J'son & Partners Consulting presents brief results of the research devoted to the Russian cellular market.
This review presents a brief version of the study. You can purchase the full version by contacting firstname.lastname@example.org
According to J'son & Partners Consulting, as of the end of 2016 the penetration of cellular connection in Russia was about 178%, which is equivalent to 257 million subscribers. Thus, the subscriber base growth in comparison with the results of 2015 was 2%. The market shows signs of saturation. Basically, the subscriber base growth is now provided by mobile Internet subscribers (including M2M connections).
Source: J’son & Partners Consulting
Assessment of the competitive situation
After “Tele2” joined the "big three" of mobile operators three years ago and after the branches of a large regional independent player - the “Smarts” group - were sold, the market formed, obviously, for a long time, the oligopolistic "big four", forming about 99% of the cellular market of the Russian Federation.
Source: J’son & Partners Consulting
Major trends in the Russian cellular market
➢ Redistribution of mobile operators’ revenues by type of service
Classic mobile services - calls and SMS - have been declining over the past few years. At the same time, the loss of revenues from these services is compensated by the growth in revenue from the provision of mobile data services. This trend is typical for both the Russian and the global mobile market. In conditions when the Russian mobile communication market is close to saturation, mobile data transmission becomes one of the key services, allowing both to increase the overall subscriber base and to compensate for the decline in revenues from traditional services.
➢ Increase in the share of packet tariff plans
With the development of mobile Internet, the popularity of packet tariff plans with included minutes of calls, Internet traffic and SMS-messages is growing. Operators actively promote package offers that bring them a higher and more stable monthly income than customers who pay directly for the consumed service (call, sent message, etc.). In addition, in 2016 the development of convergent tariff plans continued, including fixed and mobile services for one operator and could significantly reduce the outflow of subscribers.
➢ Growth of popularity of communication and content OTT services
The development of OTT (over-the-top) communication services is one of the reasons for the decrease in the consumption of voice and SMS services by subscribers of cellular networks, and the growth in the penetration of such services continues. In the future, this will further reduce the consumption of voice and messages in cellular networks.
At the same time, the number of popular OTT services is growing; these services are substitutes for various additional services provided by operators, primarily content services. This reduces the ability of operators to provide additional services that can increase subscriber’s ARPU.
➢ M2M development
The growth rates of mobile M2M connections in Russia remain quite high, which indicates that the market is in the initial stage of its development and has a great development potential. Currently, M2M-connection accounts for about 4% of the subscriber base of cellular operators in Russia.
➢ Big Data development
Mobile operators in Russia are interested in the development of Big Data due to tougher competition in the market from the side of OTT services, as well as due to lower revenues. While the importance of information, its accumulation and safety of its storage in the modern business society is growing, as well as the cost of technology is declining, the operators intend to fortify their positions in this market segment.
It should be noted that mobile operators in Russia have a number of advantages compared to third-party providers of Big Data:
- operators have a portrait of their subscriber, characteristic of consumer behavior, as well as data on geolocation;
- operators have the opportunity to invest in the development of this technology at the expense of revenue from traditional communication services;
- operators own developed infrastructure.
It should be noted that mobile operators implement Big Data cases mainly in the internal environment so far, in this connection, internal sources of monetization bring the main effect.
➢ Diversification of business
As the market is approaching to the saturation stage, the competition between operators is becoming more acute. In 2016, all operators of the “Big Three” demonstrated a decrease in revenues from mobile services. Mobile operators are beginning to search for new sources of revenue that are not directly related to the provision of telecommunications services.
For example, "MegaFon" launched a bank card in 2016. Its account is a mobile phone account. Turnover on "MegaFon" bank cards in 2016 amounted to 2 billion rubles. The average volume of transactions on one card per month was 11,300 rubles. In addition, “MegaFon” acquired a controlling stake of Mail.ru Group and in the future intends to create new products and services that combine mobile data and digital technologies.
“MTS” and “VimpelCom” began offering microloans to their subscribers, in cooperation with microfinance organizations.
“VimpelCom” also announced the launch of the Veon application in late 2016, which combines functions of a messenger and aggregator of online services. The application should appear in Russia in the second quarter of 2017.
