Two highly anticipated events in the mobile industry came to fruition in 2007: the rebranding of UMC to its parent brand MTS, and the launch of Ukrtelecom’s 3G mobile service. And like most highly anticipated mobile industry events, the hype exceeded the actual splash and impact on the end consumer.
While MTS brought another fresh face to the brand landscape, it didn’t wipe the slate clean for mobile users. UMC’s reputation had suffered in the past few years from a decline in network quality and claims of below-par customer service, resulting in the loss of its market leading position to Kyivstar. With the re-brand, consumer expectations for improvement and innovation may be even higher as MTS is Ukraine’s only international brand with a significant chunk of the market.
Many, meanwhile, speculated on the possible impact of Ukrtelecom’s Utel brand 3G launch on the market, the main question being whether 3G would offer Utel a competitive advantage over the other operators. Mobile operators in developed markets learned the hard way that mainstream consumers don’t care which technology you use – they only care about the end-user services and benefits it offers.
Given that the vast majority of mobile customers in Ukraine today only use voice and SMS and the major players have already deployed EDGE (2.5G), the increased speed of 3G would appear to provide Utel with little or no immediate competitive advantage. EDGE does the job for most people just fine right now. Over the longer term, you can bet that Kyivstar and MTS have been planning for the time when they get their own 3G licenses, and will quickly roll out services to compete with almost anything Utel could launch.
Therefore, if the 3G advantage is stripped out of Utel’s offering, you are left with a state-owned, fixed-line brand with a questionable quality reputation trying to compete with four modern, well-established mobile brands who have been anticipating this launch for at least two years.
Although Utel will derive very limited benefit from 3G, at least in the short term, the other operators nevertheless definitely want to get their hands on the state licenses for the technology that were denied them in 2005 when Ukrtelecom snapped up the single available licence. The three leading players’ networks support very large subscriber bases and already cover more than 90% of the population. An upgrade to 3G gives them the added capacity to continue improving call quality and indoor coverage in metropolitan areas. And, of course, 3G offers faster data speeds, possibly increasing data usage of heavy users like business customers and allowing for more advanced data service offerings.
Pricing
Competition has intensified over the past 10 years, which has put mobile prices and ARPU (average revenue per user) under constant and intense pressure. The result has been rapidly accelerating industry subscriber growth through 2006, when SIM card penetration finally topped 100% of the population. Now that most everyone who wants or can afford a mobile phone already has one, operator revenue growth must now come from existing users. The mad grab to sign up anyone at any cost has ended. Now the name of the game is subscriber retention and increasing usage, with subscriber growth coming from wooing each others’ customers.
Now that subscriber “gold rush fever” has subsided, industry ARPU should continue to stabilise and maybe even begin to grow slightly as the big operators shift their focus towards ways to increase usage, voice and data. Service quality and innovative services should replace most the aggressive price promotions customers are accustomed to seeing. The degree to which ARPU grows will depend on the operators’ ability to leverage the popularity of SMS and MMS, offer improved content and make it easy for customers to access and use these services.
CDMA players
There is still hope for the CDMA operators to remain a credible alternative to their GSM counterparts, although they are likely to remain small niche players for the foreseeable future until they can overcome the high switching barrier associated with the phones. Only one CDMA brand exists in Ukraine today with a chance to be a legitimate third or fourth player. PEOPLEnet launched in early 2007 with a number of innovative services and plan features, proclaiming itself Ukraine’s first 3G operator with it’s 1x EV-DO (Evolution Data Optimized) based system the company claims rivals the speed of UMTS, the GSM-based system adopted by Utel. Additionally, in contrast to its rivals, PEOPLEnet has actively engaged the content development community in hopes of building a competitive advantage on rich mobile content and more advanced data services. From this perspective, therefore, it is proving to be a catalyst for mobile content development for the industry.
Notable for 2008
No new players are expected to enter the market in 2008. On the contrary, we may actually see some badly needed consolidation among mobile brands - today there are no less than twelve on the Ukrainian market. This process already began last year when UMC and Kyivstar began to fold their mass market prepaid sub-brands, SIM-SIM and Ace&Base, respectively, into their main brands. However, they interestingly turned right around and launched sub-brands Ecotel (UMC/MTS) and Mobilich (Kyivstar) apparently in an attempt to target the last remaining non-users.
Consolidation could also come in two other forms. We could see the smaller CDMA operators unite to improve their competitiveness with the GSM carriers. Another scenario involves a combination of the Beeline and Kyivstar brands, if the companies’ owners Telenor and Alfa can finally bury their boardroom differences. Telenor and Alfa are partners in the Russian mobile operator, Vimpelcom, which markets under the Beeline brand name, as well as in Kyivstar here in Ukraine. Telenor bitterly opposed Beeline’s launch into Ukraine because it was entering an already very crowded marketplace and now competes directly with Kyivstar, which Telenor believed contributes unnecessarily to pressure on prices.
Now that Ukrtelecom’s 3G mobile service is out there, another interesting development to watch will be consumer interest in bundled telecom services. On its website, Utel offers single billing and special conditions for fixed line customers who subscribe to its mobile service. Ukrtelecom together with Utel becomes the first triple-play provider to be able to offer fixed-line telephony, broadband Internet and mobile services to consumers. But until Ukrtelecom is privatised, we are unlikely to see the launch of any truly converged telecoms services.
