Russian Telecom Sector – Dynamic Growth in 2006

A few big developments fueled Russian telecom development in 2006: (a) liberalization of the long-distance telecom sector and introduction of new operator interconnection rules, (b) broadband Net entry as the new main current market segment, and (c) the impending issuance of 3rd-technology (3G) licenses amid 100 % cellular-sector penetration and price-additional expert services (VAS)-sector progress.

In 2007, there will be rising competitiveness in the long-length current market phase. Fastened-line operators will further diversify their providers, specially among the broadband and convergent solutions. Other foremost market place sectors are digital subscriber line technological know-how, World wide web protocol tv (IPTV) methods, next-era network gear, and passive optical network technology. The mobile sector will aspect escalating competitiveness for subscriber loyalty, presenting hefty VAS articles (cell television and interactive video games) as operators deploy 3G networks. Cable tv, broadcasting, and satellite operators will enrich content and develop their offerings to subscribers.

Marketplace Overview

Russia’s continual macroeconomic functionality (6.8 p.c gross domestic product growth in 2006) greater government and corporate investing on info and conversation engineering (ICT) infrastructure and expert services, and growing regional buyer spending elevated telecom-sector progress. In 2006, the Russian telecom-sector revenues attained $29.6 billion, a 26 per cent growth over 2005, as reported by iKS-Consulting. The mobile communications sector grew 34 percent and exceeded $10.5 billion. Nonetheless, broadband access confirmed the biggest growth of a lot more than 42 percent.

In 2006, according to the Russian Ministry of Details Technologies and Communications (MITC), the full ICT current market exceeded $40 billion. Community funds investments totaled $5.6 billion, a 7.1 per cent progress around 2005, whilst international investments totaled $4.1 billion, a 19.5 per cent annual expansion. The Russian Web consumer base arrived at 25 million, and revenues from Net access and knowledge transmission services arrived at $2.1 billion, or 24 percent progress, in contrast with $1.7 billion in 2005.

Liberalization of the Long-Length Sector

January 2006 started with a historic party. Rostelecom, the national carrier and dominant participant on the prolonged-length telecom industry, awoke to a new aggressive fact–the sector was liberalized. Essentially, far more than 20 new operators obtained licenses to deliver very long-distance and worldwide conversation services. Analysts approximated the Russian prolonged-distance telephony industry size at $1.9 billion to $2.1 billion in 2006.

The troubles for new players keep on being large. Possessing a license for extensive-distance expert services is not a panacea. A new operator will have to have a nationwide network and an agreement with regional operators for the last mile relationship. In addition, new interconnection restrictions divided operators into 3 major amounts: area, zonal, and lengthy-distance. Lengthy-distance operators now have to hook up to conclude-consumers only by way of regional operators (neighborhood level) and pay interconnection service fees for each individual get in touch with.

The to start with contender, Multiregional TransitTelecom (MTT), started delivering companies in 2006 and was expected to problem Rostelecom’s situation. Having said that, with its modernized network, excellent pricing, and bettering purchaser services, Rostelecom did not yield considerably ground to MTT in 2006, and the MTT subscriber foundation achieved only 2 million (4 p.c). Even so, MTT expects to seize 15 per cent of the sector share by 2008. With much more than 40 million subscribers, Rostelecom attained 60 % of the sector, although the lesser operators, which includes World-wide-web protocol vendors and gray-market operators, fought for the relaxation.

In January 2007, Golden Telecom (GT), a person of the greatest alternate telecom operators, released companies. With a powerful regional network, designed corporate market section, and considerable distribution community of 30,000 points, GT designs cost solutions at 10 p.c less than Rostelecom. GT continues to be upbeat, anticipating to grab some 20 p.c of the current market share by 2008 and estimating that the marketplace will exceed $4 billion.

Fastened-Telephony Sector: Broadband Accessibility Increase

The increase of the Russian fixed-telecom market place was somewhat predictable. Russian regions exterior the a lot more mature St. Petersburg and Moscow markets demonstrated expanding shopper and corporate paying out self confidence as broadband World wide web use skyrocketed. No surprise the broadband accessibility sector has grow to be the chief of the details technological innovation sector. MITC thinks that the information transmission sector will mature from $1.18 billion in 2005 to $2.8 billion in 2008.