Remarks of the market participants
In 2016, the cellular market entered a phase of stagnation. So, in the III quarter the "Big Three" showed a simultaneous decrease in revenue. At the same time, "Tele2" continued to increase revenue at double-digit rates and systematically increase the subscriber base. In addition to organic growth, the operator is looking for other opportunities for development. So, in 2016 Tele2 launched an MVNO project with “Rostelecom” and signed an agreement to create a virtual operator with Sberbank.
In 2016, "Tele2" finally consolidated its status as a federal player. We actively conquered the Moscow market, built 3G and 4G networks in the regions and launched new tariffs and options that allow receiving high-quality communication services at low prices.
In 2017, the communications market will face evolutionary changes. Cellular operators, including “Tele2”, will begin to form a new ecosystem of mobile services that goes beyond the boundaries of individual industries. Television, online music, mobile commerce, M2M projects, Big Data solutions and many other services based on mobile communications are the future of the cellular market, which will begin to develop in 2017.
The trend that has become noticeable in the telecom market is the transformation of business. From the provision of classical communication services, operators are moving towards providing integrated solutions that combine infrastructure components and digital technologies. A significant event of the end of last year for both the company and the whole market was the acquisition of a controlling stake in Mail.ru Group by “MegaFon”. This purchase gives an undeniable competitive advantage, and in partnership with one of the largest Russian Internet companies we will create completely new products and services that combine mobile data and digital technologies. In addition to the development of joint projects with Mail.ru, we continue to develop our own products. So, last year we updated our video service "MegaFon TV", which by the end of 2016 already connected 1.6 million subscribers, presented a unique product - a bank card attached to a mobile phone account, offered a solution for a smart home - an ecosystem called Life Control.
2016 was not easy for the telecommunications industry, firstly, because of the general economic downturn, and secondly, because of the increased competition. The cost of mobile services has reached its minimum, which has affected profitability of this business. The time for mass subscriber connections has passed. The mobile market is at a crossroads: either a market growth or a protracted crisis will be possible, if the situation on the market does not change.
Despite the difficult external conditions, “MegaFon” has fully met the aims in terms of key financial indicators set for the year. In addition, following the results of 2016, our subscriber base reached 75.6 million subscribers in Russia, while the number of subscribers using mobile data transmission increased to 41%.
We are focused on the growth and development, but the direction that the market will take in 2017 depends, among other things, on state regulation of the industry. The key importance has, in particular, the final decision on the Yarovaya Act.
Speaking about technological trends in 2017, we see a great potential in the development of new communication standards - that is why we are actively working to develop 5G, we also see a big potential in services based on "Big data" analytics and the Internet of things. “MegaFon”, according to its own estimates, occupies 39% of the M2M market and implements complex projects in the segments of smart transport, smart energy, smart housing and utilities. 3.9 million "MegaFon" SIM-cards are installed in connected devices, and now we are working with our partners to implement the NB-IoT standard, which will significantly expand our ability to mass-connect devices to the network.
Detailed results are presented in the full version of the report:
«The Russian cellular market, 2013–2020»
2. Generalized description of the cellular connection market
2.1. Current conditions of the market and its main trends
2.2. Used and promising technologies
2.3. Regulatory landscape of the market and its risks and opportunities
3. The Russian cellular market, key indicators, 2013-2016.
3.1. Key indicators of the cellular connection market
3.1.1. Total active subscriber base of cellular communication
3.1.2. Active subscriber base of mobile data transmission
3.1.3. Total revenues from cellular services
3.1.4. Voice traffic
3.1.5. ARPU, MOU
3.2. Structure of revenues of mobile operators by type of service (voice, data, other VAS-services, etc.)
3.3. Estimation of total operators’ revenues from cellular communication services for client segments (B2C, B2B, B2G)
3.4. Market structure by operators
3.4.1. Active cellular subscriber base, by operators
3.4.2. Total revenues from cellular services, by operators
4. MVNO development in Russia
4.1. Basic drivers and constraints
4.1.1. Basic drivers of the market
4.1.2. Barriers to the development of the MVNO market
4.2. Trends and prospects of the market development
4.3. Overview of major projects
4.4. Forecasts until 2020
5. Mobile OTT services in Russia
5.1. Impact of communication OTT services on the mobile market
5.2. Strategies applied by traditional OTT communication operators for protecting their business
5.2.1. Blocking OTT services and setting a lower priority
5.2.2. Correction of tariff policy to reduce the attractiveness of OTT-services and stimulate demand for traditional services
