Armenian mobile market nears maturity

PanARMENIAN.Net - The number of Vivacell-MTS subscribers grew 46 percent in 2008 compared to the previous year, and Beeline registered growth of 23 percent. The numbers tumbled in 2009, with Vivacell-MTS growing as little as 2.4 percent, and Beeline apparently losing some customers, even if it is hard to tell for sure as the company has moved to a new system of counting subscribers. Hence, according to the latest data available by the end of 2009, Vivacell-MTS was the unchallenged market leader with 2 million 70 thousand subscribers, while Beeline followed by 502 thousand subscribers (latest Beeline data available for the 3rd quarter of 2009).

Meanwhile, Armenian mobile market saw the aggressive entry of Orange Armenia at the end of 2009, which generated a fair amount of buzz and ensured impressive growth of mobile subscriber numbers, which totaled at 200 thousand within 3 months of the official launch of Orange in the country, and forced the ‘big guys’, Vivacell-MTS and Beeline to react with a range of price cuts and special offers, to retain their existing customers. With increased competitive pressures, the market is set to reach 100% or more saturation within the next year or two, and the operators are already looking for other possibilities for competition in areas other than growth by expansion of customer numbers.

“There is plenty of room for growth. There is no clear direct correlation between the number of population and the rate of penetration and service utilization,” VivaCell-MTS told PanARMENIAN.Net commenting on current market situation. “There are always new services and products. At least twice a month we have a new offer to the market. In particular, at present there is a demand for data transfer services, including high-speed mobile internet. So far VivaCell-MTS has increased the capacity for data transmission five times to cater for market ongoing growing demand on Internet usage.”

Indeed, Russia, UK, France, Germany are examples of countries, where market penetration of is close to or over 100 percent. The example of those markets highlights a problem - with continuous price wars, the average revenue per user declines for the companies, and big investments don’t pay off, so customers suffer in the end.

This is a concern shared by Beeline: “The future of the mobile market depends primarily on the pricing policy that the operators choose. Our company has always been opposed to price wars, as in these innovative services and subsidization of hi-tech initiatives are not justified and become meaningless. The company plans a lot of interesting initiatives, so in ‘peaceful’ conditions our clients will really see pleasant news.”

The market, however, is far from being ‘peaceful’ at the moment, with Orange Armenia mainly setting the pace. The company does not have to think of profits yet. It plans $75 million investment in Armenia, and the company is hoping to grab its chunk of the pretty steady mobile communications services market which in 2009 generated revenues of 105 766.6 million drams (about $280 million) and a growing internet connectivity market, which tripled last year reaching 10 404.2 million drams in revenues (about $27.5 million).

Market data indicates that growth is with the internet services market and we will continue to see high-speed mobile offerings here. Deployment of mobile internet is quite costly and it puts tremendous load on the network of the operators, so it is yet to be seen, how justified investment in this area is.

More importantly, the mobile data service provided by operators in Armenia has generally fallen short of customer expectations. The connection is often inconsistent, and none of the operators has delivered service which would be even close to the advertised speeds of 7.2 Mbps. Orange, which was especially active in promoting mobile internet via its 3G USB modems, suffered a big blow to its image. The company admitted in February, that 1/3rd of their customers experienced “inconveniences” due to “record amounts of used traffic”, but the impact was much wider and the customers found themselves locked into 1-year contracts.

The consumer demand in this area is still huge. At some point in December 2009 the operators were struggling to meet the demand while trying to avoid overloading their networks. But in internet connectivity services market the mobile operators are not only competing with each other, but also with dozens of ISPs, including WiMAX operators like Cornet and iCon.

Other area of growth, as the experience of other more saturated markets around the world has shown, is the provision of subsidized phones (like the iPhone) and equipment (Amazon Kindle). Vivacell-MTS and Orange have both come out with initiatives offering cheaper phones and subsidized prices for their 3G USB modems and 3G Wi-Fi router devices within ‘Home Zone’, ‘Office Zone” tariff plans for Vivacell-MTS and Flybox in the case of Orange.

The operators have also done little steps into the phone market, with Vivacell-MTS’s low-cost “МТС 236” phone, which is locked into their network, providing a preview of what is still to come.

The market is however, ready for the killer phone - Apple’s famous iPhone. The phone currently sells for $1000 US in Armenia and is far from being affordable. Orange Armenia have announced plans to deploy it into the Armenia market back in November. Speaking to PanArmenian.net Orange Armenia neither confirmed, nor rejected the possibility, that their iPhone will be a subsidized offering, but said the phone will be deployed soon.

Interestingly, the initial plans for launching the iPhone on Christmas shopping season were changed. The company said “promotion “Christmas miracles” has a big success and introducing iPhone in the same time would unavoidably generate queues. Orange will postpone the launch of the iPhone in order to welcome the customers in a comfortable environment and keep the best service quality.”

One of the possible conclusions is that customers wouldn’t queue for a $1000 phone, so the Orange’s iPhone will very probably be a subsidized offering. Depending on the size of subsidy and related contract terms, this move could dramatically shift the mobile landscape in Armenia and force the other operators to react with similar moves. So overall, the mobile outlook is very promising for the Armenian consumers, but the mobile companies will have to really fight for market.