A brief description of the situation. The main events in the fourth quarter for the market of mobile terminals can be considered:

  • The situation at customs, the lack of guaranteed channels for the supply of phones to the Russian market;
  • Growth of the replacement market, saturation of regional markets due to the expansion of federal players;
  • Change in user preferences, as a result, a drop in sales in the pre-New Year period;

Russian customs

In August 2005, Department "K" of the Russian Interior Ministry carried out a series of raids, both at customs terminals and outside them, which led to the seizure of significant quantities of mobile phones. These terminals were sold during the 4th quarter in regional markets through one-day firms, no court decisions confirming such a sale were made.

At the same time, the Ministry of Internal Affairs of Russia began to put pressure not only on distributors of mobile terminals, but also on the State Customs Committee. The consequence of this pressure was an exponential increase in the collection of taxes from the importation of mobile phones, which was repeatedly reported by the customs service in the fourth quarter. The work carried out was indicative and had an extremely negative impact on the market. The Customs Committee liquidated all schemes of semi-legal delivery of goods through Moscow terminals, in which the customs value of equipment was underestimated. At the same time, the same channels in St. Petersburg continued to operate in full, which led to a redistribution of supplies through this city.By the beginning of the fourth quarter, Moscow companies were paying about 26-29 percent (23 percent official fees) for the delivery of one phone and its customs clearance, while distributors from the northern capital had a rate of 12-14 percent, including delivery. Having gained an advantage due to the actions of state bodies, distributors based in St. Petersburg became more active and increased their turnover by at least 2-3 times.

The current situation could not suit the Moscow companies and they sent a letter to the representative offices of manufacturers. In the form of an ultimatum, distributors demanded that terminals be supplied only to the Russian market, to companies with Russian origin and having the official status of a distributor. This made it possible to avoid the existing semi-legal schemes for the supply of equipment with the participation of one-day firms, the sale of terminals outside of Russia. Manufacturers formed a common position only by the end of the year and agreed with the requirements of Moscow distributors, and the companies from St. Petersburg also formally agreed with them. But the agreements reached did not become a guarantee of the formation of a transparent market, since there are still intermediary companies on the market that ensure the import of goods with a lower customs rate (12-15 percent for customs clearance).

The actions of the customs service did not have any effect on companies that import phones into the territory of the Russian Federation unofficially, bypassing the representative offices of companies, existing channels. In fact, companies focused on smuggling were not affected. At the same time, all major distributors were under attack, as different conditions in different cities did not allow for the same price level for the same products. The situation was aggravated by the fact that in Ukraine there is no control over the import of mobile phones, the models supplied to the market of this country have the same markings as the Russian ones, the same software.A number of small companies, with a turnover of up to 50,000 terminals per quarter, began to purchase equipment in Ukraine and deliver it to Russia. The difference only in retail prices between the two markets is from 15 percent, if we start from wholesale prices in Ukraine and Russian retail, then for some positions a difference of 30-35 percent is achievable. Since the fourth quarter, the Ukrainian market has seen an explosive growth in the consumption of mobile terminals, it is not due to a large number of connections, these are orders from Russian companies. During the fourth quarter, there were no detentions of consignments of mobile phones from Ukraine to Russia at the Russian customs. It also formed negative expectations of distributors and affected sales in wholesale channels. Regional players preferred buying small batches of phones from Ukraine at a lower price than paying for completely "white" devices from Russian companies. In the first half of 2006, the supply of terminals from Ukraine will have the greatest impact on the Russian market.

To normalize the situation, it is required to ensure the same working conditions for all distributor companies, both from customs and manufacturers. Due to the heterogeneity of interests within the customs committee, the intense competition between manufacturers, it is impossible to expect an early resolution of this issue, the instability factor will be present on the market at least until the end of summer. Starting from the first quarter of 2006, the volume of the gray market will increase, but in practice it will be problematic to separate "Russian" models and the same devices for Ukraine.

The current situation poses a serious threat to franchisees to projects, primarily Divizion, Tsifrograd. Franchisee partners in the conditions of inflated prices for phones from franchise holders and the presence of intense competition in the regions will begin to lose the market and not fulfill their obligations to franchise holders. For them, the struggle for market share becomes logical and, as a result, the purchase of equipment not from trademark holders, but from other sources. This, in turn, hits both the sales of Divizion, Tsifrograd (Severen in this case), reduces them, and forms a negative image of these brands in the eyes of consumers (poor-quality service, phones not intended for Russia or with no warranty, etc. .). It is impossible for franchisees to control the process of selling phones, unless they go into illegal supply chains, which does not seem possible. They lose the competition on price. The reduction in the share of sales of ordinary distributors that are not focused on franchisee partners is also happening, but at a different speed.

Replacement market, regional markets

The Russian market of mobile terminals is gradually approaching the saturation point, this is evidenced by a drop in interest in budget phones of the middle class (not the cheapest solutions, but intermediate models in the range from 65 to 110 dollars), there is an increase in the replacement market. In the fourth quarter of 2004, the replacement market was only 48 percent, while in 2005 it was already 78 percent. The maximum value for the replacement market can be considered 86 percent, it will be reached in the second quarter of 2006 or a little later. It was the growth in demand for more expensive models, the emergence of a class of buyers with conscious needs that formed the consumption of the 4th quarter of 2005. The choice of phone for the buyer becomes conscious, and the following parameters come to the fore:

  • Design, attractiveness of appearance, conformity with a person's ideas about himself
  • Trademark, its prestige
  • Phone cost
  • Good screen, polyphony
  • Defined functionality
  • More Options

From the second half of 2005, we also begin to observe the formation of a class of loyal customers in relation to retail chains. Until that time, when choosing a place to buy a phone, buyers were guided by considerations of price, but now the company's reputation, quality of service, and additional services are taken into account. When using additional services, the convenience of visiting the salon, its location, and walking distance come to the fore. This is what allows Euroset to form a high collection of payments for mobile communications and not only. Accessory sales are also spurred on by similar buyers. That is, in addition to loyalty to the network, its brand begins to play the role of the number of points, their location in settlements, coverage density.

