VimpelCom’s regions chief, Alexei Mischenko, spoke with Vladimir Kozlov about the company’s national strategy.

VimpelCom, Moscow's No. 2 mobile-phone operator, recently made a decision to expand to the regions. The company, which operates under the Bee Line brand name, formed a subsidiary, VimpelCom-R, in a bid to introduce its services to the rest of the country.

Alexei Mischenko, the head of VimpelCom-R, spoke to The Russia Journal about VimpelCom's ambitions in the regions and shared his thoughts on the company's current and planned activities.

The Russia Journal: Which regions is Vimpelcom-R targeting?

Alexei Mischenko: We have a license to operate in four federal districts – the Central, the Volga, the Southern and the Siberian, covering 50 regions. According to our strategy, we're first launching operations in the Central district. In addition to our existing network in Voronezh, we will debut in eight more regions of that district in September, and introduce a new network in Belgorod in November.

In the Southern district, we're focused on Rostov Oblast, where we're planning to launch a GSM network in December. In the Volga region, the first network in operation will be in Nizhny Novgorod and Saratov by the end of this year. In Siberia, we're working on a GSM network for Novosibirsk, which we also expect to launch by the end of this year. In the remaining 36 regions, our mobile networks will be initially launched in a commercial test mode with a view to be transferred to full sales next year.

RJ: What is your target number of subscribers in these regions?

AM: We do have targets, but they are a commercial secret, so I can't release them.

RJ: How will the merger of several telecom companies in the Northwest region affect VimpelCom-R's plans?

AM: It will have no impact on our business plans because we estimate our future share of the regional markets at about 30-35 percent. We started with an assumption that there would be three major players in the market.

RJ: What is your policy toward the smaller operators in the regions?

AM: We don't have a universal recipe for all of the regions. Everything will depend on economic considerations. If a local operator offers us a good deal, we'll go for it. But if the price it offers does not correspond with its market value, we won't waste time. Instead we'll focus on the development of our own network.

RJ: What will be your competitive advantage over local operators?

AM: Our competitive advantage is that we're operating in the [GSM] standard, which about 70 percent of Russia's mobile-service subscribers prefer. So, it will be difficult for companies that operate using other mobile-communication standards to compete with us. This doesn't have anything to do with the quality of a company's personnel or its position in the market. If you look at statistics, you'll see that the number of subscribers in DAMPS and NMT standards is shrinking rapidly. A year ago, GSM subscribers accounted for 60 percent of mobile-phone subscribers, and now this figure has grown to 70 percent at the expense of other cellular standards.

RJ: What pricing policy will VimpelCom-R pursue?

AM: The idea is to turn VimpelCom into a national mobile operator. In the early 1990s, the market developed sporadically, so now it mainly consists of small companies that have just a couple of thousand subscribers each. As a result, most subscribers have to pay roaming charges and many have problems with reception when they travel to another city.

A Bee Line subscriber will not have to make any additional payments while traveling on VimpelCom-covered territory. Also, we will have a uniform marketing policy in all the regions. Yes, there could be some local specifics, depending on the purchasing power in any given region, but overall, our marketing policy will be the same. There will be the same subscription plans, and all the services available in Moscow will also be available to subscribers in Oryol, Rostov and Novosibirsk, for example.

RJ: What impact will your regional operations have on mobile tariffs in the regions?

AM: Of course, prices will decline – this is unavoidable. In any industry, a newly launched product is expensive, but it gradually goes down. But we're not going to compete on price level; we will beat the competition with high quality and a wide range of services for customers. Today, the three major operators in the market use the same standard. So, what selection criterion will a potential subscriber use to choose his service provider? The price/quality ratio.

RJ: Which services will be the most popular in the regions?

AM: The same services that are popular here, such as voice mail, reference services and SMS. We're also considering GPRS – mobile Internet services – as another prospective field.

RJ: People's purchasing power in the regions is believed to be much lower than in the capital. How are you going to tackle this problem?

AM: The purchasing power is not necessarily low, if you judge by the number and quality of cars sold in the regions, for example. Also, the average monthly phone bill in the regions is bigger than in Moscow by a

bout 20 percent. True, in the regions, mobile communications is a more exclusive service, unlike in Moscow and St. Petersburg where almost everyone with a decent salary has a cellular phone. According to our predictions, penetration in the regions will not match Moscow's 20-25 percent. But it can jump from the current 2 percent to as much as 8 percent within the next two years.