A decade ago it cost $5,000 just to get started, phones weighed 5 kilograms and subscribers could not stray far from the center of St. Petersburg or Moscow if they wanted to keep their signal.
Today, cellphones and initial fees can ring in at less than $100, per-minute tariffs are still falling, and subscribers are not a magnet for strange looks while chatting away in the street, metro, car, office or at the dacha.
It's been 10 years and three days since Delta Telecom launched commercial operations in St. Petersburg, becoming the former Soviet Union's first cellular provider. Then-St. Petersburg Mayor Anatoly Sobchak made the ceremonial first call to the mayor of Seattle in the United States.
Running on the NMT-450 cellular standard, Delta picked up 131 customers by year's end and almost 1,000 more in 1992. Moscow Cellular Communications, which started up in Moscow a few months later, was just as small with tariffs just as big.
For most of the decade, cellphones remained the exclusive toy of the business or government elite, which quickly made it a status symbol. Still, the pioneering companies say they had to teach people just what mobile communications were all about.
"When we started in '91 and '92 it was a very new product. It was a new product in the world, but in Russia especially," said Nikolai Pryanishnikov, first vice president of Vimpelcom, who in the early 1990s worked at MCC.
"I remember going to rich people and offering them cellular phones, and them saying, ?We've got secretaries. We've got phones in our office. Why do we need mobile phones?'"
That soon changed as the cellphone began to be equated with power and a Mercedes Benz with tinted windows. Manufacturers and operators say that, in the very beginning, it was actually modish to have a big phone -- the more visible the better.
"Now you can have it in your pocket, you don't have to carry a suitcase," said Raimo Niukkanen, head of Moscow operations for Nokia, which started selling car phones to gas and oil executives in the Soviet Union in the late 1970s. "But then it was actually really cool to have a large phone."
Tariffs stayed outrageous for several years, making Russian operators among the most expensive in the world. Prices were hardly a deterrent to a select group of people, and operators reaped profits from the start.
"Because of network constraints, we couldn't provide services to everyone," said Delta Telecom general director Victor Ustyuzhann, who has been with the company since Sobchak made his call. "But there were enough very rich people who wanted this service, and they were prepared to pay."
Vimpelcom, founded in 1994, saw its net profit jump 190 percent the next year, making it one of the world's most successful cellular startups and helping it become the first Russian company to list on the New York Stock Exchange. Mobile TeleSystems, or MTS, now Russia's leading operator by subscribers, joined them in 2000.
Actually, mobile communications did not start going mass market in Moscow -- by far Russia's most lucrative area -- until late 1999, when Vimpelcom, the nation's No. 2 provider that operates under the Beeline brand name, offered its "phone-in-a-box" for $49. Even competitor MTS admits that the cheap package helped change consumer attitudes.
"It was really a breakthrough in the mentality toward mobile communications," said MTS spokeswoman Eva Prokofeva.
By the end of this year, well over 6 million people will be chatting away, analysts predict. The 5 million mark was already surpassed in July, and the Communications Ministry says that by 2010 there will be between 45 and 48 million users, almost a third of the country.
The number of mobile phone users will soon surpass those with regular telephones in some large cities. Russia's largest fixed-line provider, Moscow City Telephone Network, or MGTS, had 100,000 new subscribers last year. By comparison, MTS gets more than that each month.
"There was a mobile boom in 2000 and 2001 in Russia -- in a year and a half, the amount of subscribers practically doubled," said First Deputy Communications Minister Yury Pavlenko, according to Interfax.
"The cellular boom in Russia reflects global tendencies," he said.
These days, the 20-plus percent and rising penetration rate in Moscow is apparent, with rings and beeps sounding off all over the center. But overall, only 3.4 percent of the country is hooked up -- not quite up to the standards of West European markets, where penetration will average 68 percent at the end of the year, according to Pyramid Research.
Though St. Petersburg made the first call, it was Moscow that became the seedbed for real competition among operators.
