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. Last Updated: 07/27/2016

No. 2 Operator Moves Into No. 2 City

No. 2 cellular operator Vimpelcom on Tuesday launched its network in the country's No. 2 cellular market, St. Petersburg.

To the sound of a military orchestra playing a popular tune by rock band Leningrad, Vimpelcom became the last of the "Big Three" cellular operators to enter the northwest region.

"Launching our network in St. Petersburg has been one of the company's priorities for 2003," Vimpelcom vice president Alexei Mishchenko said at a press conference held at the Grand Hotel Europa in the northern capital.

The Communications Ministry granted Vimpelcom a GSM-1800 license for the Northwest super-region in September last year and added a GSM-900 license in March this year.

Vimpelcom has invested $50 million in its new network, which can serve 300,000 subscribers through one switch and 110 base stations covering the city and its suburbs.

Vimpelcom has entered a rather saturated cellular market where subscribers are roughly split between Mobile TeleSystems and Megafon, two of the Big Three operators.

ACM Consulting figures show that cellular penetration in St. Petersburg stands at 37.8 percent, or 2.4 million mobile subscribers. Megafon claims 59 percent of them, while MTS has 35 percent. Smaller players Delta Telecom and Fora Communications have 4 percent and 2 percent, respectively.

Penetration is expected to reach 49 percent by the end of this year and 62 percent by 2007.

Anton Pogrebinsky, an analyst at ACM Consulting, calculated that if Vimpelcom were to attract roughly 30 percent of these new subscribers, it could claim some 200,000 customers in the region by the end of the year, giving it a 6 percent to 7 percent market share.

Analysts said they did not expect Vimpelcom's entry to challenge Megafon and MTS's hold on the St. Petersburg market.

"Vimpelcom is entering St. Petersburg rather late, so we don't expect it could win a significant share of the market," said Andrei Bogdanov, an analyst at Alfa Bank. But it needs to be in the country's second market, if only "to provide roaming services for its subscribers from other regions and to gain some revenues from this service."

Long-term, Bogdanov said the best Vimpelcom can hope for is a 20 percent share of the market.

Vimpelcom rivals MTS and Megafon said they did not see the appearance of a third GSM player as any serious threat to their market shares.

Dmitry Shkinyov, deputy director at Megafon's northwest branch, was unconcerned, saying, "Our network has such advantages as better coverage and better quality of service.

"If Vimpelcom were to offer somewhat lower prices, which is a natural thing for the company to do, then it is MTS that should worry," he said, noting that MTS has focused its efforts toward low-end users in the region.

MTS had a 1 cent per minute rate for all outgoing calls within its St. Petersburg network for the first 12 months after its December 2001 launch but canceled the rate last year after having won over a sizeable slice of the market.

At its launch Tuesday, Vimpelcom unveiled its own 1 cent per minute rates for outgoing calls made within its St. Petersburg network.

Shkinyov said he thought such a low tariff would give MTS a run for its money. "Vimpelcom could fill in that niche," he said.

MTS however voiced confidence in its solid market position.

"We launched our network when penetration in the city stood at 11 percent, and during a short period of time we have been able to gain 1 million subscribers," MTS first vice president Mikhail Susov said. "It will be significantly more difficult for Vimpelcom to win this market."