Also, the rising IPTV market place is also flexing its muscle groups. A lot more than 20 Russian operators joined MTU-Intel and other sector leaders in giving video services. According to iKS-Consulting, there ended up about 150,000 IPTV subscribers in Russia in 2006, and by 2010, that number may possibly attain 1.4 million.

Thanks to the interconnection and the “Calling Bash Pays” (CPP) polices ratified in 2006, Russian preset operators acquired a major monetary enhance. Lengthy-length and mobile operators noted that just in the 3rd quarter of 2006 fixed operators attained some $14 million. Ultimately, mounted operators shouldered different operators in their regular spheres of affect, Net obtain, and cable television marketplace sectors, presenting a total selection of new aggressive expert services.

Russia’s incumbent telecom operator, SvyazInvest Holding, will in all probability not be privatized until finally 2009. Safety and navy companies blocked this go in 2006, citing nationwide security explanations. Analysts imagine that for the reason that of the future presidential election, the conclusion on privatization will be postponed more. Nonetheless, SvyazInvest’s interregional organizations showed some fantastic benefits, appeasing investors in 2006. The outcomes had been achieved by way of an helpful cut in operational prices and personnel, as perfectly as by way of the set up of new company source-scheduling remedies to increase company management. At the finish of 2006, Comstar UTS, Sistema Telecom’s important fixed telecom asset, obtained 25 % of SvyazInvest shares from its house owners, Leonard Blavatnik and Viktor Vekselberg, for $1.3 billion.

In 2006, some 7,000 WiFi hotspots operated in Russia. J’son & Companions predicts that the number will exceed 9,400 in 2007, growing exponentially in the following 5 several years. Most popular, on the other hand, is the GoldenWiFi network released by Golden Telecom that included 6,700 hotspots, making it the major WiFi network in Europe.

Mobile Sector Saturates

In 2006, the Russian mobile current market became the 3rd major in the environment by number of subscribers and earnings, following China and the United States. Mobile penetration exceeded 100 p.c since some 152 million subscribers (Russia’s population is 145 million) utilised mobile providers in 2006. Significant cellular operators confronted saturation and greater paying on advertising and marketing and development of VAS services.

The introduction of the CPP regulations served Russia’s leading mobile operators to soften the gradual slide in normal revenue for each person. Anticipating a drop in mobile phone calls, operators promptly moved to ruble-based mostly tariffs, elevating average tariffs by 5 to 10 p.c. Operators also secured reimbursements of $.03 per minute by mounted operators, which resulted in a 5 to 10 % net profit to big operators.

Leading cellular operators, MTS, Vimpelcom, and MegaFon held 85 percent of the Russian cell sector, even though the share of regional operators reached 15 per cent (22 million subscribers, 3 p.c advancement). Tele2, SMARTS, SibirTelecom, and UralSvyazInform demonstrated the most dynamic final results.

3G Arrives to Russia

3G cell telephony engineering ultimately arrived in Russia. At the conclude of 2006, the Russian Point out Committee on Radio Frequencies accredited the allocation of 3 × 15 MHz in 1935-1980 MHz and 2125-2170 MHz frequencies, and 3 × 5 MHz in 2010-2025 MHz frequencies for 3G improvement. This frequency potential is adequate to situation 3 nationwide licenses. The licenses will charge all around $100,000 and will be issued for a period of 25 yrs. Operators are predicted to “apparent” the frequency and to commit hundreds of thousands of pounds into machines and network design.

In April 2007, the tender fee will announce winners according to a scoring process for each individual operator. The scoring system will use major conditions, these types of as network presence in every single Russian area and the amount of money of probable expenditure in new networks. In accordance to analysts, Russian mobile operators will first start 3G zones in about 20 Russian locations. Whilst the mobile material marketplace has resurged from its unexpected slump in 2005, the “weighty” articles products and services have not still emerged as mainstream. In emerging markets these as Russia, the place cellular penetration is uneven and customer tastes are centered on acquiring electricity, it is really hard to forecast the precise start of 3G.

The Russian telecom current market is closely subsequent world leaders in ITC advancement and expects continued development. Further information on this dynamic field, which include accomplishing enterprise in the Russian ICT sector, can be observed in Andrey Gidaspov’s 1st e-book, Using the Russian Engineering Boom, which will be released by Futuretext in April 2007 (www.russiantechboom.com).

Andrey N. Gidaspov is a previous BISNIS Moscow consultant. He now heads GidaByte (www.gidabyte.com), a telecom company-consulting firm in Hong Kong.