By the late 1990s, it became clear that Russia was headed the way of GSM, the European standard. Vimpelcom, which started up on the AMPS network in 1994, and MCC began to lose market share to GSM operator MTS. Particularly, higher-paying business clients migrated to GSM with its automatic roaming and handset variety.
Now, 900/1800 GSM licenses are one of the most coveted things in the Communication Ministry's power. The so-called "big three" -- MTS, Vimpelcom and Telecominvest -- all have the stated goal of becoming a national operator, and each is seeking licenses for certain macro-regions, or else angling to buy a licensed local operator. Analysts say that eventually each of the big three will have coverage over the entire country.
The larger operators are moving more aggressively toward the regions, convinced that that's where future growth lies and that the early bird often gets the worm. Over the next few years, the three leaders plan to invest a combined $1.5 billion outside Moscow and St. Petersburg. American company MCT Corp., with interests in 25 operators across the country, including Delta and MCC, has a five-year $500 million capital expenditure plan and sees itself a contender or even a leader in several regions.
This fall, for the first time ever, Russian operators are vying for business across the border. MTS and Telecominvest's Northwest GSM are currently participating in a tender for Belarus' second GSM license. NWGSM announced last week a new business in Tajikistan. Vimpelcom strategic investor Alfa Group, which spawned a telecoms department in the past year, has said it is looking beyond countries of the former Soviet Union.
Meanwhile, back in Moscow, subscribers have grown more sophisticated and demanding, and a mini-revolution is expected in St. Petersburg. NWGSM now has a virtual monopoly on the GSM market, but MTS is moving in this fall and the Communications Ministry has hinted that Vimpelcom could win a third license.
Competition among providers is already shifting from tariff wars and network coverage to additional services like e-mail and Internet access.
"When the tariffs are more or less the same all you can compete on is the quality of connection and the number of value-added services," said Prokofeva.
Mirroring operators worldwide that saw their most optimistic forecasts beaten thanks to mobile-hungry consumers, Russia's mobile companies are banking on a continuing upward trend.
"Whoever tries it will never give it up. It's like a drug," said Delta's Ustyuzhann.
Today, cellphones and initial fees can ring in at less than $100, per-minute tariffs are still falling, and subscribers are not a magnet for strange looks while chatting away in the street, metro, car, office or at the dacha.
It's been 10 years and three days since Delta Telecom launched commercial operations in St. Petersburg, becoming the former Soviet Union's first cellular provider. Then-St. Petersburg Mayor Anatoly Sobchak made the ceremonial first call to the mayor of Seattle in the United States.
Running on the NMT-450 cellular standard, Delta picked up 131 customers by year's end and almost 1,000 more in 1992. Moscow Cellular Communications, which started up in Moscow a few months later, was just as small with tariffs just as big.
For most of the decade, cellphones remained the exclusive toy of the business or government elite, which quickly made it a status symbol. Still, the pioneering companies say they had to teach people just what mobile communications were all about.
"When we started in '91 and '92 it was a very new product. It was a new product in the world, but in Russia especially," said Nikolai Pryanishnikov, first vice president of Vimpelcom, who in the early 1990s worked at MCC.
"I remember going to rich people and offering them cellular phones, and them saying, ?We've got secretaries. We've got phones in our office. Why do we need mobile phones?'"
That soon changed as the cellphone began to be equated with power and a Mercedes Benz with tinted windows. Manufacturers and operators say that, in the very beginning, it was actually modish to have a big phone -- the more visible the better.
"Now you can have it in your pocket, you don't have to carry a suitcase," said Raimo Niukkanen, head of Moscow operations for Nokia, which started selling car phones to gas and oil executives in the Soviet Union in the late 1970s. "But then it was actually really cool to have a large phone."
Tariffs stayed outrageous for several years, making Russian operators among the most expensive in the world. Prices were hardly a deterrent to a select group of people, and operators reaped profits from the start.
"Because of network constraints, we couldn't provide services to everyone," said Delta Telecom general director Victor Ustyuzhann, who has been with the company since Sobchak made his call. "But there were enough very rich people who wanted this service, and they were prepared to pay."
