Russian cellcos say CPP may cost mobile sector dearly

26 May 2006

Mikhail Shamolin, vice president for sales of Russian mobile market leader Mobile TeleSystems (MTS) has said that the country’s adoption of the Calling Party Pays (CPP) system in July may cost mobile operators between USD6 billion and USD7 billion of their capitalisation, business daily Kommersant reported yesterday. According to Shamolin, this may happen if, following the CPP launch, the tariff for fixed-to-mobile calls is set at USD0.03 per minute, costing cellcos around 10% of their revenues, or about USD1.1 billion. Shamolin’s view is supported by representatives of Russia’s second and third largest mobile operators VimpelCom and MegaFon. Revenue losses would be lower, at around USD750 million, if regulatory bodies set the fixed-to-mobile tariff at USD0.08, of which USD0.05 would be transferred to the mobile operator. However, the fixed-to-mobile tariff is likely to be set somewhere between the two. Stanislav Avdiyants, economic and tariff policy department director at national telecoms holding Svyazinvest, said that the company had recommended that the Federal Tariff Service set the tariff lower than USD0.06 per minute.

Analysts surveyed by Kommersant suggested that Russian mobile operators might compensate for the projected decrease in turnover by raising prices for other services. MTS and VimpelCom said Tuesday that they planned to increase interconnection tariffs for other operators to USD0.05 per minute from the current USD0.01 per minute on 1 July, the same day the CPP principle comes into force.