2010 Russia - Telecoms, Mobile, Broadband and Forecasts

Russia possesses one of the largest telecoms markets in the world due to its sizeable population. Like much of Russia’s economy, the telecoms sector is developing, with total revenue growing by 2.7% during 2009 to reach RUB1.3 trillion.

As seen in the recent past in the commodities and broadcasting sectors, increasing government encroachment and control upon the telecoms market is evident; rejection of privatisation and the reacquisition of telecoms incumbent holding company Svyazinvest highlights the return of increased state control of the economy. Re-nationalisation of the incumbent holding company will undoubtedly increase uncertainty over the future state of fair competition.

Incumbent and alternative operators alike have spent much capital modernising existing networks or deploying new ones, in hopes of selling broadband and convergence services such as broadband TV (IPTV). Infrastructure-based competition extends to the last mile due to the lack of a regulatory regime in relation to network access, increasing the start up costs for new operators. Despite this major players have invested heavily in the last mile, deploying fibre and wireless technology platforms, with capital expenditure programs continuing in 2010.

Russia posses a vast broadcasting market undergoing rapid change. Both freely accessible and paid content is widely available from cable TV, terrestrial, IPTV and satellite platforms. Competition is driving new network deployments and network modernisation, as incumbent broadcasting network operators face challenges associated with digitising analogue networks and increased competition from new market entrants, particularly from the telecom sector which have invested in fibre access. The transition to DTTV broadcasts is underway, with analogue switch off proceeding on a region by region basis ahead of switchoff in 2015.

Russia possesses the largest mobile market in Europe. Three major operators (MTS, VimpelCom and MegaFon) dominate the national market ahead of a number of regional service providers. Russia’s recent economic woes have impacted growth which is expected to pick up again in line with the overall economy. The big three are leveraging off past HSDPA network deployments, offering mobile broadband services with sizeable buckets of data and opening up a new revenue growth opportunity.

Russia broadband and telecoms statistics – 2009 - 2010

(Source: BuddeComm based on industry data)

Market highlights:

• Increased market uncertainty is likely due to the government’s re-nationalisation of incumbent holding company Svyazinvest, with major players such as MTS and VimpelCom most likely to encounter friction as they compete in the fixed telephony and broadband markets after recently acquiring major fixed network operators.
• Despite the state of the economy, the number of fixed broadband subscriptions grew by 11% in the first two months of 2010 alone. Short to medium term future growth is certain given the significant number of remaining narrowband subscribers, with longer term growth dependent on the growing range of broadband content such as IPTV.
• The broadcasting market was sharply stung by a drop in advertising revenue in excess of 30% although the market is expected to pick up in line with the overall economy in 2010. In addition TV advertising is expected to continue growing its share of the total advertising spends. Broadcasters are beginning to embrace 3D technology, with a number of test transmissions undertaken.
• The major mobile network operators are taking advantage of past HSDPA network builds, offering mobile broadband services with generous data bundles. The challenge in 2010 will be managing traffic growth and the impact on transmission networks previously dimensioned only for low bandwidth voice traffic. This in turn is expected to lead to increased capital expenditure in transmission networks, particularly in the aggregation layer.

Data in this report is the latest available at the time of preparation and may not be for the current year.