Regional players in the current conditions with the Russian customs get additional chances to compete with federal networks. There are various price offers on the market for many positions, which allows you to create a balanced offer. But the negative trends are still strong, many companies become franchisors, many prefer to sell the business and exit it with minimal losses.

First Quarter 2005 Results

To understand the situation, it is necessary to look at the situation in the third quarter of 2005. Manufacturers had the following market shares:

In the fourth quarter, Nokia continued to increase its presence in the market and achieved leadership, largely due to the position of Euroset. During the fourth quarter, the company was given a directive to sell Nokia equipment to the detriment of all other manufacturers, and this directive is still in effect. At the same time, Nokia occupies only the second place according to the results of the year, this is due to poor control over the supply of terminals. One of the large wholesale distributors systematically purchases Nokia terminals, but does not supply them in full to the Russian market, since it has neither retail partners nor its own network. Phones are sold in Eastern Europe, and sometimes in African countries. We do not take into account these devices, although they are considered by Nokia as supplied to the Russian market, the phones do not physically reach Russia and cannot be counted. The short-term forecast for Nokia is positive, the only competitor for it is Samsung, but the poorer model range, the lack of products in the smartphone segment (mass products) will not be able to create strong pressure on the company. For Samsung, a positive feature is tight control of distributors, phone sales channels, high activity in ATL, BTL channels. Companies in 2006 will compete for the first place in the Russian market, the favorite in this fight is Nokia.

Motorola was unable to form a lineup, and all sales were built around a few key models, in particular, the Motorola RAZR V3. This device is a bestseller in its class and has sales comparable in quantity to budget models. The manufacturer expands the offer for this model due to variations of different body colors. The model has a long life cycle and will be on the market until next autumn.

Besides, for Motorola, high sales were provided by budget solutions, the main factor of choice here was the cost of the phone. The company began to experience pressure from both Siemens and Nokia in this segment. High sales here are also characteristic of Sony Ericsson.

In the future, we should expect that Motorola will be fixed in third place, there will be no growth in market share. Siemens does not pose a threat to Motorola, although by reducing the cost of budget solutions, the German manufacturer was able to increase its share and take the fourth position. The change of the name to BenQ and the appearance of double lettering on the phones will have a negative impact on their perception by consumers. At the same time, the introduction of phones that are fundamentally different in ideology and design can improve the situation.

Siemens is beginning to feel pressure from Sony Ericsson, and we should expect it to lose second place at the end of the second and beginning of the third quarter of 2006.

Sony Ericsson has recorded its sales, is preparing to release new models and has a good offer in the middle and high price segments. For the company, the lack of a large model range plays a negative role, the popularity of the brand is constantly growing. A negative factor is the growth of gray supplies, primarily from Ukraine.

LG confidently takes the sixth place, the rotation of the model range, its constant updating allows us to achieve such a result. Focusing primarily on the Euroset company, LG considered it possible to break off relations with the Svyaznoy company, focusing on only one player. While the Euroset is in need of substitute phones, surrogates for Samsung products, sales for LG and Pantech will be provided, in the future they will decrease, since manufacturers do not have a formed distribution network.

In the fourth quarter, we saw a sharp drop in sales for second-tier companies, as many distributors refused to purchase their equipment. In the future, we can expect the situation to worsen for Fly, a number of major players in the 4th quarter decided to terminate cooperation with this manufacturer (more precisely, the exclusive distributor of Meridian Telecom). Panasonic is leaving the market of mobile terminals and will no longer produce GSM phones. Alcatel had no sales in the last six months, which negatively affected its position (in the fourth quarter, we provided previously unrecorded sales figures for this company). Sharp has finally disappeared from the market, a similar fate threatens NEC, it does not have a new model range for 2006, sales of i-mode devices for the MTS network are low. Companies such as Philips and Voxtel maintain a stable position in the market. For the first time, Sagem was able to make a leap forward and deliver 245,000 terminals to the market within one quarter.

Results of 2005, forecast for 2006

The growth of the market continued in 2005, but the growth rate slowed down along with the end of the regional expansion of operators. In 2006 the market will continue to grow, but this year will be the last year with a growing market. We estimate that at least 36 million terminals will be delivered to the market in 2006, given the rather sluggish sales in the first and second quarters. According to optimistic estimates, the market volume may reach up to 38-39 million units. The change in the structure of demand dictates the growth of the average cost of the phone, it will continue in 2006.

The shares of companies in 2005 were distributed as follows:

About Mobile Research Group

The main activity of the Mobile Research Group (http://www.mobile-analytics.ru) is the study of the mobile terminal market in Russia. The company analyzes the competitive situation of all manufacturers of mobile terminals on the Russian market, and the distribution market - retail and wholesale sales of mobile terminals. Based on the processed statistical data and the analysis carried out, the situation in the market of mobile terminals is predicted for a period of up to one year. On an ongoing basis, the company presents a quarterly market analysis, in which the most significant events are noted and their results are analyzed.

When reprinting data from the newsletter, reference to the Mobile Research Group as the data source is required. We reserve the right to revise the data provided in the bulletin in the event of new circumstances not previously known to us.
© Mobile Research Group, 2006

The Russian market of terminals in the fourth quarter of 2005. Results of 2005

Statistics . Official sales of terminals on the Russian market amounted to 9330thousand terminals*, while in the third quarter of 2005 the volume of deliveries was equal to 8738 thousand terminals. Sales growth was 6.7 percent, which is uncharacteristic for this season. The volume of the gray market in the fourth quarter decreased to 1.7 percent, which was due to problems in the Russian customs, the general increase in official sales. The term "gray market" in the current realities should refer exclusively to smuggled goods that are supplied bypassing all official channels. The average price of the model in the third quarter was 102.6 Euro. The growth of the replacement market was observed, at the end of the quarter it amounted to 72 percent. The market size in 2005 amounted to 33 million two hundred and eighteen thousand terminals.