Vimpelcom, founded in 1994, saw its net profit jump 190 percent the next year, making it one of the world's most successful cellular startups and helping it become the first Russian company to list on the New York Stock Exchange. Mobile TeleSystems, or MTS, now Russia's leading operator by subscribers, joined them in 2000.
Actually, mobile communications did not start going mass market in Moscow -- by far Russia's most lucrative area -- until late 1999, when Vimpelcom, the nation's No. 2 provider that operates under the Beeline brand name, offered its "phone-in-a-box" for $49. Even competitor MTS admits that the cheap package helped change consumer attitudes.
"It was really a breakthrough in the mentality toward mobile communications," said MTS spokeswoman Eva Prokofeva.
By the end of this year, well over 6 million people will be chatting away, analysts predict. The 5 million mark was already surpassed in July, and the Communications Ministry says that by 2010 there will be between 45 and 48 million users, almost a third of the country.
The number of mobile phone users will soon surpass those with regular telephones in some large cities. Russia's largest fixed-line provider, Moscow City Telephone Network, or MGTS, had 100,000 new subscribers last year. By comparison, MTS gets more than that each month.
"There was a mobile boom in 2000 and 2001 in Russia -- in a year and a half, the amount of subscribers practically doubled," said First Deputy Communications Minister Yury Pavlenko, according to Interfax.
"The cellular boom in Russia reflects global tendencies," he said.
These days, the 20-plus percent and rising penetration rate in Moscow is apparent, with rings and beeps sounding off all over the center. But overall, only 3.4 percent of the country is hooked up -- not quite up to the standards of West European markets, where penetration will average 68 percent at the end of the year, according to Pyramid Research.
Though St. Petersburg made the first call, it was Moscow that became the seedbed for real competition among operators.
By the late 1990s, it became clear that Russia was headed the way of GSM, the European standard. Vimpelcom, which started up on the AMPS network in 1994, and MCC began to lose market share to GSM operator MTS. Particularly, higher-paying business clients migrated to GSM with its automatic roaming and handset variety.
Now, 900/1800 GSM licenses are one of the most coveted things in the Communication Ministry's power. The so-called "big three" -- MTS, Vimpelcom and Telecominvest -- all have the stated goal of becoming a national operator, and each is seeking licenses for certain macro-regions, or else angling to buy a licensed local operator. Analysts say that eventually each of the big three will have coverage over the entire country.
The larger operators are moving more aggressively toward the regions, convinced that that's where future growth lies and that the early bird often gets the worm. Over the next few years, the three leaders plan to invest a combined $1.5 billion outside Moscow and St. Petersburg. American company MCT Corp., with interests in 25 operators across the country, including Delta and MCC, has a five-year $500 million capital expenditure plan and sees itself a contender or even a leader in several regions.
This fall, for the first time ever, Russian operators are vying for business across the border. MTS and Telecominvest's Northwest GSM are currently participating in a tender for Belarus' second GSM license. NWGSM announced last week a new business in Tajikistan. Vimpelcom strategic investor Alfa Group, which spawned a telecoms department in the past year, has said it is looking beyond countries of the former Soviet Union.
Meanwhile, back in Moscow, subscribers have grown more sophisticated and demanding, and a mini-revolution is expected in St. Petersburg. NWGSM now has a virtual monopoly on the GSM market, but MTS is moving in this fall and the Communications Ministry has hinted that Vimpelcom could win a third license.
Competition among providers is already shifting from tariff wars and network coverage to additional services like e-mail and Internet access.
"When the tariffs are more or less the same all you can compete on is the quality of connection and the number of value-added services," said Prokofeva.
Mirroring operators worldwide that saw their most optimistic forecasts beaten thanks to mobile-hungry consumers, Russia's mobile companies are banking on a continuing upward trend.
"Whoever tries it will never give it up. It's like a drug," said Delta's Ustyuzhann.
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