MobileTeleSystems (MTS) and VimpelCom, Russia's leading mobile telephone operators, have plunged into the provinces. And Telecominvest – with its Megaphone project – is not being kept out of the action.

Megaphone gained a reputation as a serious player in the market when it launched a network on the Black Sea coast in the summer of 2001. Vacationers were surprised to see an alternative GSM network on their phones instead of the usual Kuban GSM. Then, after merging with Sonic Duo, Megaphone strenghened itself as a major brand challenging the market's giants.

Megaphone is operated by the North-West GSM, Sonic Duo, Mobicom-Kavkaz, Mobicom-Novosibirsk, Mobicom-Khabarovsk, MSS-Povolzhye, Volzhsky GSM and Mobicom-Kirov with support from Telecominvest, Sonera and Telia. Now Megaphone is in a position to offer serious competition to such behemoths as MTS and VimpelCom, which operates under the BeeLine brand.

As things stand, Megaphone is the only telecom operator licensed to provide GSM services throughout 68 of Russia's regions with a population of 122 million (80 percent of the total). The brand's founders call their brainchild "the first all-Russian GSM operator." Recently, Telecominvest acquired the controlling stake in Uralsky GSM, which strengthened the brand further.

MTS leadership is skeptical about Megaphone and its prospects. At a recent press conference, MTS President Mikhail Smirnov said it is strange that a company that calls itself an "all-Russian cell-phone operator" has a client base of only 400,000 people.

It is no secret that MTS boasts a huge client base, operates networks in many cities and is building new ones at a quick tempo. Having acquired the St. Petersburg operator Telecom XXI in May, MTS effectively plunged into the northwest.

In mid-August, MTS announced the acquisition of an 81 percent stake in Telecom-900 for $27 million. Telecom 900 holds controlling stakes in a number of major telecom operators in the Urals, Siberia and the Far East, including Siberian Telesystems-900 (51 percent), Uraltel (53.17 percent) and Far East Telesystem-900 (60 percent). In total, they serve 117,000 clients, and their licensed territory is populated by 9 million people.

With the acquisition of Telecom-900, the licensed territory of MTS and its subsidiaries expanded to 46 regions with 84 million people.

Recently, MTS commissioned a local network in Nizhny Novgorod and obtained a GSM license in Belarus, thus becoming a transnational company.

Another important move by MTS was the introduction of its Unified Payment Receiving System over its entire area of operation.

A unified accounting center was set up to accumulate data on access line allocation, allow for automatic client ID and provide for remote interaction between the technical services and the billing systems of all regional networks. The introduction of its country-wide "express cards" payment system allowed the company to operate without payment offices in the regions.

So what is Vimpelcom doing to expand into the regions? Having allied with the Alfa Group, VimpelCom set up a subsidiary, Vimpelcom-R, which accumulated all the parent company's GSM licenses, except those for Moscow and the Moscow region.

Vimpelcom-R Chairman Stanislav Shekshni said that in addition to existing licenses, the company plans to obtain licenses to provide mobile-telecom services in the North-Western region and the Far East.

This fall, a total of eight BeeLine GSM local networks have been put into commercial operation in Central Russia – in Tver, Kaluga, Ryazan, Vladimir, Tula, Yaroslavl, Smolensk and Lipetsk. Immediate plans call for commissioning another two networks in the Volga region (in Nizhny Novgorod and in Saratov) in December, while another 11 networks will be put into trial operation.

Also planned in December is the start of commercial operations of a new network in Rostov-on-Don, and the launch of another nine networks for trial operations in the North Caucasus. Eleven networks will be put into trial operations in Siberian cities, including in Novosibirsk, Novokuznetsk and Kemerovo. All networks launched for trial operations in 2001 are expected to start providing services to the clients in 2002.

The battle in the Russian telecom market is a highly visible one: Companies widely advertise their services in the media and, at the same time, are fighting for new territories. Marketing campaigns previously limited to Moscow are now becoming nationwide. "Price wars are over," said Nikolai Pryanishnikov, first vice president of VimpelCom. "But competition between the brands will go on."

Meanwhile, new players are entering the battle. As the AMPS/DAMPS telecom standards will be taken out of use in Russia beginning 2010, the Ministry of Communications promised GSM-1800 licenses to companies currently operating those networks. Regional AMPS/DAMPS operators who are members of the Millicom International Cellular investment group are attractive for Western companies as they recently obtained GSM-1800 licenses to operate in Rostov-on-Don, Izhevsk, Kemerovo, Irkutsk and Omsk.

In August 2001, Millicom signed a cooperation agreement with Swedish concern Tele2, in which Millicom owns 12.73 percent.

Emulating the example set by Megaphone, 25 telecoms in Russia and other C.I.S. states united into a group to promote their common brand name, Indigo. They provide telecom services in three standards – NMT, AMPS and GSM. Indigo boasts more than 500,000 clients in Russia.

Despite the gains in the regions, Moscow and Moscow Oblast are still far ahead in terms of numbers of cell-phone users. Nevertheless, in the next five years, the biggest market growth is forecast to take place in the provinces. During the past several months, regional operators such as Kuban GSM (Krasnodar region) and Taif Telecom (Tatarstan) have outpaced MTS and VimpelCom in terms of client-base growth rate.

Analysts at Pyramid Research said the share of Moscow and Moscow region in the total number of cell-phone users in Russia will drop to 51 percent, and 10 leading operators will be servicing 83 percent of cell-phone users countrywide.

Experts say the tough competition on the telecom-market benefits consumers, giving them lower prices and more choices; it also provides jobs for people and investments for the country. In the long run, they say, the competition also benefits the companies, forcing them to concentrate on improving their services.