Russian Telecom Sector – Dynamic Growth in 2006

Three key trends fueled Russian telecom development in 2006: (a) liberalization of the extensive-length telecom market and introduction of new operator interconnection polices, (b) broadband World wide web accessibility as the new leading marketplace section, and (c) the future issuance of 3rd-generation (3G) licenses amid 100 percent cell-sector penetration and worth-extra services (VAS)-sector development.

In 2007, there will be escalating levels of competition in the extended-distance market phase. Set-line operators will more diversify their services, specifically between broadband and convergent companies. Other primary market place sectors are digital subscriber line technologies, World-wide-web protocol television (IPTV) remedies, following-generation community devices, and passive optical community technology. The cellular sector will aspect rising opposition for subscriber loyalty, featuring significant VAS content (mobile television and interactive online games) as operators deploy 3G networks. Cable tv, broadcasting, and satellite operators will enrich information and increase their offerings to subscribers.

Market place Overview

Russia’s continual macroeconomic overall performance (6.8 percent gross domestic product or service advancement in 2006) increased government and company shelling out on information and communication technological innovation (ICT) infrastructure and expert services, and developing regional customer shelling out amplified telecom-sector growth. In 2006, the Russian telecom-sector revenues attained $29.6 billion, a 26 percent advancement more than 2005, as noted by iKS-Consulting. The mobile communications sector grew 34 percent and exceeded $10.5 billion. However, broadband access showed the premier progress of additional than 42 percent.

In 2006, in accordance to the Russian Ministry of Facts Technologies and Communications (MITC), the whole ICT sector exceeded $40 billion. Community cash investments totaled $5.6 billion, a 7.1 per cent growth above 2005, although foreign investments totaled $4.1 billion, a 19.5 per cent annual growth. The Russian Net person base achieved 25 million, and revenues from Internet access and information transmission expert services reached $2.1 billion, or 24 percent advancement, when compared with $1.7 billion in 2005.

Liberalization of the Extensive-Distance Industry

January 2006 commenced with a historic function. Rostelecom, the national provider and dominant participant on the lengthy-distance telecom market, awoke to a new competitive fact–the market was liberalized. In fact, far more than 20 new operators obtained licenses to supply prolonged-length and worldwide conversation products and services. Analysts estimated the Russian lengthy-length telephony current market sizing at $1.9 billion to $2.1 billion in 2006.

The issues for new players stay high. Possessing a license for long-distance expert services is not a panacea. A new operator ought to have a nationwide community and an settlement with regional operators for the previous mile link. What’s more, new interconnection restrictions divided operators into three main levels: community, zonal, and prolonged-length. Extensive-distance operators now will have to link to conclude-end users only through regional operators (neighborhood degree) and pay back interconnection costs for each phone.

The initial contender, Multiregional TransitTelecom (MTT), commenced offering products and services in 2006 and was predicted to obstacle Rostelecom’s place. Nonetheless, with its modernized community, excellent pricing, and improving upon client services, Rostelecom did not generate a great deal floor to MTT in 2006, and the MTT subscriber base attained only 2 million (4 percent). Even so, MTT expects to seize 15 per cent of the marketplace share by 2008. With extra than 40 million subscribers, Rostelecom obtained 60 percent of the industry, although the scaled-down operators, including Net protocol companies and grey-marketplace operators, fought for the rest.

In January 2007, Golden Telecom (GT), just one of the largest different telecom operators, released expert services. With a potent regional network, made company marketplace section, and important distribution network of 30,000 points, GT strategies value companies at 10 per cent less than Rostelecom. GT continues to be upbeat, expecting to get some 20 % of the sector share by 2008 and estimating that the marketplace will exceed $4 billion.

Fixed-Telephony Sector: Broadband Entry Growth

The growth of the Russian fastened-telecom industry was somewhat predictable. Russian regions outside the house the a lot more experienced St. Petersburg and Moscow marketplaces shown expanding client and company shelling out self-assurance as broadband Web usage skyrocketed. No question the broadband entry industry has become the chief of the facts know-how sector. MITC believes that the info transmission marketplace will grow from $1.18 billion in 2005 to $2.8 billion in 2008.

