Rivals Take The Spoils From MTS Suspension

After MTS was forced to withdraw from Uzbekistan following a dispute with Uzbek government authorities , it was not clear how the market would be impacted. However, the latest set of operator results fo r Q312 show that a large number of subscriptions have been picked up by rival operators, boosting their revenues. Although there are indications that MTS may be able to re-enter the market in future, BMI does not expect a swift resolution to the crisis, and we expect its rival operators will benefit from reduced competition in its absence.

MTS, which owns Uzdunrobita , was the market leader by subscriptions in Q212 with a total subscription base of 9.02mn - equal to a market share of 37.1%. However, in July 2012 Uzdunrobita had its licences revoked and , o n September 17 2012 , it was announced that an Uzbek court confiscated all the assets of Uzdunrobita in favour of the Uzbek state ( see our online service, July 31 2012 , 'MTS' Problems Deepen' ) .

In November 2012 the Tashkent Court of Appeals reversed the September 2012 decision , seizing the assets . However, the issue of licensing remains unresolved. Further, four Uzdunrobita managers will still have to serve probationary sentences and MTS will still have to pay a US$600mn fine over the next eight months. Although the court's ruling represents progress for MTS , BMI believes that the remaining obstacles to it re-entering the market means that the possibility remains some way off.

Operators Harvest Low-Hanging Fruit
Unitel & Coscom Net Additions ('000)

In the meantime MTS' main rivals - VimpelCom-backed Unitel and TeliaSonera-backed Coscom - have absorbed a large number of subscribers who were left without services when Uzdunrobita's licences were revoked. Unitel reported net additions of 2.198mn in Q312, compared to 2.209mn for the whole of 2011 and H112. Meanwhile, Coscom reported net additions of 1.782mn in Q312, compared to 935,000 for 2011 and H112.

Although total subscriptions in Uzbekistan declined q-o-q, the networks of Unitel and Coscom have been able to absorb a large number of subscribers. We note this is different to the situation in Turkmenistan following MTS' expulsion in December 2010, where the state-owned incumbent Altyn Asyr was unable to adequately meet demand - which ultimately proved a catalyst for MTS re-entering the market in H212 ( see 'Competition Returning To Turkmenistan', May 23 2012). Given the ability of its rivals to absorb a large number of subscribers, we do not foresee public anger at loss of service to be a factor in MTS re-entering the market.

In addition to benefiting in terms of subscription acquisitions, Coscom and Unitel also benefited financially. Unitel's revenue was US$137mn in Q312, up by 87.7% y-o-y and 53.9% q-o-q, while EBITDA increased 120% y-o-y and 71.1% q-o-q to US$77mn. Meanwhile, Coscom's revenue increased 50% y-o-y and 45.5% q-o-q to SEK684mn in Q312. As well as gains in terms of number of subscriptions, BMI notes that Unitel reported higher ARPU and MOU in Q312, which helped to drive revenues higher. We believe that part of Uzdunrobita's subscriber base would have been multiple SIM holders looking to exploit preferential 'on-net' tariffs. Following MTS' withdrawal these subscribers have used Unitel and Coscom for a greater portion of their communication.

The combination of a large part of Uzdunrobtia's subscriptions being absorbed by rivals and evidence that some of the remainder were actually multiple SIM holders means that, whether or not MTS re-enters the market, its operations in Uzbekistan have been irreparably damaged by the dispute with the state. We expect Unitel and Coscom will continue to benefit from MTS' absence, with net subscription additions and lower intensity of price competition. As we argued in July 2012, the dispute has had negative consequences for consumers that are likely to persist in the medium term.

This article is tagged to:
Sector: Telecommunications
Geography: Turkmenistan, Uzbekistan, Turkmenistan, Uzbekistan, Uzbekistan

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