a new network for that standard.

Delta, the country's oldest operator, has 110,000 subscribers, according to J'son & Partners, with an 11 percent share of the St. Petersburg market.

The company targets all types of cellular users, Delta spokeswoman Maria Bystrova said, and Delta is confident about the switch to CDMA.

According to J'son & Partners, the company's revenue per customer is around $20, less than that of MCC and MTS.

Analysts were skeptical about the prospects of MCC and Delta switching to the new standard.

Building a new network from scratch would leave doubts with potential investors, said Vyacheslav Nikolayev, an analyst at Renaissance Capital, adding that the company's current subscribers may not want to switch to the new, less-popular CDMA-450.

"If a subscriber has to pay for a new telephone, he will think twice before buying a handset operating in a niche standard, he will buy a GSM phone," he said.

MCC and Delta also could be taken over by one of the big three.

"The NMT-450 operators could become acquisition targets for MTS, Vimpelcom or Megafon once they have switched to the new standard and introduced some new services," Renaissance's Braginsky said.

Moscow-based Personal Communications, operating under the Sonet brand, has a different problem: the questionable legal status of the CDMA-800 standard under which it operates.

The Communications Ministry permits CDMA-800 only for fixed-radio access, meaning that cellphone subscribers with such phones can be arrested if they stray too far from Personal's base stations.

The operator has been unable to expand into the regions and has had to concentrate on Moscow. Personal has about 70,000 subscribers, according to Jason & Partners, giving it 2 percent of the capital's cellular market.

Even at home in the capital, the company's future is unclear.

Sistema has said it is looking into selling its stake in Personal, and the company's former general director, Mikhail Susov, left the company in December, recently joining MTS as first vice president responsible for business development, marketing, customer services and sales. He was well-known in the industry for attracting Personal's loyal subscriber base.

Beeline-800, a project controlled by fixed-line operator Corbina and Vimpelcom that operates in the DAMPS standard, is not only surviving, but flourishing.

Vimpelcom and Corbina are reviving the DAMPS standard with success. Vimpelcom originally built an AMPS network in 1993, later upgrading it to digital DAMPS the following year. The network in Moscow and the surrounding region has 315 base stations.

Beeline-800 currently has 260,000 subscribers, or 13 percent of the Moscow market, according to J'son & Partners.

Corbina is in charge of signing up subscribers -- mostly targeting small and medium-size businesses -- and maintaining customer service. Last year, Corbina signed up 10,000 subscribers, claiming a remarkable average revenue per user of $100.

"So far we have been fulfilling our business plan," said Nikolai Pryanishnikov, Vimpelcom's first vice president. "This is a cash cow that has already paid for itself, and our goal is to maximize the revenues."

This strategy shows how flexible and creative Vimpelcom's management is, Renaissance's Braginsky said.

"It would be absolutely stupid not to receive gains from the already existing large DAMPS network, which doesn't require any additional investments," he said. "What they are doing together with Corbina seems absolutely right."