Wednesday 1 April 2020

The Rise of Russian MVNOs

Russia has the largest mobile market in Europe, with the number of subscriptions standing at about 231 million at the beginning of 2020. Mobile SIM card penetration is high, at around 158%, although actual mobile user penetration is lower due to the popularity of multiple SIM card use. There is pressure on operator revenue from the poor economic climate, lower pricing resulting from intense competition, and regulatory measures introduced in 2018 which saw the end of roaming charges.

As we discussed in our blog post last year, several mobile network operators are active, although the market is dominated by four major operators (MTS, VEON, Tele2 Russia/Rostelecom and MegaFon). These have expanded their footprints widely through the acquisition of smaller regional service providers. Tele2 Russia has undergone several changes of ownership in recent years. It became a significant player following its merger with Rostelecom, which it hosted as an MVNO. In late 2019 Rostelecom acquired the 55% stake in Tele2 Russia which it did not already own.

Competition in the key markets of Moscow and St Petersburg is particularly fierce, due to the size of the cities’ populations and the higher concentration of wealth there.

The extensive deployment of LTE infrastructure has supported growth opportunities through mobile broadband and data services, which make up a growing proportion of overall mobile revenue. Investments in carrier aggregation and LTE-A technologies have further boosted network capabilities, while operators are also partnering with vendors to prepare for 5G later in 2020.

According to Telecompaper the Russian MVNO subscriber base was set to grow 40% in 2019. The figure was expected to reach 9.9 million. The country's mobile subscriber base as a whole will have grown by less than 1 percent in 2019.

The 10 million MVNO subscriber threshold is expected to be exceeded in January-February of 2020. According to the preliminary data collected by TMT Consulting, MVNO customers will make up almost 4 percent of the entire Russian subscriber base this year, up from was less than 3 percent a year earlier.

At the end of the third quarter 2019, there were 9.3 million MVNO users in Russia. The market share of MVNO projects run by telecommunications operators was around 75 percent, and MVNOs owned by banks accounted for 15 percent of all MVNO subscribers at the end of September 2019.

The largest MVNO market player is Yota, which saw its market share decline by 10pp to 57%, as banking players such as Tinkoff Mobile of TCS Group and SberMobile of Sberbank expanded their share of the market to 9% and 5%, respectively at Yota’s expense. Another large player with 16% share is the MVNO of state integrated telecom major Rostelecom that controls Tele2.

The corporate subscriber base was 800,000 in the MVNO segment at the end of September. Rostelecom's MVNO serves 56 percent of all B2B customers and Yota accounts for 24 percent.

The Russian MVNO market was dormant until 2016, when Tele2 decided to take a leap into the world of MVNOs and open up its network to MVNOs. The focus of banks on MVNOs is the result of mobile operators aggressively nudging themselves into the mobile market; two of the biggest MNOs in Russia have established themselves as banks with full licences, and they heavily promote their banking services to subscribers.

Now Yandex is considering expanding into mobile telephony with an MVNO based on the Tele2 network. It could offer services integrated into the Yandex.Plus subscription (such as access to Yandex.Music and discounts to Yandex's other services).

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