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Russia Telecommunications Report Q4 2011
Business Monitor International, Oct 2011, Pages: 111
BMI’s Q411 report on the Russian telecommunications market contains updated forecasts and market data covering the mobile, fixed-line and broadband markets. It also includes the first set of operational and financial results from the reorganised Rostelecom, and the first set of VimpelCom results incorporating the newly acquired assets of Wind Telecom. BMIs forecasts and market analysis are based on operator data through to the end of June 2011.
At the end of Q211, Russia had 222.7mn mobile subscribers, equivalent to a penetration rate of more than 155%. The mobile market experienced growth of 5.6% y-o-y in the 12 months to the end of June 2011. After experiencing a return to positive subscriber growth in H210, three of Russia’s leading network operators – Mobile TeleSystems (MTS), VimpelCom and Tele2 Russia – continued growing positively in Q211; however, some of the growth was the result of acquisitions by VimpelCom and Rostelecom. However, MTS experienced negative q-o-q growth of 0.6%, losing 420,000 subscribers. Despite Russia’s high mobile penetration rate, BMI maintain BMIs view that positive subscriber growth will continue for the duration of BMIs forecast albeit at a slower rate than that experienced over the past five years.
BMI believe they may be seeing the beginning of an era of slower growth in Russian mobile. The 12 months ending June 2011 have seen an average q-o-q growth rate of 1.4%, This is a marked slowdown from average q-o-q growth of 1.8% in the 12 months ending June 2010, and 3.3% in the 12 months to June 2009. BMI believe the lower rate of growth is both a function of a shrinking pool of customers to sell services to and the period inactive SIM discounting they expect from operators. Meanwhile, BMIs broadband subscriber forecast for Russia envisages almost 20.9mn broadband subscribers at the end of 2011. This is a rapid increase from 17.2mn at the end of 2010. Their estimate for Russia’s broadband market includes mobile broadband subscribers who connect to the internet through USB modems which they believe has been and will continue to be a major driver of broadband subscriber growth. Further, they expect the construction of a wholesale LTE network to be completed in 2014 and to be a catalyst for mobile broadband growth. However, BMI are becoming increasingly concerned about delays to LTE frequency allocation, as well as the differences in opinion between operators who are part of the LTE consortium.
However, with a large number of operators channelling considerable resources into the expansion of broadband networks, BMI expects the cost of broadband services in Russia to fall considerably over the next few years. This will encourage faster subscriber uptake and sustain growth in the sector.
Key developments in Russia’s telecommunications industry in recent months centre on a number of acquisitions made by operators and the developments surrounding LTE. In June 2011 MegaFon became a major player in Moscow’s fixed broadband market, acquiring NetByNet for US$270mn, getting a customer base of 450,000 – 315,000 of which are in the lucrative Moscow market. Meanwhile, VimpelCom acquired 90% of New Telephone Company from Korea Telecom, expanding its presence to the Far East region, and acquiring more than 1.4mn subscribers.
Rostelecom also acquired National Communications in February 2011, a fixed operator augmenting its strong fixed-line presence with pay- TV subscribers adding 4.7mn y-o-y. MegaFon has also been in discussions to acquire Moscow-based fixed broadband provider AKADO, but talks are rumoured to have hit problems on the price. Finally, MTS completed its acquisition of Sistema-Iventure, giving it over 90% of MGTS and increasing its presence in fixed-line, broadband and pay-TV. BMI expects this flurry of acquisitions to continue in the coming quarters as operators challenge for market share in the blossoming broadband and converged services market.
The news last quarter that an LTE consortium was created for the construction of a wholesale 4G LTE network to be managed by Yota, on which MTS, VimpelCom, MegaFon and Rostelecom are able to run services, has since run into trouble. The network is expected to be commercially operational by 2014 in time for the Winter Olympics at Sochi, but the partaking operators have raised objections to the price they are expected to pay for a 20% stake in Yota in 2014. Further there has been considerable uncertainty generated by the process of assigning frequencies for LTE rollout for individual operator networks, BMI believes the Yota approach is potentially a cost-effective means of rolling out next generation mobile broadband in a country that has challenging geography. However, BMI are also concerned by regulatory uncertainty and potential conflicts of interest with state firms involved and the mixed treatment of Tele2 with respect to LTE licensing.
Meanwhile, an increase in its Industry Rewards score has pushed Russia up from fourth to third position in BMI’s latest set of Business Environment Ratings for Central and Eastern Europe (CEE). The stronger Industry Rewards score reflects faster subscriber growth and an increase in ARPUs driven by VAS growth and subscriber base rationalisation.
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