Bee Line: “We expect to attract young people”

The second largest Russian cellular network, Bee Line GSM, owned by VimpelCom, will finally start operating in St. Petersburg in mid-April. Aleksey MISHCHENKO, first vice president of VimpelCom for regional development, spoke about this project and the company’s work in other Russian regions in an interview with Vremya Novostei newspaper correspondent Nadezhda KOSTYUK.

-- What services is the St. Petersburg Bee Line GSM network ready to offer?

-- We intend to offer in St. Petersburg a set of services identical to the service package of our Moscow network. St. Petersburg subscribers will have access to SMS services, voice mail, beepay payment services, beeinfo and beeonline information and entertainment services, as well as GPRS-based data transfer services and sending MMS multimedia messages.

-- With what coverage of the region will Bee Line GSM begin to serve subscribers?

-- At the initial stage, our network will provide full coverage of the territory of St. Petersburg and the nearest suburbs, as well as the main transport routes.

-- The company began active construction of a network in St. Petersburg last year, but the addition to the GSM license for the right to operate in the 900 MHz band was received only in early March. How will this affect the implementation of plans to launch the network in this region?

- Practically nothing. This was part of our plans. In parallel with the work on deploying the GSM-1800 network, we carried out the so-called clearing of frequencies in St. Petersburg and the region in the 900 MHz range. This allows us to hope to obtain the necessary frequencies to launch a dual-band network from the very beginning.

-- Now VimpelCom-R has a GSM license for the entire North-West only in the 1800 MHz range. What are the prospects for obtaining an addition to this license for the 900 MHz band?

-- We continue to work on clearing frequencies in this range. We hope that next year we will be able to obtain the missing frequencies.

-- What are the plans for investments in the northwestern region, does the company plan to revise them?

-- Initial investment -- $50 million. Further financing of the project will depend on how the local market accepts Bee Line GSM.

-- Coming to the market third - after Megafon and MTS, does the company intend to compete for a highly profitable corporate client?

-- We won't have any corporate clients yet. Nevertheless, we do not deviate from our intentions to occupy about a third of the Russian cellular market over the next two to three years. Therefore, in the future, as our network develops, we will actively work with the corporate segment.

- What part of the mass market are you counting on?

-- Bee Line is positioned as an innovative company capable of offering a wide range of additional services. In keeping with this image, we expect to attract young people - the most mobile part of St. Petersburg subscribers who show interest in services based on the most modern technologies.

We understand that cellular communications in St. Petersburg are already quite developed and the public is very picky. Therefore, it is very important to be extremely honest with the subscriber when entering the mass market. The new operator certainly attracts attention, but if the operator's services do not meet the subscriber's expectations, it will be very difficult to convince him to connect a second time.

-- As the market grows, competition takes on new forms. What is special about the cellular market?

-- We have passed the stage when mobile communications were interesting in themselves, giving the mass user the freedom to communicate by phone for the first time. All costs related to the quality of communication and service were not particularly important for the subscriber then. Now there is a completely different approach for both the corporate client, who pays a lot of money for cellular communications, and the ordinary user. With the development of networks, the user has a choice, so now competition between operators is transferred to the subscriber service area.

Now, of course, cellular networks do not yet provide complete coverage of the territory of Russia, however, given the current pace of network development, this is quite possible in two years. And then competition will already occur at the intellectual level. The client needs to ensure not only 100% communication coverage, but also access to modern services, as well as a convenient form of communication with the operator. The subscriber should not feel its presence at all. The operator's task is to provide the subscriber with the opportunity to receive the necessary information and access to services by telephone or via the Internet, without leaving home or office. There should be less and less physical contact with the subscriber. If the subscriber uses a credit payment system, then it is necessary to ensure fast delivery of bills; if it is prepaid, then payment cards should be sold almost everywhere.

When entering the regions, we adhere to the same tactics. By the end of this year, we intend to implement a single set of services in all service territories. From the very beginning of building our regional network in September 2001, we have been offering a single package of services in all regions, but with a smaller range of additional capabilities compared to Moscow. Now the entire range of services will be uniform throughout the entire Bee Line GSM territory.

- How will this be implemented technologically?

-- Creating a national-scale network, VimpelCom organized all intellectual technology support in a single center. This also applies to the development of additional services and the further process of their implementation. The platform is being created in Moscow, and on its basis all solutions will be implemented in the regions. The use of such a scheme allows not only to unify services and tariffs, but also to reduce costs when organizing new modern services in the regions.

-- What are the plans for further regional expansion, for the development of the Urals and the Far East?

-- For full licensed coverage of the territory of Russia, VimpelCom only needs the Far East. We are considering several options for entering this region, including the purchase of a local operator. In any case, Bee Line GSM intends to get there within this year.

In the Urals the situation is more complicated from the point of view of the entry of a new player. VimpelCom received a GSM license for the entire Ural macro-region by purchasing the local company East-West Telecom last year. Unlike other regions, where the main competition is between the Big Three operators, there is a fourth worthy player in the Urals. A subsidiary of Svyazinvest, Uralsvyazinform, has been operating here for a long time and very successfully. Nevertheless, we are ready for competition and plan to launch our networks in Yekaterinburg and a number of other cities in the region this fall.

Now it is difficult to talk about possible scenarios for market development in this region, but one cannot help but take into account that global trends towards consolidation in the three main segments of the telecommunications market - operators, content providers and equipment suppliers - are also coming to Russia. Ultimately, there will likely be no more than three large operators left on the Russian market.

-- In some regions has VimpelCom-R already achieved breakeven?

-- Experience shows that business in the regions becomes profitable within a year and a half, and some of our branches are already bringing us profit. However, their financial statements are being consolidated, and, taking into account the intensive development of new regions, our total costs in regional projects still exceed income.

Today VimpelCom announces the financial results of the company’s activities last year. Alfa Bank analyst Andrey Bogdanov believes that VimpelCom's net profit in the fourth quarter of 2002 will amount to $44 million versus $18.8 million in the fourth quarter of 2001, revenue - respectively, $255 million versus $134.1 million dollars, profit before taxes excluding depreciation and revaluation of fixed assets (EBITDA) - $105 million versus $43.8 million. Thus, the expert predicts an increase in the operator's revenue in 2002 compared to 2001 by 88%, to 794 .5 million dollars, EBITDA - by 2.3 times, to 342.6 million dollars, net profit - by 2.8 times, to 134.5 million dollars. Mr. Bogdanov believes that the company’s loss “ VimpelCom-R, whose reporting is consolidated with that of VimpelCom, increased in the fourth quarter of last year compared to the previous quarter, as at the end of the year the operator put into operation many new networks.

Interviewed by Nadezhda KOSTYUK