* Hereinafter, sell-in data of manufacturing companies are given

A brief description of the situation. The main events in the fourth quarter for the market of mobile terminals can be considered:

  • The situation at customs, the lack of guaranteed channels for the supply of phones to the Russian market;
  • Growth of the replacement market, saturation of regional markets due to the expansion of federal players;
  • Change in user preferences, as a result, a drop in sales in the pre-New Year period;

Russian customs

In August 2005, Department "K" of the Russian Interior Ministry carried out a series of raids, both at customs terminals and outside them, which led to the seizure of significant quantities of mobile phones. These terminals were sold during the 4th quarter in regional markets through one-day firms, no court decisions confirming such a sale were made.

At the same time, the Ministry of Internal Affairs of Russia began to put pressure not only on distributors of mobile terminals, but also on the State Customs Committee. The consequence of this pressure was an exponential increase in the collection of taxes from the importation of mobile phones, which was repeatedly reported by the customs service in the fourth quarter. The work carried out was indicative and had an extremely negative impact on the market. The Customs Committee liquidated all schemes of semi-legal delivery of goods through Moscow terminals, in which the customs value of equipment was underestimated.At the same time, the same channels in St. Petersburg continued to operate in full, which led to a redistribution of supplies through this city. By the beginning of the fourth quarter, Moscow companies were paying about 26-29 percent (23 percent official fees) for the delivery of one phone and its customs clearance, while distributors from the northern capital had a rate of 12-14 percent, including delivery. Having gained an advantage due to the actions of state bodies, distributors based in St. Petersburg became more active and increased their turnover by at least 2-3 times.

The current situation could not suit the Moscow companies and they sent a letter to the representative offices of manufacturers. In the form of an ultimatum, distributors demanded that terminals be supplied only to the Russian market, to companies with Russian origin and having the official status of a distributor. This made it possible to avoid the existing semi-legal schemes for the supply of equipment with the participation of one-day firms, the sale of terminals outside of Russia. Manufacturers formed a common position only by the end of the year and agreed with the requirements of Moscow distributors, and the companies from St. Petersburg also formally agreed with them. But the agreements reached did not become a guarantee of the formation of a transparent market, since there are still intermediary companies on the market that ensure the import of goods with a lower customs rate (12-15 percent for customs clearance).

The actions of the customs service did not have any effect on companies that import phones into the territory of the Russian Federation unofficially, bypassing the representative offices of companies, existing channels. In fact, companies focused on smuggling were not affected. At the same time, all major distributors were under attack, as different conditions in different cities did not allow for the same price level for the same products. The situation was aggravated by the fact that in Ukraine there is no control over the import of mobile phones, the models supplied to the market of this country have the same markings as the Russian ones, the same software.A number of small companies, with a turnover of up to 50,000 terminals per quarter, began to purchase equipment in Ukraine and deliver it to Russia. The difference only in retail prices between the two markets is from 15 percent, if we start from wholesale prices in Ukraine and Russian retail, then for some positions a difference of 30-35 percent is achievable. Since the fourth quarter, the Ukrainian market has seen an explosive growth in the consumption of mobile terminals, it is not due to a large number of connections, these are orders from Russian companies. During the fourth quarter, there were no detentions of consignments of mobile phones from Ukraine to Russia at the Russian customs. It also formed negative expectations of distributors and affected sales in wholesale channels. Regional players preferred buying small batches of phones from Ukraine at a lower price than paying for completely "white" devices from Russian companies. In the first half of 2006, the supply of terminals from Ukraine will have the greatest impact on the Russian market.

To normalize the situation, it is required to ensure the same working conditions for all distributor companies, both from customs and manufacturers. Due to the heterogeneity of interests within the customs committee, the intense competition between manufacturers, it is impossible to expect an early resolution of this issue, the instability factor will be present on the market at least until the end of summer. Starting from the first quarter of 2006, the volume of the gray market will increase, but in practice it will be problematic to separate "Russian" models and the same devices for Ukraine.

The current situation poses a serious threat to franchisees to projects, primarily Divizion, Tsifrograd. Franchisee partners in the conditions of inflated prices for phones from franchise holders and the presence of intense competition in the regions will begin to lose the market and not fulfill their obligations to franchise holders. For them, the struggle for market share becomes logical and, as a result, the purchase of equipment not from trademark holders, but from other sources. This, in turn, hits both the sales of Divizion, Tsifrograd (Severen in this case), reduces them, and forms a negative image of these brands in the eyes of consumers (poor-quality service, phones not intended for Russia or with no warranty, etc. .). It is impossible for franchisees to control the process of selling phones, unless they go into illegal supply chains, which does not seem possible. They lose the competition on price. The reduction in the share of sales of ordinary distributors that are not focused on franchisee partners is also happening, but at a different speed.

Replacement market, regional markets

The Russian market of mobile terminals is gradually approaching the saturation point, this is evidenced by a drop in interest in budget phones of the middle class (not the cheapest solutions, but intermediate models in the range from 65 to 110 dollars), there is an increase in the replacement market. In the fourth quarter of 2004, the replacement market was only 48 percent, while in 2005 it was already 78 percent. The maximum value for the replacement market can be considered 86 percent, it will be reached in the second quarter of 2006 or a little later. It was the growth in demand for more expensive models, the emergence of a class of buyers with conscious needs that formed the consumption of the 4th quarter of 2005. The choice of phone for the buyer becomes conscious, and the following parameters come to the fore:

  • Design, attractiveness of appearance, conformity with a person's ideas about himself
  • Trademark, its prestige
  • Phone cost
  • Good screen, polyphony
  • Defined functionality
  • More Options

Shopping Behavior Description Study was conducted in September, October 2005 and covered 9 cities of millionaires, the total sample was 2675 people. A similar study conducted a year earlier (only in Moscow, a sample of 350 people) showed that buyers primarily focus on the technical components of the device, such as the screen, polyphony, and only then look at the price and brand. A direct comparison of the results of these two studies is not possible, but the direction of the market development can be obtained. For the buyer, the design of the phone comes to the fore, additional functions are not so important. The success of the Motorola RAZR V3 illustrates this change in consumer behavior. Loyalty to a particular brand begins to play a big role when choosing a device. The increase in consumption of Nokia phones in retail chains is also driven by the described changes in consumer behavior.

