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3 key tendencies fueled Russian telecom development in 2006: (a) liberalization of the very long-distance telecom market place and introduction of new operator interconnection regulations, (b) broadband World-wide-web accessibility as the new primary market place segment, and (c) the future issuance of third-era (3G) licenses amid 100 per cent cellular-sector penetration and value-extra expert services (VAS)-sector advancement.

In 2007, there will be raising competition in the extended-length market place segment. Preset-line operators will even further diversify their products and services, specifically amongst broadband and convergent companies. Other top marketplace sectors are electronic subscriber line technological innovation, Net protocol tv (IPTV) remedies, up coming-era network products, and passive optical community technological innovation. The cell sector will attribute growing competitiveness for subscriber loyalty, presenting large VAS articles (mobile tv and interactive video games) as operators deploy 3G networks. Cable tv, broadcasting, and satellite operators will enrich content material and extend their choices to subscribers.

Market place Overview

Russia’s constant macroeconomic efficiency (6.8 p.c gross domestic merchandise development in 2006) elevated federal government and company investing on information and communication technological innovation (ICT) infrastructure and solutions, and escalating regional shopper paying out improved telecom-sector advancement. In 2006, the Russian telecom-sector revenues achieved $29.6 billion, a 26 percent advancement around 2005, as documented by iKS-Consulting. The cell communications sector grew 34 percent and exceeded $10.5 billion. Nonetheless, broadband accessibility confirmed the premier development of extra than 42 %.

In 2006, in accordance to the Russian Ministry of Data Technologies and Communications (MITC), the total ICT current market exceeded $40 billion. Community capital investments totaled $5.6 billion, a 7.1 p.c growth above 2005, even though international investments totaled $4.1 billion, a 19.5 p.c yearly advancement. The Russian Internet user base arrived at 25 million, and revenues from Net obtain and data transmission companies attained $2.1 billion, or 24 percent development, when compared with $1.7 billion in 2005.

Liberalization of the Lengthy-Distance Market place

January 2006 commenced with a historic party. Rostelecom, the countrywide carrier and dominant participant on the long-distance telecom market, awoke to a new competitive truth–the sector was liberalized. Basically, more than 20 new operators acquired licenses to provide long-distance and global conversation services. Analysts approximated the Russian extended-distance telephony market place sizing at $1.9 billion to $2.1 billion in 2006.

The issues for new players continue being high. Proudly owning a license for lengthy-length solutions is not a panacea. A new operator will have to have a nationwide network and an settlement with regional operators for the very last mile relationship. Also, new interconnection rules divided operators into a few major degrees: regional, zonal, and extensive-distance. Extended-distance operators now need to link to stop-people only by regional operators (local degree) and fork out interconnection costs for each and every phone.

The initial contender, Multiregional TransitTelecom (MTT), started furnishing services in 2006 and was anticipated to obstacle Rostelecom’s situation. Having said that, with its modernized community, very good pricing, and bettering client support, Rostelecom did not produce much floor to MTT in 2006, and the MTT subscriber base arrived at only 2 million (4 %). Yet, MTT expects to capture 15 p.c of the current market share by 2008. With much more than 40 million subscribers, Rostelecom received 60 percent of the industry, when the scaled-down operators, like Web protocol companies and gray-current market operators, fought for the rest.

In January 2007, Golden Telecom (GT), a single of the most significant substitute telecom operators, launched providers. With a potent regional community, designed company current market phase, and substantial distribution community of 30,000 factors, GT programs rate products and services at 10 percent a lot less than Rostelecom. GT continues to be upbeat, anticipating to get some 20 % of the current market share by 2008 and estimating that the current market will exceed $4 billion.

Fastened-Telephony Sector: Broadband Accessibility Growth

The increase of the Russian set-telecom sector was alternatively predictable. Russian locations outside the house the far more experienced St. Petersburg and Moscow marketplaces demonstrated raising buyer and corporate paying assurance as broadband Net usage skyrocketed. No marvel the broadband entry industry has turn out to be the leader of the info technological know-how sector. MITC believes that the data transmission current market will develop from $1.18 billion in 2005 to $2.8 billion in 2008.

