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. Last Updated: 07/27/2016

Mobile Firms Urge Customers to Talk

Itar-TassA resident of Khanty-Mansiisk speaking on his cell phone earlier this week.
With babushkas now chatting on their cell phones and kids sending text messages to their school friends, mobile phone operators in Russia's saturated market are pushing their clients to talk more to boost revenues.

The mobile boom started a few years later than much of Europe's, and firms have rushed to amass clients and gain market share, handing out free SIM cards and splurging cash on advertising.

But with market penetration now over 100 percent and most of the Commonwealth of Independent States already carved up between Russia's "Big Three" -- Mobile TeleSystems, Vimpelcom and MegaFon -- the only way for the firms to grow is to persuade clients to use their phones more.

Vimpelcom's latest advertising slogan "Turn words into gifts" targets greater usage by existing customers. Mobile TeleSystems, or MTS, has a similar pitch: "Give minutes of communication as a gift. It's easy."

Igor Pepelyayev, head of marketing at MegaFon, the country's No. 3 mobile phone company, said: "Now is the turning point when the client realizes that a mobile phone has turned into a mass product, not something for the elite."

Cutthroat competition has curbed average revenues per user, or ARPU, a measure of client quality. Russian monthly ARPU, on average $9 to $10, is one-third of typical European levels.

In front, with an ARPU of $16, is MegaFon, 44 percent owned by Sweden's TeliaSonera. Vimpelcom is second with $9 and MTS, which has just hired a new head of marketing, comes in third at $8, according to recent results.

"Russia is unique -- nowhere else in the world on a mature market are the conditions there for ARPU to grow," a Western bank analyst said. "We expect companies' revenues to grow because all clients are ready to speak more."

Industry leaders and analysts say the potential is high, as the country's oil export boom fills the pockets of consumers with cash. Real wages are increasing at an annual rate of nearly 15 percent, official figures show.

Alexander Izosimov, CEO of No. 2 operator Vimpelcom, said the usage uptrend was already visible in Moscow, where fewer than 10 percent of people lack a cell phone and multiple card holding is common.

"Client-base growth in Moscow is very low but minutes of use are growing quickly and revenues too," he said. "Minutes of use will grow and if companies refrain from price wars, they will translate into revenue growth."

The analyst said he expected minutes of use, or MOU, in Russia to grow by up to 20 percent per year in the next five years -- whereas MOU elsewhere in Europe has largely stabilized.

Earning more MOU means firms should refocus from building their networks to selling more services, says Ernst & Young partner Vadim Balashov.

"CEOs are now facing very difficult times and an unfamiliar environment," said Balashov, who heads Ernst & Young's telecoms practice in Moscow.

"Telecoms will now have to change their business model -- they should go from a network-centric to a client-centric approach. The key person in a [telecommunications company] is a marketing guy."

MegaFon's Pepelyayev said high penetration levels meant the client, not the phone company, would set the rules of the game, and would want to understand for what he was paying. Gone are the times when mobile phone firms fought for the clients by advertising low prices, hiding the fact they did not include many taxes and additional payments.

Pepelyayev said mobile phone firms had started putting out real prices and simplified roaming billing, turning it into one figure instead of a confusing combination of a foreign partner's fee and cross currency rates.

The firms have also converted the bulk of their tariff plans to rubles from dollars, and cut the number of products to make them easier for clients to understand.