The lack of a surge in sales in the pre-New Year period is explained by the changed behavior of buyers, as well as the fact that the phone has ceased to play the role of a status item for a certain circle of consumers. In Russia, a market for expensive phones has formed, it is the largest among all European markets. At the same time, the bulk of consumers no longer see a status thing in a phone, it is a common household item. The market for exclusive models in Russia exceeds that in Italy by at least 5.5 times. Unofficial sales of Vertu phones are larger than official ones, for the Russian consumer this product has become massive in certain circles, despite the manufacturer positioning it as a unique offer with single sales.

From the second half of 2005, we also begin to observe the formation of a class of loyal customers in relation to retail chains. Until that time, when choosing a place to buy a phone, buyers were guided by considerations of price, but now the company's reputation, quality of service, and additional services are taken into account. When using additional services, the convenience of visiting the salon, its location, and walking distance come to the fore. This is what allows Euroset to form a high collection of payments for mobile communications and not only. Accessory sales are also spurred on by similar buyers. That is, in addition to loyalty to the network, its brand begins to play the role of the number of points, their location in settlements, coverage density.

Regional players in the current conditions with the Russian customs get additional chances to compete with federal networks. There are various price offers on the market for many positions, which allows you to create a balanced offer. But the negative trends are still strong, many companies become franchisors, many prefer to sell the business and exit it with minimal losses.

First Quarter 2005 Results

To understand the situation, it is necessary to look at the situation in the third quarter of 2005. Manufacturers had the following market shares:

In the fourth quarter, Nokia continued to increase its presence in the market and achieved leadership, largely due to the position of Euroset. During the fourth quarter, the company was given a directive to sell Nokia equipment to the detriment of all other manufacturers, and this directive is still in effect. At the same time, Nokia takes only the second place according to the results of the year, this is due to poor control over the supply of terminals. One of the large wholesale distributors systematically purchases Nokia terminals, but does not supply them in full to the Russian market, since it has neither retail partners nor its own network. Phones are sold in Eastern Europe, and sometimes in African countries. We do not take into account these devices, although they are considered by Nokia as supplied to the Russian market, the phones do not physically reach Russia and cannot be counted. The short-term forecast for Nokia is positive, Samsung is its only competitor, but the poorer model range, the lack of products in the smartphone segment (mass products) will not be able to create strong pressure on the company. For Samsung, a positive feature is tight control of distributors, phone sales channels, high activity in ATL, BTL channels. Companies in 2006 will compete for the first place in the Russian market, the favorite in this fight is Nokia.

Motorola was unable to form a lineup, and all sales were built around a few key models, in particular, the Motorola RAZR V3. This device is a bestseller in its class and has sales comparable in quantity to budget models. The manufacturer expands the offer for this model due to variations of different body colors. The model has a long life cycle and will be on the market until next autumn.

Besides, for Motorola, high sales were provided by budget solutions, the main factor of choice here was the cost of the phone. The company began to experience pressure from both Siemens and Nokia in this segment. High sales here are also characteristic of Sony Ericsson.

In the future, we should expect that Motorola will be fixed in third place, there will be no growth in market share. Siemens does not pose a threat to Motorola, although by reducing the cost of budget solutions, the German manufacturer was able to increase its share and take the fourth position. The change of the name to BenQ and the appearance of double lettering on the phones will have a negative impact on their perception by consumers. At the same time, the introduction of phones that are fundamentally different in ideology and design can improve the situation.

In the fourth quarter, we saw a sharp drop in sales for second-tier companies, the refusal of many distributors to purchase their equipment. In the future, we can expect the situation to worsen for Fly, a number of major players in the 4th quarter decided to terminate cooperation with this manufacturer (more precisely, the exclusive distributor of Meridian Telecom). Panasonic is leaving the market of mobile terminals and will no longer produce GSM phones. Alcatel had no sales in the last six months, which negatively affected its position (in the fourth quarter, we provided previously unrecorded sales figures for this company). Sharp has finally disappeared from the market, a similar fate threatens NEC, it does not have a new model range for 2006, sales of i-mode devices for the MTS network are low. Companies such as Philips and Voxtel maintain a stable position in the market. For the first time, Sagem was able to make a leap forward and deliver 245,000 terminals to the market within one quarter.

Results of 2005, forecast for 2006

The growth of the market continued in 2005, but the growth rate slowed down along with the end of the regional expansion of operators. In 2006 the market will continue to grow, but this year will be the last year with a growing market. We estimate that at least 36 million terminals will be delivered to the market in 2006, given the rather sluggish sales in the first and second quarters. According to optimistic estimates, the market volume may reach up to 38-39 million units. The change in the structure of demand dictates the growth of the average cost of the phone, it will continue in 2006.

The shares of companies in 2005 were distributed as follows:

About Mobile Research Group

The main activity of the Mobile Research Group (http://www.mobile-analytics.ru) is the study of the mobile terminal market in Russia. The company analyzes the competitive situation of all manufacturers of mobile terminals on the Russian market, and the distribution market - retail and wholesale sales of mobile terminals. Based on the processed statistical data and the analysis carried out, the situation in the market of mobile terminals is predicted for a period of up to one year. On an ongoing basis, the company presents a quarterly market analysis, in which the most significant events are noted and their results are analyzed.