Additionally, the emerging IPTV marketplace is also flexing its muscle groups. Much more than 20 Russian operators joined MTU-Intel and other market place leaders in delivering online video services. In accordance to iKS-Consulting, there ended up about 150,000 IPTV subscribers in Russia in 2006, and by 2010, that range may perhaps get to 1.4 million.

Thanks to the interconnection and the “Calling Celebration Pays” (CPP) regulations ratified in 2006, Russian fastened operators obtained a substantial financial strengthen. Lengthy-length and cellular operators documented that just in the 3rd quarter of 2006 set operators earned some $14 million. Ultimately, mounted operators shouldered substitute operators in their conventional spheres of influence, World wide web entry, and cable tv market place sectors, offering a total selection of new aggressive services.

Russia’s incumbent telecom operator, SvyazInvest Holding, will possibly not be privatized until 2009. Security and armed service companies blocked this transfer in 2006, citing national safety explanations. Analysts feel that since of the future presidential election, the selection on privatization will be postponed additional. Having said that, SvyazInvest’s interregional corporations showed some fantastic final results, appeasing investors in 2006. The outcomes were achieved through an efficient minimize in operational expenses and personnel, as very well as by means of the set up of new enterprise resource-preparing remedies to increase enterprise management. At the conclude of 2006, Comstar UTS, Sistema Telecom’s important fixed telecom asset, procured 25 p.c of SvyazInvest shares from its homeowners, 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 variety will exceed 9,400 in 2007, developing exponentially in the following 5 a long time. Most prominent, on the other hand, is the GoldenWiFi community introduced by Golden Telecom that extra 6,700 hotspots, generating it the major WiFi community in Europe.

Mobile Sector Saturates

In 2006, the Russian cell market place turned the third biggest in the entire world by number of subscribers and profits, right after China and the United States. Mobile penetration exceeded 100 % because some 152 million subscribers (Russia’s inhabitants is 145 million) employed cellular solutions in 2006. Big mobile operators confronted saturation and enhanced shelling out on advertising and marketing and advancement of VAS services.

The introduction of the CPP polices aided Russia’s foremost mobile operators to soften the gradual drop in common earnings for every user. Anticipating a drop in mobile phone calls, operators speedily moved to ruble-centered tariffs, elevating normal tariffs by 5 to 10 percent. Operators also secured reimbursements of $.03 for each moment by mounted operators, which resulted in a 5 to 10 % internet income to key operators.

Top cellular operators, MTS, Vimpelcom, and MegaFon held 85 percent of the Russian cellular market place, although the share of regional operators attained 15 % (22 million subscribers, 3 per cent expansion). Tele2, SMARTS, SibirTelecom, and UralSvyazInform demonstrated the most dynamic benefits.

3G Will come to Russia

3G cell telephony technological know-how last but not least arrived in Russia. At the conclude of 2006, the Russian Condition Committee on Radio Frequencies authorized 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 advancement. This frequency potential is ample to difficulty three nationwide licenses. The licenses will expense all around $100,000 and will be issued for a interval of 25 many years. Operators are expected to “obvious” the frequency and to spend tens of millions of dollars into gear and network construction.

In April 2007, the tender commission will announce winners in accordance to a scoring program for every single operator. The scoring system will use major conditions, this sort of as community presence in each individual Russian area and the sum of prospective financial commitment in new networks. According to analysts, Russian cell operators will initially start 3G zones in about 20 Russian locations. While the cellular written content current market has resurged from its sudden slump in 2005, the “weighty” written content solutions have not nonetheless emerged as mainstream. In rising markets these types of as Russia, where by cell penetration is uneven and customer choices are dependent on acquiring electrical power, it is tricky to forecast the exact start of 3G.

The Russian telecom marketplace is closely following environment leaders in ITC progress and expects continued development. Even more information and facts on this dynamic industry, such as accomplishing company in the Russian ICT sector, can be found in Andrey Gidaspov’s initially ebook, Driving the Russian Technology Growth, which will be posted by Futuretext in April 2007 (www.russiantechboom.com).

Andrey N. Gidaspov is a previous BISNIS Moscow representative. He at this time heads GidaByte (www.gidabyte.com), a telecom business enterprise-consulting firm in Hong Kong.