BMI’s Q311 report on Russia’s telecommunications industry contains revised forecasts for the country’s mobile and broadband subscriber markets, as well as for the first time ARPU forecasts for the major mobile operators through to 2015 and an operator profile for the newly reorganised Rostelecom. Our mobile subscriber forecast incorporates data from all the major mobile network operators through to Q111.
At the end of Q111 Russia had 220.2mn mobile subscribers, equivalent to a penetration rate of less than 155%. In 2010 the Russian mobile subscriber base grew by 5.9%. 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 Q111. However, MegaFon experienced negative q-o-q growth of 0.26%. Despite Russia’s high mobile penetration rate, we maintain our view that positive subscriber growth will continue for the duration of our forecast albeit at a slower rate than that experienced over the past five years.
Meanwhile, our revised broadband subscriber forecast for Russia envisages almost 17.2mn broadband subscribers at the end of 2010. This was up from 12.9mn at the end of 2009. Our estimate for Russia’s broadband market includes mobile broadband subscribers who connect to the internet through USB modems which we believe has been and will continue to be a major driver of broadband subscriber growth. Further, we expect the construction of a wholesale LTE network to be completed in 2014 and to be a catalyst for mobile broadband growth. 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.
This quarter sees no further changes to our forecast for Russia’s fixed-line telephony sector. We estimate that, by the end of 2010, Russia had just over 45.1mn fixed-line subscribers, down by 0.6% year-on-year (y-o-y). With the increasing threat from mobile and VoIP services in Russia, we are forecasting a more pronounced decline in fixed-line subscriptions over the next few years.
Key developments in Russia’s telecommunications industry in recent months include the news that an LTE consortium has been 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. The network is expected to be commercially operational by 2014 in time for the Winter Olympics at Sochi. BMI believes the arrangements are potentially a cost effective means of rolling out next generation mobile broadband in a country that does not have sufficiently high ARPUs for large scale investments and which has challenging geography. However, we are also concerned by the potential for abuse, with state firms involved and the exclusion of Tele2 on questionable grounds up to this point, although the state has allowed an appeal to take place.
This quarter also saw the completion of the reorganisation of Svyazinvest’s regional assets under Rostelecom’s management. This process has been ongoing for a considerable amount of time, privatisation likely in the medium term. BMI welcomes the reorganisation as a way to generate management and capex synergies. However, we are again concerned that political goals may influence the operation of a larger and more powerful player. Early signs are however positive with Rostelecom’s corporate strategy outlining its planned push into the converged services market through the development of broadband and mobile broadband operations, as well as increasing its presence in the pay-TV market.
A slightly lower Industry Rewards score has pushed Russia down from third to fourth position in BMI’s latest set of Business Environment Ratings for Central and Eastern Europe (CEE). The weaker Industry Rewards score reflects slower subscriber growth which the mobile operators experienced in Q111 as well as downward pressure on ARPUs.

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Executive Summary 5
SWOT Analysis 7
Russia Mobile Industry SWOT 7
Russia Fixed-Line/Internet Industry SWOT 8
Russia Political SWOT 9
Russia Economic SWOT . 9
Russia Business Environment SWOT 10
Business Environment Analysis 11
Central And Eastern Europe 11
Russia . 13
Central And Eastern Europe Business Environment Ratings, Q311 15
Industry Forecast Scenario . 16
Mobile 16
Table: Telecoms Sector – Mobile – Historical Data & Forecasts 16
Mobile ARPU . 18
Table: ARPU – Historical Data & Forecasts . 18
Fixed Line 20
Table: Telecoms Sector – Fixed Line – Historical Data & Forecasts 20
Internet 22
Table: Telecoms Sector – Internet – Historical Data & Forecasts 22
Market Data Analysis 24
Mobile 24
Table: Russian Mobile Market, Q111 . 27
3G . 31
Mobile Contract Wins . 37
Table: Mobile Contract Wins 37
Regional Outlook 38
Country Outlook 42
Table: Selected VAS Services 48
Mobile Data 49
Russia Mobile Market Overview . 49
Table 2: MTS 49
Table 3: MegaFon 50
Table 4: VimpelCom . 51
Table 5: Tele2 . 52
Fixed Line 53
Table: Comparison Of Svyazinvest Regional Companies, December 2008 57
Internet 60
Table: Total Residential Broadband Subscribers, December 2009-December 2010 . 60
Wireline (Fixed Line And Broadband) Developments . 68
Table: Wireline Developments, 2009-2011 . 68
Regulatory Environment And Industry Developments 70
Table: Russia – Regulatory Bodies & Their Responsibilities . 70
Legislation And Market Liberalisation . 71
Licensing And Spectrum . 72
Regulatory Developments . 73
Competitive Landscape 79
Competitor Analysis 79
Table: Key Players In The Russian Telecoms Sector 79
Company Monitor 80
Samsung . 80
Table: Samsung CEE 4G Contracts 83
Operator Profiles . 84
Svyazinvest (Reorganised see Rostelecom section) . 84
Rostelecom 87
Mobile TeleSystems (MTS) 90
VimpelCom . 95
MegaFon102
Regional Telecommunications Penetration Overview . 107
Fixed Line .107
Table: Regional Fixed-Line Penetration Overview 107
Broadband 108
Table: Regional Broadband Penetration Overview .109
Mobile .110
Table: Regional Mobile Penetration Overview 110
Country Snapshot: Russia Demographic Data . 111
Section 1: Population 111
Table: Demographic Indicators, 2005-2030 111
Table: Rural/Urban Breakdown, 2005-2030 .112
Section 2: Education & Healthcare 112
Table: Education, 2002-2005 112
Table: Vital Statistics, 2005-2030 112
Section 3: Labour Market & Spending Power 113
Table: Employment Indicators, 2001-2006 113
Table: Consumer Expenditure, 2000-2012 (US$) 113
Table: Average Annual Wages, 2000-2006 114
Glossary Of Terms 115
Table: Glossary Of Terms 115
BMI Methodology 116
How We Generate Our Industry Forecasts .116
Table: Key Indicators For Telecommunications Industry Forecasts .116
Telecoms Business Environment Ratings 118
Risk/Reward Ratings Methodology 118
Table: Ratings Indicators 119
Weighting .120
Table: Weighting Of Indicators .120
Sources 120
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