MTS Bolsters Windows Smartphones as Apple IPhone Ebbs in Russia

OAO Mobile TeleSystems’s chief said
Russia’s largest mobile-phone operator would need better terms
to back Apple Inc. (AAPL) handsets again after Windows smartphones
advanced to almost match iPhones in market share.

“Apple wants operators to pay them huge money, subsidizing
iPhones and their promotion in Russia,” Chief Executive Officer
Andrei Dubovskov said in an interview in St. Petersburg. “Now
it’s not beneficial for us. It’s good we stopped selling the
iPhone as these sales would’ve brought us a negative margin.”

MTS stopped selling Apple’s latest iPhones in its shops at
the end of 2012 and has strengthened its relationship with other
device makers. It hosted Microsoft Corp. (MSFT) CEO Steve Ballmer and
Nokia (NOK1V) Oyj CEO Stephen Elop in Moscow in November. MTS,
controlled by billionaire Vladimir Evtushenkov’s AFK Sistema,
agreed to promote Microsoft Windows handsets including Nokia
Lumias and opened Windows Phone zones in its flagship stores.

Windows Phone accounted for 8.2 percent of smartphones sold
in Russia in the first quarter, or 315,000, compared with 5.1
percent a year earlier, while Apple’s share dropped to 8.3
percent from 9 percent, according to research firm IDC.

“The MTS (MTSS) bet on Windows Phone and its decision not to sell
iPhones is clearly contributing to this trend,” said Simon
Baker, a Moscow-based handset analyst at IDC. The historical
strength of Espoo, Finland-based Nokia’s brand in Russia also
helped, he said.

Chinese Smartphone

Globally, Windows Phone had 3.3 percent market share among
smartphones in the quarter, compared with Cupertino, California-based Apple’s 17.3 percent.

“When a handset producer is ready for co-promotion and
offering special conditions to our customers, its share in our
sales increase,” Dubovskov said. “As a result of such co-operation, sales of Windows Phone and Android devices in our
retail chain grow faster than in the Russian market in

The market share of Windows smartphone sales in MTS’s
retail network is “probably two times higher than its share in
Russia in general,” Dubovskov said, declining to disclose
precise numbers.

Shares of Nokia advanced 0.5 percent to 3.20 euros at 10:04
a.m. in Helsinki, and MTS fell 0.4 percent to 265.65 rubles in
Moscow. Apple declined 0.6 percent to $415.05 in New York
yesterday and Microsoft gained 0.3 percent to $34.33.

MTS, based in Moscow, is increasing smartphone sales to
earn more money on mobile data, Dubovskov said. Its range
includes handsets as cheap as a $100 Chinese-made smartphone
under the MTS brand, the CEO said.

“We view every subscriber as data user and give out voice
for free,” Dubovskov said. This year, MTS said it was the first
Russian operator to introduce tariff plans with unlimited voice
for data users.

India Interest

MTS may consider buying Sistema’s wireless unit in India,
which uses the MTS India brand, once it becomes profitable,
Dubovskov said. “We see potential synergies there in terms of
technology, management team, brand and equipment purchases.”

MTS is also preparing to expand coverage with faster
fourth-generation networks. The company plans to cover 600
Russian population centers with 4G by the end 2014, according to
the CEO.

Russia’s total mobile revenue climbed 9 percent to 837.4
billion rubles ($25 billion) last year, according to ACM
Consulting. Data revenue surged 33 percent to account for 100.7
billion rubles of that total.

“Those MTS users who need the iPhone are buying it one way
or another — in a gray market or from independent retailers —
and are still generating data revenue for us,” Dubovskov said.

Acquisition Strategy

Svyaznoy, a mobile-phone retail chain, sells iPhones and is
also co-operating more closely with MTS after its rival retailer
Euroset Holding NV was acquired by Russian wireless operators
OAO MegaFon and VimpelCom Ltd. (VIP), according to Dubovskov.

MTS enjoys a good relationship with Svyaznoy and has no
plans to acquire it, Dubovskov said.

“If we take $500 million and buy a certain stake in
Svyaznoy it won’t create additional value for MTS,” Dubovskov
said. “We’d better pay Svyaznoy the same money in revenue-sharing over the next decade.”

MTS also isn’t interested in fixed broadband acquisitions
in Russia, the CEO said.

“We are present in fixed broadband in more than half of
Russian regions,” Dubovskov said. “We aren’t currently
planning to expand this business as it has a longer payback
period, while we are focused on mobile broadband.”

Russia may sell a controlling stake in telecommunications
operator OAO Rostelecom for at least $5 billion as early as this
year, First Deputy Prime Minister Igor Shuvalov said in April.

“At first glance, Rostelecom doesn’t seem a very
attractive business for MTS to buy,” Dubovskov said. “The
total length of our fiber-optic networks is already more than
140,000 kilometers, we have strong business in regions where
Rostelecom has key mobile units.”

To contact the reporter on this story:
Ilya Khrennikov in Moscow at

To contact the editor responsible for this story:
Kenneth Wong at

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