Russian mobile market grows, but data services lag

The number of cellular phone users in Russia broke the 30 million barrier in September, but despite significant growth, digital data services have yet to catch on with Russian users.

In a jointly produced market watch report released this month, Moscow-based consultancy firms J’son & Partners and Sotovik said that Russian cellular operators added 2 million subscribers last month, an all-time high. That brings the number of Russian cellular subscribers to 30.8 million, an overall penetration level of 21.2 per cent. At the start of this year, Russia had less than 20 million subscribers.

But Jason Smolek, a senior consultant at J’son & Partners, said the Russian cellular market remains far behind Western European markets when it comes to value-added services such as Short Message Service (SMS), Multimedia Messaging Service (MMS), e-mail, remote corporate access, Internet access and games.

“The most advanced services in Russia are ring tones, which shows you the state of the market here,” Smolek said.

Smolek predicted that this year value-added services will account for only eight per cent of total revenues for Russian cellular operators, or US$320 million.

And almost all of that revenue, he said, is from SMS, so far the only data service that has any popularity in Russia.

Digital services have failed to take off in Russia for a number of reasons, Smolek said.

First of all, there are too few content providers in Russia to make data services worthwhile for the average user. While there are thousands of companies providing content for cellular phone users in Europe and North America, in Russia there are only 20 to 30 such companies, Smolek said.

There are also technical reasons that Russian cellular operators have not been pushing data transmission services such as General Packet Radio Service (GPRS) connections.

“From a technical standpoint, the current network would not be able to support a huge stream of data,” Smolek said. But most importantly, he said, the Russian market isn’t mature enough for users to be interested in high-end services.

“Most users are just getting mobiles to begin with so they’re satisfied with just voice services,” he said. Still, that leaves a lot of room for growth and Smolek expects that data services will begin to play a much bigger role in the Russian cellular market over the next few years. He predicted that by 2008 Russian operators’ revenues from value-added services would reach $1.5 billion, or 25 per cent of all revenue.

The market watch report showed that all three of Russia’s top mobile operators have seen record growth rates this year. Mobile TeleSystems OJSC is leading the Russian market nationally with 11.5 million subscribers and had a year-to-date growth rate of 74 per cent. AO Vimpelcom came second with 9.3 million subscribers and its growth rate reached 80 per cent this year. OAO Megafon was third with 5.4 million subscribers and a growth rate of 82 per cent.

Mobile phone use in Russia continues to be concentrated in urban areas, with Moscow and St. Petersburg leading the country with penetration levels of 62.4 per cent and 49.6 per cent respectively.

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Jim Love, Chief Content Officer, IT World Canada

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