When reprinting data from a newsletter, reference to the Mobile Research Group as the data source is required. We reserve the right to revise the data provided in the bulletin in the event of new circumstances not previously known to us.
© Mobile Research Group, 2006

The Russian market of terminals in the fourth quarter of 2005. Results of 2005

Statistics . Official sales of terminals in the Russian market amounted to 9330thousand terminals*, while in the third quarter of 2005 the volume of deliveries was equal to 8738 thousand terminals. Sales growth was 6.7 percent, which is not typical for this season. The volume of the gray market in the fourth quarter decreased to 1.7 percent, which was due to problems at the Russian customs, the general increase in official sales. The term "gray market" in the current realities should refer exclusively to smuggled goods that are supplied bypassing all official channels. The average price of the model in the third quarter was 102.6 Euro. The growth of the replacement market was observed, at the end of the quarter it amounted to 72 percent. The market volume in 2005 amounted to 33 million two hundred and eighteen thousand terminals.

The current situation could not suit the Moscow companies and they sent a letter to the representative offices of manufacturers. In the form of an ultimatum, distributors demanded that terminals be supplied only to the Russian market, to companies with Russian origin and having the official status of a distributor. This made it possible to avoid the existing semi-legal schemes for the supply of equipment with the participation of one-day firms, the sale of terminals outside of Russia. Manufacturers formed a common position only by the end of the year and agreed with the requirements of Moscow distributors, and the companies from St. Petersburg also formally agreed with them. But the agreements reached did not become a guarantee of the formation of a transparent market, since there are still intermediary companies on the market that ensure the import of goods with a lower customs rate (12-15 percent for customs clearance).

The actions of the customs service did not have any effect on companies that import phones into the territory of the Russian Federation unofficially, bypassing the representative offices of companies, existing channels. In fact, companies focused on smuggling were not affected. At the same time, all major distributors were under attack, as different conditions in different cities did not allow for the same price level for the same products. The situation was aggravated by the fact that in Ukraine there is no control over the import of mobile phones, the models supplied to the market of this country have the same markings as the Russian ones, the same software.A number of small companies, with a turnover of up to 50,000 terminals per quarter, began to purchase equipment in Ukraine and deliver it to Russia. The difference only in retail prices between the two markets is from 15 percent, if we start from wholesale prices in Ukraine and Russian retail, then for some positions a difference of 30-35 percent is achievable. Since the fourth quarter, the Ukrainian market has seen an explosive growth in the consumption of mobile terminals, it is not due to a large number of connections, these are orders from Russian companies. During the fourth quarter, there were no detentions of consignments of mobile phones from Ukraine to Russia at the Russian customs. This also created negative expectations for distributors and affected sales in wholesale channels. Regional players preferred buying small batches of phones from Ukraine at a lower price than paying for completely "white" devices from Russian companies. In the first half of 2006, the supply of terminals from Ukraine will have the greatest impact on the Russian market.

Regional companies against the backdrop of the overlap of channels for the delivery of equipment for their partners from Moscow Men's Original Casio Watch and supply disruptions began to look for their own ways to purchase equipment. Demand in large cities significantly exceeded supply. Companies that had never specialized in mobile terminals began to explore possible delivery channels. The city of Yekaterinburg has become one of these channels; telephones from China are supplied here. The channel is entirely contraband, since the models are not intended for the Russian market, they do not have the appropriate software and packaging. But the cost of the devices is low, the subsequent printing of instructions, the firmware of the Russian language is justified. The channel capacity is from 20,000 terminals per month. This example is not the only one, in other large cities spontaneous channels for the delivery of equipment have also arisen.

Large distributors began to compete not only among themselves, but also with the gray market. This led to the impossibility of reducing retail prices for phones, we recall that after the August events, their growth amounted to 25 to 30 percent. Maintaining high margins on phones for large retail chains is becoming the only way to survive in the current volatile market conditions. With high prices, companies are trying to compensate for their losses in August and September, as well as to create operating reserves for the current period. But on the other hand, these same prices form a black market, activate unofficial supplies, and dilute their share of sales.

To normalize the situation, it is required to ensure the same working conditions for all distributor companies, both from customs and manufacturers. Due to the heterogeneity of interests within the customs committee, the intense competition between manufacturers, it is impossible to expect an early resolution of this issue, the instability factor will be present on the market at least until the end of summer. Starting from the first quarter of 2006, the volume of the gray market will increase, but in practice it will be problematic to separate "Russian" models and the same devices for Ukraine.

The current situation poses a serious threat to franchisees to projects, primarily Divizion, Tsifrograd. Franchisee partners in the conditions of inflated prices for phones from franchise holders and the presence of intense competition in the regions will begin to lose the market and not fulfill their obligations to franchise holders. For them, the struggle for market share becomes logical and, as a result, the purchase of equipment not from trademark holders, but from other sources. This, in turn, hits both the sales of Divizion, Tsifrograd (Severen in this case), reduces them, and forms a negative image of these brands in the eyes of consumers (poor-quality service, phones not intended for Russia or with no warranty, etc. .). It is impossible for franchisees to control the process of selling phones, unless they go into illegal supply chains, which does not seem possible. They lose the competition on price. The reduction in the share of sales of ordinary distributors that are not focused on franchisee partners is also happening, but at a different speed.

Shopping Behavior Description Study was conducted in September, October 2005 and covered 9 cities of millionaires, the total sample was 2675 people. A similar study conducted a year earlier (only in Moscow, a sample of 350 people) showed that buyers primarily focus on the technical components of the device, such as the screen, polyphony, and only then look at the price and brand. A direct comparison of the results of these two studies is not possible, but the direction of the market development can be obtained. For the buyer, the design of the phone comes to the fore, additional functions are not so important. The success of the Motorola RAZR V3 illustrates this change in consumer behavior. Loyalty to a particular brand begins to play a big role when choosing a device. The increase in consumption of Nokia phones in retail chains is also driven by the described changes in consumer behavior.

