WITH THE INCREASE in the number of cell-phone users, Russia's leading telecom operators now face the problem of market saturation. The problem is further aggravated by the fact that the potential for price reductions has been almost exhausted, and the service has become affordable to broad masses in the country.

In other words, if the rates go down further, companies will be running at a loss. In this situation, additional services are becoming the main instrument of competition to win new consumers.

"Companies are shifting focus from struggling for new customers to holding existing ones," said Nikolai Pryanishnikov, first vice president of VimpelCom. "This tactic has been taken up by the majority of the country's leading telecoms, and the introduction of new services is acquiring special importance in this situation."

GPRS (General Packet Radio Service) data transfer protocol has emerged as one of the most popular and widely discussed telecom services.

GPRS is being actively developed by such companies as Alcatel, Ericsson, Motorola, Nokia, Nortel and Siemens. The service has gained momentum since the first GPRS call was made in November 1999, though its success has not been as dramatic as market analysts had predicted. Currently, not more than 3-5 percent of cell-phone customers in the world are using GPRS. Nevertheless, market insiders hope that by 2003, when the number of GSM users worldwide is expected to exceed 600 million, the percentage of GPRS users will surpass 15 percent. According to forecasts made by the EMC Corp., the number of GPRS users will grow even faster than that of GSM users beginning next year.

VimpelCom launched GPRS as a commercial operation in June and offered it free until Sept. 20 to all who signed-up for a trial subscription.

"Initial results indicate that there is an interest in the service," VimpelCom representative Mikhail Umarov said. "More than 1,000 people are using GPRS today. And this is without any special advertising or promotion. On the other hand, there are a number of factors hampering further development. These include the lack of handsets, poor scope of services and the fact that the existing GSM network needs perfecting. Nevertheless, we are sure that the new service has a future and a market."

Most analysts and insiders are not very optimistic about the prospects of GPRS in Russia. "The BeeLine GSM network gives priority to voice traffic, which means that if voice traffic is high, data transfer gets very slow or stalled," said Alexander Leonidov of the Sotovik agency.

"It is not always possible to access the Internet with GPRS in the center of Moscow, especially during daytime on a working day. The GPRS service needs perfecting, and its prospects do not appear very optimistic at least until the end of this year," Leonidov added.

"It seems to me that, by and large, the Russian market is not ready to digest GPRS," J'Son and Partners analyst Anton Pogrebinsky said.

"Even if we assume that there is a demand, the average consumer is hardly aware of what GPRS is and what benefits it offers. And the choice of handsets supporting GPRS leaves much to be desired. Only one model, a Motorola phone, has passed certification. Regrettably, the average speed of data transfer is not much above the traditional GSM speed of 9,600 Kbit/sec. Nevertheless, I would say that GPRS does have prospects in Russia, though it is not quite clear how to resolve the so-called ‘asymmetry' problem, i.e., when you can download, but cannot send. In Russia, one of the main niches for GPRS will be electronic mail," Pogrebinsky noted.

Another leading telecom operator, MTS, is in no hurry to introduce GPRS, through MTS representative Eva Prokofyeva said "MTS does have a functional GPRS."

"Having made a study, MTS concluded that dynamic approach to channel allocation is inefficient, and has chosen an alternative, though impractical way of allocating a fixed number of channels at each base station for GPRS, though this diminishes the network's potential of channeling voice traffic," Leonidov said. This approach helps provide a more stable GPRS access, but the system, though all necessary equipment was installed more than a year ago, has not been launched for commercial use because the network cannot afford a reduction of voice-traffic capacity. Launching GPRS now will increase the risk of failures in the network and may cause MTS to suffer financial losses.

"In all likelihood, MTS director of commerce and marketing Igor Timofeyev and his team have made their choice in favor of fighting for "geography" and quality of conventional GSM service, refraining at this moment from investing funds and efforts in GPRS optimizations," Leonidov noted.

Commercial potential of GPRS is dubious, while investment requirements are quite high. "Therefore, it is not at all surprising," Leonidov went on to say, "that MTS is in no hurry to develop the service. I would not expect MTS to make any serious moves toward large-scale introduction of GPRS any time soon."

(Anton Bursak is a writer for ibusiness.ru.)