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Rostelecom Undercuts Mobile Rivals to Enter St. Petersburg

Aug. 6 (Bloomberg) -- OAO Rostelecom, Russia’s state-run telecommunications company, is offering St. Petersburg mobile-phone users the lowest rates as it enters the market for the first time in the country’s second-biggest city.

The company, which already offers fixed-line services in the northwestern port city to 1.5 million users, is competing with four existing mobile operators by offering contracts at 9 kopecks (less than $0.003) a minute, compared with 60 kopecks offered by Tele2 Russia. The other rivals are OAO MegaFon, OAO Mobile TeleSystems and OAO VimpelCom.

The St. Petersburg region is Russia’s most saturated mobile phone market, with 205 percent penetration and 13.5 million customers, according to Moscow-based AC&M Consulting. Rostelecom plans to have as many as 800 base towers working this year to cover at least 90 percent of the city and suburbs, said Senior Vice President Larisa Tkachuk in an interview.

“The St. Petersburg market is the most complicated in the country having four strong peers,” said Anna Lepetukhina, a senior analyst at Sberbank CIB. “Rostelecom has to offer the lowest prices to acquire as much as 10 percent of the market for next five years.”

Tkachuk declined to disclose the amount Rostelecom will invest in the service. It is spending as much as 25 percent of its total annual investments, which amounted to 90 billion rubles $2.73 billion) in 2013, for nationwide mobile development, she said.

Mobile Investments

The company may spend at least $100 million to set up the network and may see a return on the investment no earlier than five to 10 years, Lepetukhina said.

Rostelecom fell 1.38 percent as of 7:25 p.m. in trading on the Moscow Stock Exchange.

Rostelecom is in talks about cooperating with Tele2 Russia, which state-run VTB Group’s investment banking arm bought in April, and other mobile operators, Tkachuk said on July 10. VTB plans to sell Tele2 Russia within a year and has looked at Rostelecom among potential buyers, Prime newswire reported in June, citing the bank’s Chairman Andrey Kostin.

To contact the reporter on this story: Anatoly Temkin in St. Petersburg at atemkin@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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