The lack of a surge in sales in the pre-New Year period is explained by the changed behavior of buyers, as well as the fact that the phone has ceased to play the role of a status item for a certain circle of consumers. In Russia, a market for expensive phones has formed, it is the largest among all European markets. At the same time, the bulk of consumers no longer see a status thing in a phone, it is a common household item. The market for exclusive models in Russia exceeds that in Italy by at least 5.5 times. Unofficial sales of Vertu phones are larger than official ones, for the Russian consumer this product has become massive in certain circles, despite the manufacturer positioning it as a unique offer with single sales.

From the second half of 2005, we also begin to observe the formation of a class of loyal customers in relation to retail chains. Until that time, when choosing a place to buy a phone, buyers were guided by considerations of price, but now the company's reputation, quality of service, and additional services are taken into account. When using additional services, the convenience of visiting the salon, its location, and walking distance come to the fore. This is what allows Euroset to form a high collection of payments for mobile communications and not only. Accessory sales are also spurred on by similar buyers. That is, in addition to loyalty to the network, its brand begins to play the role of the number of points, their location in settlements, coverage density.

Regional players in the current conditions with the Russian customs get additional chances to compete with federal networks. There are various price offers on the market for many positions, which allows you to create a balanced offer. But the negative trends are still strong, many companies become franchisors, many prefer to sell the business and exit it with minimal losses.

First Quarter 2005 Results

To understand the situation, it is necessary to look at the situation in the third quarter of 2005. Manufacturers had the following market shares:

In the fourth quarter, Nokia continued to increase its presence in the market and achieved leadership, largely due to the position of Euroset. During the fourth quarter, the company was given a directive to sell Nokia equipment to the detriment of all other manufacturers, and this directive is still in effect. At the same time, Nokia takes only the second place according to the results of the year, this is due to poor control over the supply of terminals. One of the large wholesale distributors systematically purchases Nokia terminals, but does not supply them in full to the Russian market, since it has neither retail partners nor its own network. Phones are sold in Eastern Europe, and sometimes in African countries. We do not take into account these devices, although they are considered by Nokia as supplied to the Russian market, the phones do not physically reach Russia and cannot be counted. The short-term forecast for Nokia is positive, Samsung is its only competitor, but the poorer model range, the lack of products in the smartphone segment (mass products) will not be able to create strong pressure on the company. For Samsung, a positive feature is tight control of distributors, phone sales channels, high activity in ATL, BTL channels. Companies in 2006 will compete for the first place in the Russian market, the favorite in this fight is Nokia.

Motorola was unable to form a lineup, and all sales were built around a few key models, in particular, the Motorola RAZR V3. This device is a bestseller in its class and has sales comparable in quantity to budget models. The manufacturer expands the offer for this model due to variations of different body colors. The model has a long life cycle and will be on the market until next autumn.

Besides, for Motorola, high sales were provided by budget solutions, the main factor of choice here was the cost of the phone. The company began to experience pressure from both Siemens and Nokia in this segment. High sales here are also characteristic of Sony Ericsson.

In the future, we should expect that Motorola will be fixed in third place, there will be no growth in market share. Siemens does not pose a threat to Motorola, although by reducing the cost of budget solutions, the German manufacturer was able to increase its share and take the fourth position. The change of the name to BenQ and the appearance of double lettering on the phones will have a negative impact on their perception by consumers. At the same time, the introduction of phones that are fundamentally different in ideology and design can improve the situation.

Siemens is beginning to feel pressure from Sony Ericsson, and we should expect it to lose second place at the end of the second and beginning of the third quarter of 2006.

Sony Ericsson has recorded its sales, is preparing to release new models and has a good offer in the middle and high price segments. For the company, the lack of a large model range plays a negative role, the popularity of the brand is constantly growing. A negative factor is the growth of gray supplies, primarily from Ukraine.

LG confidently takes the sixth place, the rotation of the model range, its constant updating allows us to achieve such a result. Focusing primarily on the Euroset company, LG considered it possible to break off relations with the Svyaznoy company, focusing on only one player. While the Euroset is in need of substitute phones, surrogates for Samsung products, sales for LG and Pantech will be provided, in the future they will decrease, since manufacturers do not have a formed distribution network.

In the fourth quarter, we saw a sharp drop in sales for second-tier companies, the refusal of many distributors to purchase their equipment. In the future, we can expect the situation to worsen for Fly, a number of major players in the 4th quarter decided to terminate cooperation with this manufacturer (more precisely, the exclusive distributor of Meridian Telecom). Panasonic is leaving the market of mobile terminals and will no longer produce GSM phones. Alcatel had no sales in the last six months, which negatively affected its position (in the fourth quarter, we provided previously unrecorded sales figures for this company). Sharp has finally disappeared from the market, a similar fate threatens NEC, it does not have a new model range for 2006, sales of i-mode devices for the MTS network are low. Companies such as Philips and Voxtel maintain a stable position in the market. For the first time, Sagem was able to make a leap forward and deliver 245,000 terminals to the market within one quarter.

Results of 2005, forecast for 2006

The growth of the market continued in 2005, but the growth rate slowed down along with the end of the regional expansion of operators. In 2006 the market will continue to grow, but this year will be the last year with a growing market. We estimate that at least 36 million terminals will be delivered to the market in 2006, given the rather sluggish sales in the first and second quarters. According to optimistic estimates, the market volume may reach up to 38-39 million units. The change in the structure of demand dictates the growth of the average cost of the phone, it will continue in 2006.

