Early regulation has made telecommunications one of the most developed sectors in Russia. Whilst state enterprises, with their infrastructure inherited directly from Soviet-era institutions, dominate the fixed-line market, they have largely failed to move into the new higher-tech areas. Instead, it's the big private mobile that are moving into the fixed-line space as they search for growth drivers.
The big mobile operators of MTS, VimpelCom and Megafon have also set up camp in the less-developed CIS countries, and are scouting other emerging markets. MTS is in India, while VimpelCom is in several Southeast Asian countries and is said to be watching for opportunities in Africa. A brief look at global penetration rates suggests they're on the money: in Bangladesh, Azerbaijan and India less than 50% of people currently have a mobile phone, whilst most African states boast significantly less again.
Given their size, profitability and a lack of significant growth opportunities in traditional voice and messaging services at home, these mobile operators were always going to expand abroad at some point. While there are still areas without strong infrastructure within Russia's vast borders, in many cases the ratio of cost/population makes development unattractive. That said, this is an avenue through which the mobile providers - whose infrastructure costs are significantly lower than fixed line - are able to make some headway, according to Victor Klimovich of VTB Capital.
Yet overall, mobile penetration in Russia already runs at 155% (rising to around 190% in Moscow and St Petersburg), so there aren't too many new customers out there. This means revenue from such services can do little more than piggy-back growth in consumer spending; Uralsib expects growth will be limited to just 7% over 2010-12.
It's new services then that form the core of growth opportunities in Russia. Uralsib anticipates that the number of fixed-line broadband subscribers will grow 40% this year to total 15.4m, and that MTS and VimpelCom's broadband sales will swell by a similar figure over the next two years to contribute 16% of total revenue by 2012. This prize is just kicking off a mini-boom in M&A, as major players hunt down small regional service providers to expand their presence further from the major cities.
Meanwhile, with 3G networks now up and running in Moscow, data services are also set to boom, insists Klimovich, adding another 5% to the top line. But that's just the tip of the iceberg, he says, especially for the large mobile operators, who have now moved into fixed line as well, and "will build their businesses on the ability to connect people with the outer world - to build the 'smart pipe'. This will combine voice and message services, internet, content, banking and probably other areas in the future."
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