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This FreeSight report contains an executive summary of our 3Q11 Russia Mobile Operator Forecast, 2011 - 2015. IEMR’s Mobile Operator Forecast on Russia provides over 50 operational and financial metrics for the Russian wireless market and is one of the best forecasts in the industry. We provide five-year forecasts at the operator level going out to 2015. We also provide quarterly historical and forecast data starting in 1Q2003 and ending in 2Q2013. Mobile network operators covered for Russia include Mobile TeleSystems OJSC (MTS), Vimpel-Communications (VimpelCom) (with the brand name of Beeline), MegaFon OJSC (MegaFon), Tele2, Uralsvyazinform JSC, Sibirtelecom JSC, Nizhegorodskaya Cellular Communications, Smarts (PJSC SMARTS), New Telephone Company (Novaya Telefonnaya Companiya), and SkyLink. Our Mobile Operator Forecasts are updated quarterly and are available for one-time delivery or through regular updates. Notable highlights of the 3Q11 Russia Mobile Operator Forecast include: · Subscriber growth is slowing down in Russia. The operator-wide average subscriber growth (YoY) was 5.0% in 2Q.2011, down from 9.0% in 2Q.2010. The largest operator, MTS, saw its subscriber growth (YoY) decrease slightly from 2.9% in 2Q.2010 to 2.8% in 2Q.2011. VimpelCom’s subscriber growth increased from 1.9% in 2Q.2010 to 8.5% in 2Q.2011. · ARPU growth in Russia is now negative. The industry average monthly ARPU was US$ 9.69 in 2Q.2011, down -4.2% YoY. At the operator level, MTS’s ARPU growth was 0% in 2Q.2011, down from 3.5% in 2Q.2010. ARPU growth (YoY) at VimpelCom also decreased from 2.3% in 2Q.2010 to 0% in 2Q.2011.
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3Q.2011 Russia Mobile Operator ForecastRussia have 238 million mobile subscriber connections in 2015 with MegaFon taking 23% market share
October 2011
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
INDUSTRY AVERAGE SUBSCRIBER GROWTH IN RUSSIA’S WIRELESS MARKET DECREASED TO 5.0% IN 2Q.2011
The operator-wide average subscriber growth (YoY) was 5.0% in 2Q.2011, down from 9.0% in 2Q.2010.
The largest operator, MTS, saw its subscriber growth (YoY) decrease slightly from 2.9% in 2Q.2010 to 2.8% in 2Q.2011.
VimpelCom’s subscriber growth increased from 1.9% in 2Q.2010 to 8.5% in 2Q.2011.
In 2Q.2011, subscriber growth at MegaFon was 7.6%, down from 18.0% in 2Q.2010.
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4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Mobile TeleSystems OJSC (MTS) Vimpel-Communications (VimpelCom)
MegaFon OJSC (MegaFon) Industry Total
Chart 1: Subscriber Growth (4Q08 – 2Q11), %
Subscriber growth is slowing down in Russia5.0% industry average subscriber growth in 2Q.2011
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
INDUSTRY AVERAGE ARPU IS DECREASING IN RUSSIA
The industry average monthly ARPU was US$ 9.69 in 2Q.2011, down -4.2% YoY.
At the operator level, MTS’s ARPU growth was 0% in 2Q.2011, down from 3.5% in 2Q.2010.
ARPU growth (YoY) at VimpelComalso decreased from 2.3% in 2Q.2010 to 0% in 2Q.2011.
ARPU growth rate at MegaFoncontinues to be negative at -0.6% in 2Q.2011.
Chart 2: ARPU Growth (4Q08 – 2Q11), %
ARPU growth in Russia is decreasing-4.2% industry average ARPU growth in 2Q.2011
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4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Mobile TeleSystems OJSC (MTS) Vimpel-Communications (VimpelCom)
MegaFon OJSC (MegaFon) Industry Total
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
The operator-wide average Minute of Use (MOU) per subscriber was 256 minutes per month in 2Q.2011, up +36.9% YoY.
MOU/Sub growth (YoY) at MTS was 67.1% in 2Q.2011, up from 6.6% in 2Q.2010.
VimpelCom’s MOU/Sub growth (YoY) was 60.9% in 2Q.2011, up from 2.0% in 2Q.2010.