The shares of companies in 2005 were distributed as follows:

About Mobile Research Group

The main activity of the Mobile Research Group (http://www.mobile-analytics.ru) is the study of the market of mobile terminals in Russia. The company analyzes the competitive situation of all manufacturers of mobile terminals on the Russian market, and the distribution market - retail and wholesale sales of mobile terminals. Based on the processed statistical data and the analysis carried out, the situation in the market of mobile terminals is predicted for a period of up to one year. On an ongoing basis, the company presents a quarterly market analysis, in which the most significant events are noted and their results are analyzed.

When reprinting data from a newsletter, reference to the Mobile Research Group as the data source is required. We reserve the right to revise the data provided in the bulletin in the event of new circumstances not previously known to us.
© Mobile Research Group, 2006

The Russian market of terminals in the fourth quarter of 2005. Results of 2005

Statistics . Official sales of terminals in the Russian market amounted to 9330 thousand terminals*, while in the third quarter of 2005 the volume of deliveries was equal to 8738 thousand terminals. Sales growth amounted to 6.7 percent, which is not typical for this season. The volume of the gray market in the fourth quarter decreased to 1.7 percent, which was due to problems at the Russian customs, the general increase in official sales. The term "gray market" in the current realities should refer exclusively to smuggled goods that are supplied bypassing all official channels. The average price of the model in the third quarter was 102.6 Euros. The growth of the replacement market was observed, at the end of the quarter it amounted to 72 percent. The market volume in 2005 amounted to 33 million two hundred and eighteen thousand terminals.

* Hereinafter, sell-in data of manufacturing companies are given

A brief description of the situation. The main events in the fourth quarter for the market of mobile terminals can be considered:

  • The situation at customs, the lack of guaranteed channels for the supply of phones to the Russian market;
  • Growth of the replacement market, saturation of regional markets due to the expansion of federal players;
  • Change in user preferences, as a result, a drop in sales in the pre-New Year period;

Russian customs

In August 2005, Department "K" of the Russian Interior Ministry carried out a series of raids, both at customs terminals and outside them, which led to the seizure of significant quantities of mobile phones. These terminals were sold during the 4th quarter in regional markets through one-day firms, no court decisions confirming such a sale were made.

At the same time, the Ministry of Internal Affairs of Russia began to put pressure not only on distributors of mobile terminals, but also on the State Customs Committee. The consequence of this pressure was an exponential increase in the collection of taxes from the importation of mobile phones, which was repeatedly reported by the customs service in the fourth quarter. The work carried out was indicative and had an extremely negative impact on the market. The Customs Committee liquidated all schemes of semi-legal delivery of goods through Moscow terminals, in which the customs value of equipment was underestimated. At the same time, the same channels in St. Petersburg continued to operate in full, which led to a redistribution of supplies through this city.By the beginning of the fourth quarter, Moscow companies were paying about 26-29 percent (23 percent official fees) for the delivery of one phone and its customs clearance, while distributors from the northern capital had a rate of 12-14 percent, including delivery. Having gained an advantage due to the actions of state bodies, distributors based in St. Petersburg became more active and increased their turnover by at least 2-3 times.

Amid the shutdown of equipment delivery channels for their partners from Moscow Men's Original Casio Watch and supply disruptions, regional companies began to look for their own ways to purchase equipment. Demand in large cities significantly exceeded supply. Companies that had never specialized in mobile terminals began to work out possible channels for their delivery. The city of Yekaterinburg became one of such channels; telephones from China are supplied here. The channel is entirely contraband, since the models are not intended for the Russian market, they do not have the appropriate software and packaging. But the cost of the devices is low, the subsequent printing of instructions, the firmware of the Russian language is justified. The channel capacity is from 20,000 terminals per month. This example is not the only one, in other large cities spontaneous channels for the delivery of equipment have also arisen.

Regional companies against the backdrop of overlapping equipment delivery channels for their partners from Moscow Men's Original Casio Watch Men's Original Casio Watch and supply disruptions began to look for their own ways to purchase equipment. Demand in large cities significantly exceeded supply. Companies that had never specialized in mobile terminals began to explore possible delivery channels. The city of Yekaterinburg has become one of these channels; telephones from China are supplied here. The channel is entirely contraband, since the models are not intended for the Russian market, they do not have the appropriate software and packaging. But the cost of the devices is low, the subsequent printing of instructions, the firmware of the Russian language is justified. The channel capacity is from 20,000 terminals per month. This example is not the only one, in other large cities spontaneous channels for the delivery of equipment also arose.

Large distributors began to compete not only among themselves, but also with the gray market. This led to the impossibility of reducing retail prices for phones, we recall that after the August events, their growth amounted to 25 to 30 percent. Maintaining high margins on phones for large retail chains is becoming the only way to survive in the current volatile market conditions. With high prices, companies are trying to compensate for their losses in August and September, as well as to create operating reserves for the current period. But on the other hand, these same prices form a black market, activate unofficial supplies, and dilute their share of sales.

Replacement market, regional markets

The Russian market of mobile terminals is gradually approaching the saturation point, this is evidenced by a drop in interest in budget phones of the middle class (not the cheapest solutions, but intermediate models in the range from 65 to 110 dollars), there is an increase in the replacement market. In the fourth quarter of 2004, the replacement market was only 48 percent, while in 2005 it was already 78 percent. The maximum value for the replacement market can be considered 86 percent, it will be reached in the second quarter of 2006 or a little later. It was the growth in demand for more expensive models, the emergence of a class of buyers with conscious needs that formed the consumption of the 4th quarter of 2005. The choice of phone for the buyer becomes conscious, and the following parameters come to the fore:

  • Design, attractiveness of appearance, conformity with a person's ideas about himself
  • Trademark, its prestige
  • Phone cost
  • Good screen, polyphony
  • Defined functionality
  • More Options

Shopping Behavior Description Study was conducted in September, October 2005 and covered 9 cities of millionaires, the total sample was 2675 people. A similar study conducted a year earlier (only in Moscow, a sample of 350 people) showed that buyers primarily focus on the technical components of the device, such as the screen, polyphony, and only then look at the price and brand. A direct comparison of the results of these two studies is not possible, but the direction of the market development can be obtained. For the buyer, the design of the phone comes to the fore, additional functions are not so important. The success of the Motorola RAZR V3 illustrates this change in consumer behavior. Loyalty to a particular brand begins to play a big role when choosing a device. The increase in consumption of Nokia phones in retail chains is also driven by the described changes in consumer behavior.

