4G technology casts net wider

Future mobile internet growth is now largely dependenton penetration into Russia’s vast regions

Future mobile internet growth is now largely dependenton penetration into Russia’s vast regions

New applications and diversified holding companies are the key future trends in Russian telecoms as mobile technology enters a new experimental phase.

Over the last 10 to 12 years, the Russian mobile communications market has been booming. Before the 1998 public debt crisis, mobile phone ownership was a privilege of affluent consumers; today the number of registered SIM cards greatly exceeds the total Russian population.

“This is not so surprising. Mobile phones are used even by pre-schoolers and grannies who no longer need to walk all the way downstairs for a chat with a neighbour,” says Ilya Fedotov, a telecommunications market specialist at Veles Capital.

According to J’son & Partners Consulting, Russians have about 209.1 million SIM cards. With a population of approximately 143 million, mobile market penetration has reached 147.3pc in Russia.

Today, the market is dominated by MTS, a subsidiary of the AFK Sistema group, which serves 33pc of Russian subscribers. The other members of the “Big Three” group of cellular operators include Beeline (VimpelCom) and MegaFon – each with a market share of 24pc.

Russian mobile operators have come up with increasingly comprehensive service packages and are now about to roll out their fourth-generation project. The main difference between 4G and 3G service is faster data transmission. On May 28, the Russian State Radio Frequency Commission approved pilot zones to test LTE (4G) technology in four federal regions comprising Primorskiy Krai, Kostroma, Rostov and Sverdlovsk.

Expansion of 4G and broadband internet access are the prevailing trends in the Russian telecoms market. While the number of subscribers who use voice services appears to be no longer growing at the impressive pace it previously demonstrated, the army of mobile internet users is swelling at double its earlier rate. In 2009, MTS expanded its broadband customer base by 39.8pc over the 2008 level to a total of 1.3 million subscribers.

An analysis from Frost & Sullivan, Mobile Broadband in Central and Eastern Europe , notes that the market generated revenues of €1.1b in 2009 and forecasts that revenues will reach €5.2b in 2014, with Russia accounting for 50pc of that growth.

Broadband penetration in Russia is currently only 6 or 7pc versus 15pc in Hungary and Poland and 30pc in Europe, which indicates vast potential for the market.

“Most of the market participants start mobile broadband service development from large city centres, where they can count on relatively quick returns on investment,” says Frost & Sullivan ICT Research Analyst Edyta Kosowska. This move is still economically justified, as the highest demand comes from people with increased mobility needs such as corporate employees and students.

“However, future growth potential will be mainly visible within rural areas, where overall broadband penetration remains relatively low. Focusing on this target group can be a worthwhile consideration,” adds Kosowska.

Another prominent trend is consolidation of mobile companies seeking to maximise their service offerings. In order to gain a stronger foothold in the long-range communications and broadband market, MegaFon plans to acquire a 100pc stake in Sinterra, a national fixed-line operator.

In a similar vein, Svyazinvest, the government-controlled holding group, is undergoing a reorganisation to consolidate its seven regional subsidiaries within Rostelecom by May 2011. As a result, the Big Three will turn into the Big Four.

AFK Sistema is also taking steps to keep up with the competition. In April 2010, it bought SkyLink, a mobile broadband provider. The deal is part of a larger asset swap with Svyazinvest, in which Sistema will hand over SkyLink in exchange for the Moscow Telecommunications Network, a Moscow fixed-line operator.

“The telecommunications sector stepped into 2010 in good shape after having sorted out liquidity, refinancing and exchange rate hassles inflicted by the credit crunch,” says Fitch spokesman Artyom Frolov. “This positive trend is likely to continue.”

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