Ukraine’s mobile market continued to boom in the first half of this year, though the mobile subscriber base is unlikely to double as it did in 2005, analysts said. Mobile operators are trying to attract customers who spend less, as well as people who want to use several SIM cards. Ukraine?s market may reach 100% SIM-card penetration in 2007 as a result but the ARPU is likely to fall. The boom is coming to and end, analysts said.
The Ukrainian mobile market, which is one year behind the Russian market in terms of penetration, saw a boom in 2005, when penetration more than doubled, jumping to 63.8% as of December 31, 2005 from 29% as of December 31, 2004, according to Advanced Communications & Media (AC&M). Ukrainian mobile operators’ total subscriber base stood at 36.036 million users as of June 30, or 75.7% penetration, and is expected by the end of this year to increase to 39.5 million users, or a penetration of about 83%, AC&M projected.
“The real subscriber base is likely even to exceed our (year-end) forecast,” said Yelena Sayapina, analyst at AC&M. “Ukrainian mobile operators have consistently signed up about 1 million users per month (this year). But the reason for growth deceleration is clear – penetration has already reached 75%. At this level, there should no longer be a booming market,” Sayapina said, adding that fewer people in Ukraine could afford to buy mobile phones since average income is lower than in Russia.
Alexei Danilin, analyst at iKS-Consulting’s Ukrainian branch, has a slightly higher year-end penetration forecast of 85%, attributing it to the fact that “in the third and fourth quarters mobile operators historically sign up more users (compared with the first two quarters).”
Russia’s mobile penetration was comparable to Ukraine’s penetration in September 2005, when it stood at 77%, according to AC&M.
All penetration figures are provided based on the number of valid SIM cards. However, if in Russia the actual number of mobile service subscribers is considerably different from the SIM card-penetration, Ukrainian mobile operators seem to be more honest in reporting their subscriber bases, analysts said.
“In Russia the difference (between SIM card-based penetration and the actual number of users) is 20 to 25 percentage points, while in Ukraine it is considerably lower – we can say that it is about 10 percentage points,” Sayapina of AC&M said.
According to a market survey, real mobile penetration in Ukraine stood at 49% in May, Danilin of iKS-Consulting said, noting that it was not clear whether the survey was representative.
“New subscribers are in most cases people who generate low revenues (to mobile operators). Operators started to meet their demands by offering lower tariffs for mobile services,” Danilin said. Mobile operators are now likely to attract users from their rivals and the penetration in Ukraine is likely to hit 100% in late 2007, but the figure will be reached mostly due to the increasing number of people who use multiple SIM cards, Danilin said, adding that old people and babies won’t have cell phones in any case.
Per capita income in Ukraine stood at about U.S. $113 in May, compared with about $373 in Russia in June, according to official statistics.
Any increase in the number of mobile service subscribers dilutes operators’ ARPUs. The average ARPU of Ukrainian operators fell 27% on the year and 19.8% on the quarter to U.S. $7.3 in January-March, according to iKS-Consulting.
Danilin of iKS-Consulting attributed the decline partly to the low ARPUs of the country’s third and fourth largest operators, Astelit and Ukrainian Radiosystems (URS), which together control about 13% of the market. “Astelit’s ARPU was less than $2, while URS had an ARPU of less than $3 in January-March,” Danilin said.
The low ARPU of Astelit can be explained by its churn policy, while URS has to offer lower tariffs in order to meet its aggressive market share target.
“Astelit set its churn rate at 13 months and has not announced any changes to its policy yet,” Sayapina of AC&M said. For comparison, URS has a churn rate of three months.
For many years Ukrainian operators’ ARPUs have been relatively stable, as “there have been no price wars,” Sayapina said.
Until January 2005, Kyivstar and UMC dominated the market while Astelit and URS started aggressive expansion in January 2005 and April, respectively.
“ARPUs are going to fall further due to VimpelCom, which is likely to be aggressive on the market,” Sayapina added.
VimpelCom purchased URS, which had less than 1% of the market, in November and announced its plans to grab about 10% of the market within three years.
“While entering the market VimpelCom introduced several new approaches. First, it offered low tariffs for calls made within a region. Second, it offered roaming service to mobile subscribers of Golden Telecom. And third, when entering the market VimpelCom, as well as some operators before, did not charge calls made within its network,” Danilin of iKS-Consulting said.
Golden Telecom has about 50,000 mobile users, mostly generating high revenues, and operates in the capital, Kiev, and in Odessa.
Analysts at research agency Sotovik project competition on the Ukrainian market to heat up in the third and fourth quarters. “URS will try to win as large a market share as possible. VimpelCom has already proven the efficiency of its marketing policy in Russian regions – in 2006 we should expect direct price pressure from URS,” Sotovik said in its research, adding that Kyivstar and UMC had “room to decrease their average per minute prices.”
Competition on the mobile market is already tough, but there are no price wars, Danilin of iKS-Consulting said. “All mobile operators spend a lot on advertising. And VimpelCom has also been successful in this field, as its Beeline brand (introduced in Ukraine in April) is already widely known in Ukraine,” Danilin added.
Though ARPUs are falling, mobile operators continue to post soaring revenues. According to iKS-Consulting’s estimates, Ukrainian mobile operators’ total revenue soared 56% on the year in January-March to $688 million, as calculated under U.S. GAAP.
Though Astelit and URS have managed to win 13% of subscribers, their revenue share remains still almost unnoticeable, as Kyivstar and UMC had 97% of total mobile revenues (51% and 46% respectively). Particularly noteworthy was that 40% of Astelit’s revenue in January-March was generated by its subsidiary DCC, which operates in an outdated DAMPS standard, Danilin of iKS-Consulting said.