5.2.3. Developing own OTT applications
5.2.4. Launching RCS (Rich Communication Service) - an operator alternative to OTT services
5.2.5. Cooperation with OTT services
5.3. Transformation of the operator business models
6. Risks of the Russian cellular market
6.1. Regulatory risks
6.2. Operational risks
6.3. Financial and investment risks
7. Forecasts for the cellular market development, 2016-2020.
7.1. Total active subscriber base of cellular communication
7.2. Active subscriber base of mobile data transmission
7.3. Total revenues from cellular services
7.4. Structure of revenues of mobile operators by type of service (voice, data, other VAS-services, etc.)
7.5. Estimation of the total operators’ revenues from cellular communication services for client segments (B2C, B2B, B2G)
7.6. Drivers and barriers to the market development
List of Figures
Fig. 1. Multisectoral forecast of the MVNO's subscriber base in Russia *, 2015-2020
Fig. 2. The number of mobile communications in the world in terms of technology, billion, 2012-2022
Fig. 3. The main stages of the development of 5G networks in the world
Fig. 4. The number of connected mobile M2M devices and the proportion of different technologies, 2015-2020
Fig. 5. Total active subscriber base of mobile communications, million SIM-cards, Russia as a whole, 2013-2016
Fig. 6. Total active subscriber base of mobile data transmission, million SIM-cards, Russia as a whole, 2013-2016
Fig. 7. Total revenues from mobile communication services, billion rubles, Russia as a whole, 2013-2016
Fig. 8. Total mobile voice traffic, trillion minutes, Russia as a whole, 2013-2016
Fig. 9. ARPU of cellular operators, rubles/month, Russia as a whole, 2013-2016
Fig. 10. MOU of cellular operators, min./month, Russia as a whole, 2013-2016
Fig. 11. Structure of revenues of cellular operators by type of service, Russia as a whole, 2013-2016
Fig. 12. Structure of revenues of cellular operators by customer segments, Russia as a whole, 2013-2016
Fig. 13. The market share of mobile operators by subscriber base, Russia as a whole, 2013 - 1st half of 2016
Fig. 14. The market share of mobile operators by total revenues from mobile communication services, Russia as a whole, 2013 - 1st half of 2016
Fig. 15. Multisectoral forecast of the MVNO's subscriber base in Russia *, 2015-2020
Fig. 16. The number of messages sent in the world per day (SMS and OTT), billion pcs.
Fig. 17. Dynamics of the SMS traffic and traffic of WhatsApp messages in the world, 2011-2015
Fig. 18. SMS-traffic in the world by regions, billion messages per year, 2004-2014
Fig. 19. Life cycle of SMS, 1995-2018.
Fig. 20. The number of existing projects in the field of next-generation communication services as of June 2014, by regions
Fig. 21. Operators’ strategy in relation to RCS
Fig. 22. Advantages of the partnership for operators and OTT services
Fig. 23. Total active subscriber base of cellular communications, million SIM-cards, Russia as a whole, 2016-2020.
Fig. 24. Total active subscriber base of mobile data transmission, million SIM-cards, Russia as a whole, 2016-2020
Fig. 25. Total revenues from mobile communication services, billion rubles, Russia as a whole, 2016-2020
Fig. 26. Structure of revenues of mobile operators by type of service, Russia as a whole, 2016-2020
Fig. 27. Structure of revenues of mobile operators by client segments, Russia as a whole, 2016-2020
List of Tables
Table 1. Сlassification of MVNO projects in Russia
Table 2. Number capacity in code 941 for implementation of the “ERA-GLONASS” project
Table 3. SMS-traffic in the world by region, billion messages per year, 2004-2014.
Table 4. Revenues and traffic from SMS and OTT services in the world and in Europe, 2013 and 2017
Table 5. Mobile operators' strategies for neutralizing the OTT-"threat"
Table 6. The main risks of the cellular communication market in the Russian Federation
The newsletter was prepared by J'son & Partners Consulting. We make every effort to provide factual and forecast data that fully reflect the situation and are available at the time of the release of the material. J'son & Partners Consulting reserves the right to revise the data after the publication of new official information by individual players.
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