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Friday, April 13, 2007

Ukrainian Cellular & Kyivstar

AC&M are reporting that Kyivstar actually lost 142k subscribers in Mar to 22 million subscribers. Overall, the market added a meager 100k to 51.4 million which is a theoretical penetration rate of 108%. Even accounting for double counting, the market is probably already saturated in terms of individuals.

What makes the market even more dangerous for the two largest players is that there is two smaller sub-scale players backed by multinationals with extremely deep pockets. What normally follows in this situation is a price war.

The obvious way to avoid future pain is from market consolidation and for a starter it would make obvious sense for Kyivstar (owned by the shareholder of Vimpelcom – Telenor & Alfa/Altimo) to merge with URS. Given the bad blood between Telenor & Vimpelcom, I seriously doubt whether the logical outcome is the chosen one.

The fact that Telenor has just deconsolidated Kyivstar just as subscriber numbers and potentially profits have peaked probably means that they are digging in for the long term.