2011 Russia - Telecoms, IP Networks, Digital Media and Forecasts

Russia deploys initial LTE network

BuddeComm’s quarterly publication, Russia - Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications and digital media markets in one of Europe’s key markets.

The Russian economy, having staged a strong recovery since its 1998 financial crisis, is beginning to emerge from the economic doldrums following the difficulties which have lingered since 2008. GDP growth is expected to reach 4.5% in 2011 following a 3.7% growth in 2010. Although the economy has not yet reached its pre-crisis levels, the negative net public debt – partly the result of policies which reserved a large share of oil revenue during the last decade – is enjoyed by few OECD economies.

This growth is being mirrored in Russia’s telecom market, which fared better than the economy generally in 2009, growing 2.7% year-on-year. This growth recognises the resilience of telecom services, due to their utility nature as also to the relative immaturity of the market in regional areas – itself a legacy of the inefficient, unreliable and underdeveloped networks inherited from the Soviet era.

Significant changes have occurred since Rostelecom in 2011 absorbed the seven regional operators to become the dominant national player. The company’s bid to list up to 25% of its shares on the London Stock Exchange was deferred to later in 2012, while its next stage of reorganisation has been rescheduled for completion by September 2013. The government directly owns 40.07% of the share capital in the telco, but has indirect control via two state-owned entities.

A variety of technology platforms are used to offer broadband services, including xDSL, cable and FttH/FttB. Wireless solutions such as WiFi and WiMAX initially garnered much interest, but have since been overtaken by interest in mobile technologies: the main WiMAX player, operating under the Yota brand, intends to end its WiMAX offerings and migrate customers to LTE by 2014.

Russia possesses 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 broadcasters face challenges associated with digitising analogue networks and increased competition from new market entrants, particularly from the telecom sector.

Russia also has the largest mobile market in Europe. A number of mobile network operators exist although three major operators (MTS, VimpelCom and MegaFon) dominate. These have expanded nationally through acquisitions of smaller regional service providers. Given the high penetration rate, future revenue growth will be derived from mobile data services based on 3G networks and the deployment of networks based on HSPA+ and LTE technologies. In early 2011 the ‘Big Three’ MNOs signed a deal to expand LTE to 180 cities using a new network to be built by Yota. This network sharing has been complemented by additional agreements among MNOs.

Key telecom parameters – 2010 – 2012

(Source: BuddeComm)

Market Highlights

• Despite economic difficulties, growth in the telecoms market during the next few years, on the back of the broadband and mobile sectors, will compensate for declining sales in the fixed-line telephony sector. The decline in investments in recent years, engendered from the financial turmoil, affected the expansion and upgrade of networks in regional areas. These extraordinary conditions are largely past, and investment in telecoms infrastructure is expected to have grown 20-25% in 2011, motivated by opportunities in areas such as fibre and LTE.
• The seven regional incumbents which make up Svyazinvest, majority-owned by the government, in early 2011 have merged with the key subsidiary Rostelecom. The move created an integrated company based on Rostelecom which will be better placed to exploit economies of scale in coming years.
• In early 2011 Rostelecom signed an MOU with the three main MNOs to develop a joint LTE network using the infrastructure to be built by Yota. The network will expand LTE availability to 70 million Russians in 180 cities by 2014, vastly improving regional broadband availability in coming years. Yet a separate JV among MNOs suggests dissatisfaction with Yota’s US$1 billion price tag for its LTE network. Yota in early 2012 launched the country’s first LTE networks.
• FttX infrastructure has been expanded rapidly in recent years, principally by regional players including Southern Telecom Company, SibirTelecom, ER Telecom and Golden Telecom. Collectively, these players are having a significant impact of fibre broadband in regional areas, and are enabling operators to take advantage of consumer demand for faster access and bundled services.
• The transition to DTTV is underway, with ASO taking place regionally. Siberia and the Far East were the first to receive DTTV transmissions. DTTV development has nevertheless been held back by the lack of a clear strategy, providing the catalyst for alternative Digital TV platforms based on broadband Internet, cable and satellite. ASO is to be completed by 2015 yet the second multiplex is unlikely to launch before 2017, while a third multiplex may launch after 2020: ASO can only be completed after 95% of the population can receive DTT signals. 

This report is essential reading for those needing high level strategic information and objective analysis on the telecom sector in Russia. It provides further information on:

• Market liberalisation and regulatory issues;
• The impact of the global economic crisis;
• Telecoms operators – privatisation, acquisitions, new licences;
• Mobile data market developments in coming years in light of spectrum auctions and new license awards;
• 3G developments, regulatory issues and technologies including HSPA and LTE;
• Broadband migration to an FttH architecture;
• Historical and current subscriber statistics and forecasts;
• ARPU statistics and forecasts.

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