The lack of a surge in sales in the pre-New Year period is explained by the changed behavior of buyers, as well as the fact that the phone has ceased to play the role of a status item for a certain circle of consumers. In Russia, a market for expensive phones has formed, it is the largest among all European markets. At the same time, the bulk of consumers no longer see a status thing in a phone, it is a common household item. The market for exclusive models in Russia exceeds that in Italy by at least 5.5 times. Unofficial sales of Vertu phones are larger than official ones, for the Russian consumer this product has become massive in certain circles, despite the manufacturer positioning it as a unique offer with single sales.

From the second half of 2005, we also begin to observe the formation of a class of loyal customers in relation to retail chains. Until that time, when choosing a place to buy a phone, buyers were guided by considerations of price, but now the company's reputation, quality of service, and additional services are taken into account. When using additional services, the convenience of visiting the salon, its location, and walking distance come to the fore. This is what allows Euroset to form a high collection of payments for mobile communications and not only. Accessory sales are also spurred on by similar buyers. That is, in addition to loyalty to the network, its brand begins to play the role of the number of points, their location in settlements, coverage density.

Regional players in the current conditions with the Russian customs get additional chances to compete with federal networks. There are various price offers on the market for many positions, which allows you to create a balanced offer. But the negative trends are still strong, many companies become franchisors, many prefer to sell the business and exit it with minimal losses.

Results of the fourth quarter of 2005

To understand the situation, it is necessary to look at the situation in the third quarter of 2005. Manufacturers had the following market shares:

In the fourth quarter, Nokia continued to increase its presence in the market and achieved leadership, largely due to the position of Euroset. During the fourth quarter, the company was given a directive to sell Nokia equipment to the detriment of all other manufacturers, and this directive is still in effect. At the same time, Nokia occupies only the second place according to the results of the year, this is due to poor control over the supply of terminals. One of the large wholesale distributors systematically purchases Nokia terminals, but does not supply them in full to the Russian market, since it has neither retail partners nor its own network. Phones are sold in Eastern Europe, and sometimes in African countries. We do not take into account these devices, although they are considered by Nokia as supplied to the Russian market, the phones do not physically reach Russia and cannot be counted. The short-term forecast for Nokia is positive, the only competitor for it is Samsung, but the poorer model range, the lack of products in the smartphone segment (mass products) will not be able to create strong pressure on the company. For Samsung, a positive feature is tight control of distributors, phone sales channels, high activity in ATL, BTL channels. Companies in 2006 will compete for the first place in the Russian market, the favorite in this fight is Nokia.

Motorola was unable to form a lineup, and all sales were built around a few key models, in particular, the Motorola RAZR V3. This device is a bestseller in its class and has sales comparable in quantity to budget models. The manufacturer expands the offer for this model due to variations of different body colors. The model has a long life cycle and will be on the market until next autumn.

Besides, for Motorola, high sales were provided by budget solutions, the main factor of choice here was the cost of the phone. The company began to experience pressure from both Siemens and Nokia in this segment. High sales here are also characteristic of Sony Ericsson.

In the future, we should expect that Motorola will be fixed in third place, there will be no growth in market share. Siemens does not pose a threat to Motorola, although by reducing the cost of budget solutions, the German manufacturer was able to increase its share and take the fourth position. The change of the name to BenQ and the appearance of double lettering on the phones will have a negative impact on their perception by consumers. At the same time, the introduction of phones that are fundamentally different in ideology and design can improve the situation.

In the fourth quarter, we saw a sharp drop in sales for second-tier companies, the refusal of many distributors to purchase their equipment. In the future, we can expect the situation to worsen for Fly, a number of major players in the 4th quarter decided to terminate cooperation with this manufacturer (more precisely, the exclusive distributor of Meridian Telecom). Panasonic is leaving the market of mobile terminals and will no longer produce GSM phones. Alcatel had no sales in the last six months, which negatively affected its position (in the fourth quarter, we provided previously unrecorded sales figures for this company). Sharp has finally disappeared from the market, a similar fate threatens NEC, it does not have a new model range for 2006, sales of i-mode devices for the MTS network are low. Companies such as Philips and Voxtel maintain a stable position in the market. For the first time, Sagem was able to make a leap forward and deliver 245,000 terminals to the market within one quarter.

Results of 2005, forecast for 2006

The growth of the market continued in 2005, but the growth rate slowed down along with the end of the regional expansion of operators. In 2006 the market will continue to grow, but this year will be the last year with a growing market. We estimate that at least 36 million terminals will be delivered to the market in 2006, given the rather sluggish sales in the first and second quarters. According to optimistic estimates, the market volume may reach up to 38-39 million units. The change in the structure of demand dictates the growth of the average cost of the phone, it will continue in 2006.

The shares of companies in 2005 were distributed as follows:

About Mobile Research Group

The main activity of the Mobile Research Group (http://www.mobile-analytics.ru) is the study of the mobile terminal market in Russia. The company analyzes the competitive situation of all manufacturers of mobile terminals on the Russian market, and the distribution market - retail and wholesale sales of mobile terminals. Based on the processed statistical data and the analysis carried out, the situation in the market of mobile terminals is predicted for a period of up to one year. On an ongoing basis, the company presents a quarterly market analysis, in which the most significant events are noted and their results are analyzed.

When reprinting data from the newsletter, reference to the Mobile Research Group as the data source is required. We reserve the right to revise the data provided in the bulletin in the event of new circumstances not previously known to us. Copyright © 2006 Mobile Research Group