Foreign Investment American Telecommunications Gregory
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Three major trends fueled Russian telecom development in 2006: (a) liberalization of the long-distance telecom market and introduction of new operator interconnection regulations, (b) broadband Internet access as the new leading market segment, and (c) the upcoming issuance of third-generation (3G) licenses amongst 100 percent mobile-sector penetration and value-added services (VAS)-sector growth. In 2007, there will be increasing contest in the long-distance market segment. Fixed-line operators will further diversify their services, peculiarly amid broadband and convergent services. Other leading market spheres are digital subscriber line technology, Internet protocol television (IPTV) solutions, next-generation network equipment, and passive optical network technology. The mobile sector will feature increasing contest for subscriber loyalty, supplying heavy VAS content (mobile television and interactional games) as operators deploy 3G networks. Cable television, broadcasting, and satellite operators will enrich content and exaggerate their offerings to subscribers. Market Overview Russia’s steady macroeconomic performance (6.8 percent gross domestic product growth in 2006) increased government and corporate spending on data and communicating technology (ICT) infrastructure and services, and growing territorial buyer spending increased telecom-sector growth. In 2006, the Russian telecom-sector revenues reached $29.6 billion, a 26 percent growth over 2005, as reported by iKS-Consulting. The mobile communications sector grew 34 percent and exceeded $10.5 billion. However, broadband access showed the biggest growth of more than 42 percent. In 2006, according to the Russian Ministry of Information Technologies and Communications (MITC), the total ICT market exceeded $40 billion. Local capital investments totaled $5.6 billion, a 7.1 percent growth over 2005, while alien investments totaled $4.1 billion, a 19.5 percent annual growth. The Russian Web user base reached 25 million, and revenues from Internet access and selective information transmission services reached $2.1 billion, or 24 percent growth, equated with $1.7 billion in 2005. Liberalization of the Long-Distance Market January 2006 started out with a historic event. Rostelecom, the national carrier and dominant player on the long-distance telecom market, awoke to a new competitory reality–the market was liberalized. Actually, more than 20 new operators received licenses to provide long-distance and international communication services. Analysts approximated the Russian long-distance telephony market size at $1.9 billion to $2.1 billion in 2006. The challenges for new players stay high. Owning a license for long-distance services is not a panacea. A new operator ought to have a nationwide network and an agreement with territorial operators for the last mile connection. Moreover, new interconnection regulatings separated operators into three major levels: local, zonal, and long-distance. Long-distance operators now will have to connect to end-users only through territorial operators (local level) and recompense interconnection fees for each call. The primary contender, Multiregional TransitTelecom (MTT), begun supplying services in 2006 and was expected to challenge Rostelecom’s position. However, with it is modernized network, good pricing, and bettering client service, Rostelecom did not yield much ground to MTT in 2006, and the MTT subscriber base reached only 2 million (4 percent). Nevertheless, MTT expects to capture 15 percent of the market percentage by 2008. With more than 40 million subscribers, Rostelecom gained 60 percent of the market, while the littler operators, including Internet protocol suppliers and grey-market operators, fought for the rest. In January 2007, Golden Telecom (GT), one of the greatest substitute telecom operators, launched services. With a strong territorial network, produced corporate market segment, and significant distribution network of 30,000 points, GT plans price services at 10 percent less than Rostelecom. GT remains upbeat, expecting to grab a lot of 20 percent of the market portion by 2008 and estimating that the market will exceed $4 billion. Fixed-Telephony Sector: Broadband Access Boom The boom of the Russian fixed-telecom market was rather predictable. Russian regions outside the more mature St. Petersburg and Moscow markets demonstrated increasing buyer and corporate spending selfconfidence as broadband Internet usage skyrocketed. No wonder the broadband access market has become the leader of the selective information technology sector. MITC believes that the selective information transmission market will grow from $1.18 billion in 2005 to $2.8 billion in 2008. Moreover, the emergent IPTV market is likewise