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. Last Updated: 07/27/2016

Searches May Hit Handset Supplies

VedomostiPedestrians walking by a Yevroset branch in Moscow. The company insists on-going probes will not affect operations.
Last week's raids at the offices and warehouses of the country's leading mobile phone retailers may end up hurting more than just the executives under investigation.

On Friday, for the third day running, investigators carried out searches in connection with a contraband case dating back to 2005 that was opened after Interior Ministry officials impounded around 200,000 handsets at Sheremetyevo Airport, Interfax reported. The companies under investigation -- Dixis, Tsifrograd, Betalink and Yevroset -- control 70 percent of the mobile phone retail market.

And as searches continue, handset dealers are unable to replenish their stocks, which could create a shortage of handsets in stores, analysts said.

"If the searches go on, it will lead to shortages of handsets and consequently to a price hike," said Sergei Savin, a telecoms analyst at J'son & Partners.

The authorities conducted a similar investigation into the contraband mobile phone industry in 2005, but the move only had the effect of exacerbating the problem.

"The campaign two years ago created a gray economy for handsets with some people smuggling them into the country in their suitcases and handbags," Savin said.

Illegal imports will not be enough to satisfy the enormous demand for handsets, however, so a price increase may be inevitable, Savin said.

The high saturation rate in the country's mobile phone market could mean that a disruption in handset supply will not dent the market significantly.

Figures from research by J'son & Partners show that mobile phone sales have been gradually diminishing over the last few years.

While end users purchased 33.5 million handsets in 2005, only 31.6 million phones were sold in 2006, and the sales projection for 2007 is at a maximum of 28.7 million units.

"The mobile phone market has long peaked, and most Russians now have one or more handsets," said Konstantin Chernyshev, a telecoms analyst at UralSib.

Also, the number and variety of outlets selling mobile phones has grown over the last few years.

"There are too many retail outlets for handsets in Russia for the closure of a few to make an impact," Chernyshev said. Phones are also being imported and sold by nonspecialized retail outlets, such as M. Video, which will cushion the effect of any supply-side glitches, Chernyshev said.

A duty prosecutor at the Prosecutor General's Office confirmed that the investigation was ongoing but declined to offer any further comment.

Dixis, Tsifrograd, Betalink would not comment on the investigation Friday.

Yevroset, which is the country's largest mobile phone retailer, denied that any searches had been conducted at any of its offices or warehouses Friday. Interfax earlier cited law enforcement sources as saying searches had taken place.

"Investigators came to us on Wednesday and we supplied them with all the necessary documents and materials," Yevroset spokesman Ochir Mandzhikov said.

Mandzhikov also insisted that the investigations would have no effect on Yevroset's operations or on its supply of new handsets.