MOU per subscriber at MTS and VimpelCom was 269 minutes and 243 minutes respectively in 2Q.2011.
Chart 3: MOU/Sub Growth (4Q08 – 2Q11), %
Minutes of Use per Subscriber is stabilizingIndustry average MOU/Sub is about 256 minutes per month
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4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Mobile TeleSystems OJSC (MTS) Vimpel-Communications (VimpelCom)
Industry Total
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
-1.6% INDUSTRY AVERAGE EBITDA GROWTH IN 2Q.2011
• The industry average EBITDA growth rate (YoY) decreased from 5.0% in 2Q.2010 to -1.6% in 2Q.2011.
• EBITDA growth rate (YoY) at VimpelCom was -9.1% in 2Q.2011, down from -2.5% in 2Q.2010.
• MTS’s EBITDA growth was 0% in 2Q 2011, down from 5.1% in 2Q 2010.
• EBITDA growth at MegaFon decreased from 9.9% in 2Q.2010 to 0% in 2Q.2011.
Chart 3: EBITDA Growth (4Q08 – 2Q11), %
Negative EBITDA growth at VimpelCom in 2Q.2011
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4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Mobile TeleSystems OJSC (MTS) Vimpel-Communications (VimpelCom)
MegaFon OJSC (MegaFon) Industry Total
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
We forecast that the number of total wireless subscriber connections in Russia will increase from 222.8 million in the end of 2010 to 237.9 million in the end of 2015.
Given the latest quarter numbers, our model predicts that MTS will have approximately 74.6 million mobile subscriber connections in 2015.
In our view, MTS will continue to hold a dominant position in Russia with a 31.4% market share in 2015.
We expect that VimpelCom will be growing steadily over the forecast period. We forecast that it will have 54.7 million wireless subscribers in 2015 (23.0% market share).
We expect that MegaFon will have 62.9 million mobile subscribers in 2015 (26.4% market share).
Chart 4: Subscribers by operator (CY09 – CY15F)
So what is IEMR’s Forecast? Total mobile subscriber connections in Russia to reach 237.9 million in 2015
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CY09 CY10 CY11F CY12F CY13F CY14F CY15F
subs
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s)
Mobile TeleSystems OJSC (MTS)Vimpel-Communications (VimpelCom)
MegaFon OJSC (MegaFon)
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
WE EXPECT THE OPERATOR-WIDE AVERAGE ARPU LEVEL TO BE AT APPROXIMATELY RUB 300 OVER THE NEXT TWO YEARS
Our forecasting model predicts that the industry average ARPU will be approximately RUB 303 per month in 2013.
We forecast that MTS’s ARPU will continue to be lower than those of VimpelCom and MegaFon over the forecast period. MTS’s monthly ARPU in 2013 will be approximately RUB 256 in 2013, according to our model.
On the other hand, we expect that VimpelCom’s monthly ARPU will increase to about RUB 362 in 2013.
Chart 5: Average Revenue per User (ARPU) per month (CY09 – CY13F), RUB
So what is IEMR’s Forecast?ARPU levels in Russia to increase slightly
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PU
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Mobile TeleSystems OJSC (MTS)Vimpel-Communications (VimpelCom) MegaFon OJSC (MegaFon) Average
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© 2011 IE Market Research Corp.All rights reserved.
Source: IEMR
MTS will be the operator with the highest level of profitability in Russia’s wireless market in 2Q.2011.
Our model is predicting that MTS’sEBITDA margin (calculated as EBITDA/service revenue) will be 48.3% in 2Q.2011.
VimpelCom’s EBITDA margins will continue to decline over the forecast period. We forecast that VimpelCom’sEBITDA margin will be approximately 45.4% in 2013.
Also, our model forecasts that MegaFon’s EBITDA margin will decline to about 39.8% in 2013.
Chart 6: EBITDA margins (CY09 – CY13F), %
So what is IEMR’s Forecast? MTS to enjoy the highest profitability
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CY09 CY10 CY11F CY12F CY13F
Mobile TeleSystems OJSC (MTS)Vimpel-Communications (VimpelCom) MegaFon OJSC (MegaFon) Average
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© 2011 IE Market Research Corp.All rights reserved.
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