MTS Bolsters Windows Smartphones as IPhone Ebbs in Russia

Photographer: Simon Dawson/Bloomberg

Windows Phone accounted for 8.2 percent of smartphones sold in Russia in the first quarter, or 315,000, compared with 5.1 percent a year earlier, while Apple’s share dropped to 8.3 percent from 9 percent, according to research firm IDC. Close

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Photographer: Simon Dawson/Bloomberg

Windows Phone accounted for 8.2 percent of smartphones sold in Russia in the first quarter, or 315,000, compared with 5.1 percent a year earlier, while Apple’s share dropped to 8.3 percent from 9 percent, according to research firm IDC.

OAO Mobile TeleSystems’s chief said Russia’s largest mobile-phone operator would need better terms to back Apple Inc. (AAPL) handsets again after Windows smartphones advanced to almost match iPhones in market share.

“Apple wants operators to pay them huge money, subsidizing iPhones and their promotion in Russia,” Chief Executive Officer Andrei Dubovskov said in an interview in St. Petersburg. “Now it’s not beneficial for us. It’s good we stopped selling the iPhone as these sales would’ve brought us a negative margin.”

MTS stopped selling Apple’s latest iPhones in its shops at the end of 2012 and has strengthened its relationship with other device makers. It hosted Microsoft Corp. (MSFT) CEO Steve Ballmer and Nokia Oyj CEO Stephen Elop in Moscow in November. MTS (MTSS), controlled by billionaire Vladimir Evtushenkov’s AFK Sistema, agreed to promote Microsoft Windows handsets including Nokia Lumias and opened Windows Phone zones in its flagship stores.

Windows Phone accounted for 8.2 percent of smartphones sold in Russia in the first quarter, or 315,000, compared with 5.1 percent a year earlier, while Apple’s share dropped to 8.3 percent from 9 percent, according to research firm IDC.

“The MTS bet on Windows Phone and its decision not to sell iPhones is clearly contributing to this trend,” said Simon Baker, a Moscow-based handset analyst at IDC. The historical strength of Espoo, Finland-based Nokia (NOK1V)’s brand in Russia also helped, he said.

Chinese Smartphone

Globally, Windows Phone had 3.3 percent market share among smartphones in the quarter, compared with Cupertino, California-based Apple’s 17.3 percent.

“When a handset producer is ready for co-promotion and offering special conditions to our customers, its share in our sales increase,” Dubovskov said. “As a result of such co-operation, sales of Windows Phone and Android devices in our retail chain grow faster than in the Russian market in general.”

The market share of Windows smartphone sales in MTS’s retail network is “probably two times higher than its share in Russia in general,” Dubovskov said, declining to disclose precise numbers.

Shares of Nokia advanced 4.2 percent to 3.31 euros at 4:49 p.m. in Helsinki. MTS fell 0.3 percent to $18.89 in New York, while Apple declined 0.5 percent to $413.20 and Microsoft was little changed at $34.32.

MTS, based in Moscow, is increasing smartphone sales to earn more money on mobile data, Dubovskov said. Its range includes handsets as cheap as a $100 Chinese-made smartphone under the MTS brand, the CEO said.

“We view every subscriber as data user and give out voice for free,” Dubovskov said. This year, MTS said it was the first Russian operator to introduce tariff plans with unlimited voice for data users.

India Interest

MTS may consider buying Sistema’s wireless unit in India, which uses the MTS India brand, once it becomes profitable, Dubovskov said. “We see potential synergies there in terms of technology, management team, brand and equipment purchases.”

MTS is also preparing to expand coverage with faster fourth-generation networks. The company plans to cover 600 Russian population centers with 4G by the end 2014, according to the CEO.

Russia’s total mobile revenue climbed 9 percent to 837.4 billion rubles ($25 billion) last year, according to AC&M Consulting. Data revenue surged 33 percent to account for 100.7 billion rubles of that total.

“Those MTS users who need the iPhone are buying it one way or another -- in a gray market or from independent retailers -- and are still generating data revenue for us,” Dubovskov said.

Acquisition Strategy

Svyaznoy, a mobile-phone retail chain, sells iPhones and is also co-operating more closely with MTS after its rival retailer Euroset Holding NV was acquired by Russian wireless operators OAO MegaFon and VimpelCom Ltd. (VIP), according to Dubovskov.

MTS enjoys a good relationship with Svyaznoy and has no plans to acquire it, Dubovskov said.

“If we take $500 million and buy a certain stake in Svyaznoy it won’t create additional value for MTS,” Dubovskov said. “We’d better pay Svyaznoy the same money in revenue-sharing over the next decade.”

MTS also isn’t interested in fixed broadband acquisitions in Russia, the CEO said.

“We are present in fixed broadband in more than half of Russian regions,” Dubovskov said. “We aren’t currently planning to expand this business as it has a longer payback period, while we are focused on mobile broadband.”

Russia may sell a controlling stake in telecommunications operator OAO Rostelecom for at least $5 billion as early as this year, First Deputy Prime Minister Igor Shuvalov said in April.

“At first glance, Rostelecom doesn’t seem a very attractive business for MTS to buy,” Dubovskov said. “The total length of our fiber-optic networks is already more than 140,000 kilometers, we have strong business in regions where Rostelecom has key mobile units.”

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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