Russian telecommunications market to be worth more than €30bn in 2012

 

Russian telecommunications market exceeded PMR last year expectations growing at a faster pace in 2010. The reason for the better results was very dynamic development of the broadband internet market. Mobile telephony operators also registered a double-digit growth of their combined revenues. The value of the market is forecast to well exceed €30bn next year.

Current situation

According to the latest report “The telecommunications market in Russia 2011. Development forecasts for 2011-2015” published by PMR, a market research company, the value of the telecommunications services market in Russia increased by 17.3% year on year to €27.3bn in 2010, from approximately €23.2bn in 2009. The growth rate measured in local currency was lower and amounted to 10%. It should be noted that PMR last year forecasts concerning the telecoms market value in 2010, excluding exchange rate fluctuations, assumed the growth rate of 4 p.p. lower than the actual result.
Overall economic recovery in the country continue to be one of the main market growth drivers in 2010. The demand for telecommunications services in Russia went up after the crisis which hit the Russian economy end of 2008. In 2010, after a sharp decline in 2009, operators also increased the investments in the construction of new networks and the improvement of service quality.
The Russian telecommunications market has been steadily increasing, starting in 2000 with the development of mobile telephony and internet access. In the last two years, the market was affected by the migration of voice traffic from fixed to mobile networks and also to the internet and, as a result, the segment of fixed-line telephony began to stagnate. The growth of mobile voice services also declined with the increasing maturity of this market. The most dynamic during recent years was the segment of internet access, including both fixed and mobile technologies. This market was an area of business growth for the operators in 2009-2010, and it will continue to play a role of the development driver for the entire telecommunications market in Russia, considering its relatively low maturity.
Mobile telephony is by far the largest segment of the Russian telecommunications market. Based on the revenue reports provided by operators, total sales of mobile voice and non-voice services in Russia in 2010 amounted to RUB 710bn (€17.7bn), which is 10.6% more than in the previous year measured in roubles, or 17.9% measured in euros. The mobile telephony market accounted for the largest part of the telecommunications spending in Russia last year. Even if to exclude mobile VAS and to consider only the mobile voice segment, the mobile telephony share would reach the level of almost 50% in 2010, while the total number of registered SIM cards already exceeded 150% of the total population of Russia.
Provision of access to the internet remains the most dynamic and fast growing segment of the telecommunications market in Russia, which increased by 30% year on year in 2010. This growth of the market was driven by quickly increasing penetration of fixed-line broadband but also enhanced by the fast expansion of 3G networks and the operators’ active promotion of mobile internet.

3G and LTE uptake

With the commercial launch of UMTS networks in 2008, an increasing contribution to the growth of the mobile telephony market in Russia is already coming from non-voice value-added services provided in mobile networks, especially from broadband internet. Development of 3G networks is also changing the landscape of the Russian mobile telephony market. Operators from the Big Three group got a new source of revenue from the development of mobile broadband internet, which became the main 3G application.
Meanwhile, two concepts of the future LTE networks development in Russia have been recently presented. In December 2010, the Russian government proposed to create LTE Consortium which was expected to come up with proposals related to the development of 4G networks in the country. The consortium was created by the leading national telecommunications operators, including Rostelecom, MTS, VimpelCom and MegaFon. Smaller regional operators were not invited to join. Mid of 2011, LTE Consortium presented a report which states that the available radio spectrum is feasible to be shared between four operators and each of the operators will need to invest RUB 85.7bn (€2.1bn) to install approximately 20,810 base stations covering over 10,400 of locations in the country with more than 1,000 of inhabitants, i.e. to build a federal LTE network. The condition is that the operators will use simultaneously a 690-880 MHz and 2,500-2,700 MHz radio bandwidth having 30 MHz spectrum each. In March 2011, there was also an agreement between MTS, MegaFon, VimpelCom, Rostelecom and Skartel, which had already had available a bandwidth for LTE, that Skartel would build LTE networks in 180 cities and towns in Russia and would give each of the operator 20% capacity in this network. Skartel expects to invest approximately RUB 60bn (€1.5bn) in the project.
It is not certain yet what kind of strategy for LTE development will be applied in Russia. Either the government will announce a tender for four federal licences or Skartel will build the network. A real barrier for the development of the LTE network in the country is the fact that radio bandwidth is already used by military communication systems and the investments in conversion are considered to be very high. “All in all, the most probable scenario now could be the launch of the first LTE networks in Russia not earlier than in 2014” – comments Pawel Olszynka, a PMR analyst and one of the report authors.

Short-term forecasts

Macroeconomic development forecasts for Russia for 2011-2012 are positive. GDP is expected to reach 4.5% annually. This remains a good background for the business development and investments in telecommunications services and networks. The growth in the consumers’ confidence boosts the demand for IT and telecommunications services and facilitates the spending on personal computers, mobile phones and the internet.
The Russian telecommunications market will continue its upward trend over the next two years or so, triggered by the growing internet services market, both in fixed and mobile networks. One strategic advantage of the Russian ISP market over other Central and Eastern European countries is its big size, poor development and territorial coverage, therefore, almost all providers and all wire and wireless technologies will have a chance to get their niche. In a broader perspective, the services connected with the telecommunications market, e.g. digital pay TV, will also play a more important role. The mobile market in Russia will not be driven by simple emission of millions of SIM cards, but rather by attracting customers to actively use new services. Non-voice and more advanced value-added services will continue to gain in significance and an increasing proportion of mobile carrier revenues will come from this source.


This press release is based on information contained in the latest PMR report entitled “Telecommunications market in Russia 2011. Development forecasts for 2011-2015”.