What’s more, the emerging IPTV marketplace is also flexing its muscle tissues. Far more than 20 Russian operators joined MTU-Intel and other industry leaders in giving movie solutions. According to iKS-Consulting, there were about 150,000 IPTV subscribers in Russia in 2006, and by 2010, that amount may possibly access 1.4 million.

Many thanks to the interconnection and the “Calling Party Pays” (CPP) restrictions ratified in 2006, Russian set operators acquired a sizeable economic boost. Extensive-distance and cellular operators documented that just in the third quarter of 2006 fastened operators gained some $14 million. Lastly, fastened operators shouldered option operators in their regular spheres of influence, Internet access, and cable tv industry sectors, offering a entire selection of new competitive companies.

Russia’s incumbent telecom operator, SvyazInvest Keeping, will likely not be privatized till 2009. Security and military businesses blocked this move in 2006, citing countrywide security factors. Analysts imagine that simply because of the impending presidential election, the determination on privatization will be postponed even further. Even so, SvyazInvest’s interregional organizations showed some excellent success, appeasing traders in 2006. The effects have been reached by an effective reduce in operational expenditures and staff, as effectively as as a result of the installation of new company useful resource-scheduling alternatives to increase company management. At the stop of 2006, Comstar UTS, Sistema Telecom’s significant mounted telecom asset, ordered 25 p.c of SvyazInvest shares from its 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 amount will exceed 9,400 in 2007, expanding exponentially in the following five several years. Most distinguished, having said that, is the GoldenWiFi network released by Golden Telecom that included 6,700 hotspots, building it the largest WiFi community in Europe.

Mobile Sector Saturates

In 2006, the Russian cellular current market grew to become the third most significant in the globe by amount of subscribers and income, after China and the United States. Mobile penetration exceeded 100 per cent since some 152 million subscribers (Russia’s population is 145 million) employed cellular expert services in 2006. Important cell operators confronted saturation and amplified spending on advertising and marketing and growth of VAS services.

The introduction of the CPP rules helped Russia’s main mobile operators to soften the gradual drop in ordinary income per consumer. Anticipating a drop in cell phone calls, operators rapidly moved to ruble-dependent tariffs, elevating typical tariffs by 5 to 10 %. Operators also secured reimbursements of $.03 per moment by mounted operators, which resulted in a 5 to 10 percent net revenue to main operators.

Foremost cell operators, MTS, Vimpelcom, and MegaFon held 85 p.c of the Russian cell sector, although the share of regional operators achieved 15 p.c (22 million subscribers, 3 p.c growth). Tele2, SMARTS, SibirTelecom, and UralSvyazInform shown the most dynamic effects.

3G Arrives to Russia

3G mobile telephony technological know-how eventually arrived in Russia. At the conclusion of 2006, the Russian Condition Committee on Radio Frequencies approved 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 growth. This frequency capacity is adequate to situation three nationwide licenses. The licenses will cost about $100,000 and will be issued for a interval of 25 many years. Operators are envisioned to “apparent” the frequency and to commit millions of pounds into equipment and network design.

In April 2007, the tender fee will announce winners according to a scoring process for every single operator. The scoring program will use big standards, these as community presence in each individual Russian area and the sum of prospective expenditure in new networks. According to analysts, Russian cellular operators will initial start 3G zones in about 20 Russian areas. While the mobile information market place has resurged from its sudden slump in 2005, the “significant” content material solutions have not nonetheless emerged as mainstream. In rising markets such as Russia, wherever mobile penetration is uneven and purchaser tastes are primarily based on buying power, it is really hard to predict the correct commence of 3G.

The Russian telecom marketplace is carefully pursuing planet leaders in ITC enhancement and expects ongoing advancement. More details on this dynamic field, which include carrying out small business in the Russian ICT sector, can be found in Andrey Gidaspov’s initial guide, Using the Russian Know-how Increase, which will be posted 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 small business-consulting agency in Hong Kong.