Wednesday, 06 July 2022

Russia’s MTS starts discounting smartphones as sanctions sting

by Harry Baldock, Total Telecom
Tuesday 24 May 22

With soaring inflation and an exodus of US smartphone suppliers, Russia’s largest operator has turned to selling used and discounted devices

It should go without saying that the Russian invasion of Ukraine in late February this year has had severe implications for the Russian telecoms industry. From the enormous international sanctions rapidly applied to the broader Russian economy to the withdrawal of key Western players from the Russian market, the country’s telecoms operators are beginning to feel the strain. The country’s largest mobile operator, MTS is a prime example. Just last week, MTS announced a 76…

It should go without saying that the Russian invasion of Ukraine in late February this year has had severe implications for the Russian telecoms industry.

From the enormous international sanctions rapidly applied to the broader Russian economy to the withdrawal of key Western players from the Russian market, the country’s telecoms operators are beginning to feel the strain.

The country’s largest mobile operator, MTS is a prime example. Just last week, MTS announced a 76.2% year-on-year slump in Q1 net profit, largely blaming the results on the soaring interest rates that have arisen as a result of Western sanctions.

Russia initially raised interest rates to 20% in the early stages of the conflict, before cutting the rate twice, leaving it at 14% today. 

MTS was also preparing to sell its tower assets, in line with a trend of monetising passive assets that has been seen throughout Europe and beyond in recent years. However, the conflict has now made finding a buyer largely untenable, with the process halted indefinitely, though MTS notes it is still in discussion with potential investors. 

Today, it is MTS’s access to smartphones that is beginning to feel the pressure from Russia’s increasing isolation, with the company announcing that it has begun to offer discounted and used smartphones in an effort to give customers more affordable mobile options.

“This is a good opportunity for our company to offer consumers an additional way to save on purchases of quality gadgets," said Pavel Sukhovarov, head of MTS' retail network development.

The devices on offer are largely from Chinese brands, including Huawei, Honor, and Xiaomi, but also include smartphones from South Korea’s Samsung. Discounts are reportedly up to 50% lower than new units. 

The news comes after Russia lost access to new Apple and Samsung devices back in March, as these companies ceased business in the country in protest against the invasion of Ukraine. These two companies making up almost half of the country’s smartphone market.

Naturally, it would seem that this would present a major opportunity to the other vendors that have not chosen to quit the market entirely, such as Huawei and Xiaomi. Indeed, in early March, it seemed that Russia was racing to fill the latent smartphone deficit with Chinese devices, with Russian newspaper Kommersant reporting that sales of Chinese smartphone brands doubled in the first two weeks of March.

While these companies’ ability to meet the shortage is unquestionable, their willingness is less clear; Huawei, for example, while refusing to exit the Russian market entirely, has decided instead to limit its operations in the country to avoid falling foul of US sanctions. 

Huawei's marjor rivals in the mobile equipment market, Nokia and Ericsson, have both withdrawn from Russia, seemingly on a permanent basis

With the conflict in Ukraine still ongoing, sanctions show little chance of alleviating, and the global supply chain is already beginning to recalibrate. While the Russian operators are proving somewhat resilient to the economic turmoil, the same cannot be said for their customers, for whom the economic situation continues to worsen.

In related MTS news, the operator has recently conducted 5G tests at a Moscow residential complex, having been awarded spectrum for the pilot project back in May. 

 

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Also in the news:  
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Ethio Telecom launches 5G to extend lead over newcomers
OADC rolls out first large-scale, open-access, edge data centre environment in Africa

 

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