Analysis: Rostelecom mobile push may stir Russian price war

By Maria Kiselyova

MOSCOW (Reuters) - State-controlled Russian telecoms group Rostelecom may enter the lucrative Moscow mobile market with discounts of up to 20 percent, likely starting a price war that will hit the three big established operators' profit margins.

The former long-distance monopoly, transformed last year into a multi-service provider by merging with seven regional operators, wants to boost its share of mobile, broadband and pay-TV markets to offset a fall in its core fixed-line business.

While the company has not said what share of the market it was targeting, management told an analysts' briefing last week it planned to take up to 10 percent of the Moscow mobile market by 2015 and launch a 3G mobile network there by early next year.

That means challenging the big three telecoms operators - MTS, MegaFon and Vimpelcom - in a market which, by some estimates, accounted for up to a third of their combined Russian mobile revenues of $20 billion last year.

Analysts cited management as saying Rostelecom could offer a 20 percent discount to win Moscow subscribers.

"It will be negative for the market, for other operators (who) will likely have to take countermeasures to retain subscribers, which will reduce profitability," Otkritie analyst Alexander Vengranovich said.

"There have always been fears that Rostelecom will enter new markets as a discounter. But in the case of Moscow, where it has to invest heavily in network rollout and marketing, Rostelecom will itself suffer most," he said.

Mobile number portability, being considered by the telecoms regulator, would allow subscribers to keep their mobile phone number while changing carrier. That would support Rostelecom's plan, analysts said.