Broadband Telecommunications

in Russia2007

Introduction to Russian Broadband Access Market

Tuija MäntyrantaSenior Consultant, Project Manager

Finpro Helsinki

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Agenda

• Overview of Russian ICT Markets• Broadband Access Market• Service Providers Landscape• Summary

Overview of ICT Markets

Russia

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Attractive growth market

• The third-largest cellular market in the world• 9th fastest growing broadband market (Source: Ovum,

Sep 2007)

The main telecommunication statistics

2005 2006

Telephone main lines (*000) 42,517 44,642 (31.3%)

Mobile subscribers (m) 125.800 140.0 (98,2%)

Internet users (*000) 18,572 22,384 (15,7%)

Broadband subscribers (*000) 461 884 (0.6%)

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Market Size

• The value of ICT sector in 2006 was about 45 billion USD, from which

• telecommunication markets was about 29 billion USD• IT-markets 14 billion USD and• Postal services 2,1 billion USD

• ICT sector growth in 2006• The mobile communications sector grew 34 percent

and exceeded $10.5 billion• Broadband access showed the largest growth of more

than 42 percent

Source: the Russian Ministry of Information Technologies and Communications (MITC)

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Market Share of different access types

66 %

5 %

29 %

FixedBroadbandWirelessBroadbandDial-up access

Source: IKS Konsulting, 2006

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Peculiarities of Russian markets

• Spectrum shortage - Only 5% of spectrum for civil needs (2004)

• Concentration in megacities• Regional expansion of nationwide operators• The BSA ranks Russia second only to China in

software piracy

Broadband Access Market

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Broadband Access Overview

• Numerous technologies applied in wireless broadband access

• Development is fueled by • Growing demand of broadband Internet access • Comparatively low maturity of access infrastructure• Entrance of new operators who previously applied

other technologies of Internet access

• Factors slowing the development of broadband access market

• The lack of available frequencies• Price limits• Legal basis

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Growing Broadband Market

• Growing at very high rates, • Wireless broadband ~ 61% annual growth• Fixed broadband ~42% annual growth

• Number of new broadband connections exceeded number of dial-up in the whole Russia

• Growth in broadband internet connections is faster in the regions than in Moscow and St. Petersburg

• It is forecasted that the broadband market in Russia in 2007 may be worth USD 1.5-1.7 billion, having grown by 50-70% since 2006

3G networks

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3G Licensing in Russia

• Licensing procedure – by competition (“beauty contest”)

• Total 3 licenses - Each for the entire territory of the Russia

• Price of each license is around $100 000• April 20, 2007: Announcement of the winners of

3G tender of operators activity licensingMegaFon, Mobile TeleSystems (MTS), and VimpelCom

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Challenges for roll-out

• Clear radio frequencies for mobile phone use• Government to authorize 3G equipment for use in

Russia• Clause in the 3G licenses that seriously restricts

their deployment in Moscow

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3G Status in Russia

Operator’s Plans and StatusPlans Time schedule Plans to invest

MTS Launch HSDPA 3G services in the largest cities of Russia

2008: Moscow, St.Petersburg and Novosibirsk 2009: 43 other cities

$1bn over 3 years

VimpelCom Launch 3G services in Moscow

39 regions by the end of 2008

$300-500 mln. In 2007-2008

MegaFon Start construction of its new network

Launched UMTS/ HSDPA NW in St. Petersburg Oct2007Nationwide network

$1bn over 3 years

WiMax

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Overview

• Ideal market for wireless internet – large territory, low density of population, and high expense of building traditional telecom infrastructure

• Often the only option for companies who needed a fast solution at an affordable price

• Legacy fixed-line networks barely support adequate voice services, let alone broadband

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Players with their plans

Service Provider SpectrumGHz

Coverage

Comstar-UTS 2.5 – 2.7 16 regions throughout RussiaMoscow

Golden Telecom Trial in MoscowApplied nationwide license in the 2.5-2.7 GHZ

Enforta 5.2 Services available in 25 cities and plans to launch in additional 8 cities by end of 2007

Summa Telecom 2.5 - 2.7 Plans to launch services in Moscow, St. Petersburg, Samara, Novosibirsk and Vladivostok in November 2007. Nationwide network

Synterra 2.5 – 2.7 Focus on small towns and cities with an average population of 100,000 people.

MetroMax 2.5-2.7, 3.5 and 5.8

28 regions of RussiaJoint venture with MetroMax to bundle with GSM

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Case: Synterra MVNO-based partner model

• Synterra is a WiMAX operator with extensive national backbone and without regional local access

• Expansion plan based around a MVNO-based partner program: The regional companies can operate WiMAX services using Synterra radio frequencies

• Synterra offers wholesale pricing for Internet access to regional operators that have access to local customers and the capital and infrasturcture to launch a networks

• Synterra needs regional operators to fulfill its obligations to the Russian Federal Agency for Education, which awarded a contract to Synterra last year 2006 to connect 53,000 regional schools to the Internet

Wi-Fi

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WiFi (RadioEthernet)

• Most widespread technology in Russia• Main players

• Golden Telecom – largest WiFi network in the world• PROSTOR Telecom• Komstar OTS• FLEX• R.M.Telecom

• Expected service growth• Content rendering• Advertising services• IP-protocol voice transfer through WiFi networks

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Case: Golden Telecom Projects

• “Golden WiFi” project• Concentrated only on Moscow• 7500 hot-spots• 29,200 subscribers (Q2/2007)

• Triple-65 – project: FTTB networks in 65 cities of Russia with a total population of 65 million people, offering broadband access and triple-play services to approximately 65% of the households which dwell in high-rise apartment blocks

Service Providers’ landscape

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Many players – Still very concentrated

• Over 90% assets of the telecom companies are in the hands of four big holding groups

• Over 80% of telecom services are rendered by traditional operators, which own approximately 85% of Russia’s telecom networks

• 85% of the market share of mobile networks is shared by three biggest operators

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Russian Market Structure

Svyazinvest

Regional carriers Rostelekom

Incumbent Carriers

Sistema Holding Telecom Invest Alfa /AltimoHoldings

Sovintel/Golden Telecom

MCC-Alaris Comstar-UTC

Synterra/Comet

VimpelCom MegaFon VimpelComMobile Operators

Art Com NetProvodov.ru Tascom

Enforta Mediaseti Infoseti

BWA/WiMAX Players

Utilities

UES

Gazprom

TTC

Lukoil

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Operators – Mobile operators

Biggest Mobile Operators SubscribersMTS 51 502 016

VimpelCom 48 345 308

MegaFon 30 901 037

Tele2 7 100 000

Uralsvjazinform 4 464 606

SMARTS Group 3 747 774

Sibirtelecom 3 416 608

Nizhegorodskaja telefonnaja svjaz (NCC) 1 276 731

Sotovaja Svjaz MOTIV (Ekaterinburg) 1 170 194

New Telephone Company 863 508

Source: AC & M Consulting

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Largest Wireless Broadband Access Providers

Market Shares by N of subscribers. Reporting statisticsSource: IKS Konsulting, 2006

Others , 53%

Peterstar (SPb), 3%

Komstar OTS, 3%Rosnet, 3%

Golden Telecom, 4%

R.M. Telecom, 5%

Quantum (SPb), 5%

Art Communications, 5%

Tascom, 7%

Enforta, 6%

Flex, 6%

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Summary

• Russia is one of the most diverse and rapidly developing telecom and information technology markets