flexing it is muscles. More than 20 Russian operators joined MTU-Intel and other market leaders in providing video services. According to iKS-Consulting, there were when it comes to 150,000 IPTV subscribers in Russia in 2006, and by 2010, that number may reach 1.4 million. Thanks to the interconnection and the “Calling Party Pays” (CPP) regulatings ratified in 2006, Russian fixed operators received a significant financial boost. Long-distance and mobile operators reported that just in the third quarter of 2006 fixed operators earned a great deal of $14 million. Finally, fixed operators shouldered substitute operators in their established spheres of influence, Internet access, and cable television market sectors, providing a whole range of new competitory services. Russia’s incumbent telecom operator, SvyazInvest Holding, will in all likelihood not be privatized until 2009. Security and military agencies blocked this move in 2006, citing national security reasons. Analysts believe that because of the upcoming presidential election, the decision on privatization will be postponed further. However, SvyazInvest’s interregional companies showed galore good results, appeasing investors in 2006. The results were reached through an effective cut in operational costs and personnel, as well as through the installation of new enterprise resource-planning solutions to improve enterprise management. At the end of 2006, Comstar UTS, Sistema Telecom’s major fixed telecom asset, purchased 25 percent of SvyazInvest shares from it is owners, Leonard Blavatnik and Viktor Vekselberg, for $1.3 billion. In 2006, a lot of 7,000 WiFi hotspots operated in Russia. J’son & Partners predicts that the number will exceed 9,400 in 2007, growing exponential in the next five years. Most prominent, however, is the GoldenWiFi network launched by Golden Telecom that added 6,700 hotspots, making it the greatest WiFi network in Europe. Mobile Sector Saturates In 2006, the Russian mobile market became the third biggest in the world by number of subscribers and revenue, after China and the United States. Mobile penetration exceeded 100 percent because a lot of 152 million subscribers (Russia’s population is 145 million) employed mobile services in 2006. Major mobile operators faced saturation and increased spending on syndication and development of VAS services. The introduction of the CPP regulatings helped Russia’s leading mobile operators to soften the gradual fall in intermediate revenue per user. Anticipating a drop in mobile calls, operators quickly moved to ruble-based tariffs, raising intermediate tariffs by 5 to 10 percent. Operators likewise secured reimbursements of $0.03 per minute by fixed operators, which resulted in a 5 to 10 percent net net profit to major operators. Leading mobile operators, MTS, Vimpelcom, and MegaFon kept 85 percent of the Russian mobile market, while the part of territorial operators reached 15 percent (22 million subscribers, 3 percent growth). Tele2, SMARTS, SibirTelecom, and UralSvyazInform demonstrated the most dynamic results. 3G Comes to Russia 3G mobile telephony technology in the long run arrived in Russia. At the end of 2006, the Russian State Committee on Radio Frequencies approved the part of 3 × 15 MHz in 1935-1980 MHz and 2125-2170 MHz frequencies, and 3 × 5 MHz in 2010-2025 MHz frequencies for 3G development. This frequency capacity is sufficient to issue three nationwide licenses. The licenses will cost around $100,000 and will be issued for a amount of time of 25 years. Operators are expected to “clear” the frequency and to invest millions of dollars into instrumentation and network construction. In April 2007, the tender commission will announce winners according to a scoring scheme for each operator. The scoring scheme will use major criteria, such as network presence in each Russian region and the amount of potential investment in new networks. According to analysts, Russian mobile operators will original launch 3G zones in in regards to 20 Russian regions. Although the mobile content market has resurged from it is unexpected slump in 2005, the “heavy” content services have not yet emerged as mainstream. In emergent markets such as Russia, where mobile penetration is uneven and client predilections are based on purchasing power, it is hard to predict the precise start out of 3G. The Russian telecom market is almost following world leaders in ITC development and expects continued growth. Further data on this dynamic industry, including doing business in the Russian ICT sector, may be found in Andrey Gidaspov’s firstborn book, Riding the Russian Technology Boom, which will be published by Futuretext in April 2007 (www.russiantechboom.com). Andrey N. Gidaspov is a former BISNIS Moscow representative. He presently heads GidaByte (www.gidabyte.com), a telecom business-consulting firm in Hong Kong. |
