telecommunications in russia - available at g2mi.com

Telecommunications in

Russia

Sector Profile

November 2010

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Table of Contents

SECTOR OVERVIEW .......................................................................................................................................... 5

RECENT INDUSTRY DEVELOPMENTS............................................................................................................................. 7 MERGERS AND ACQUISITIONS .................................................................................................................................... 8

SECTOR SIZE ................................................................................................................................................... 11

STRUCTURE .................................................................................................................................................... 12

MAJOR PLAYERS / COMPETITIVE ENVIRONMENT .......................................................................................... 18

Akado Group ................................................................................................................................................ 18 Comstar - UTS .............................................................................................................................................. 19 Mobile TeleSystems OJSC ............................................................................................................................. 19 North-West Telecom JSC .............................................................................................................................. 19 Rostelecom Corporation .............................................................................................................................. 19 Sibirtelecom OJSC ......................................................................................................................................... 20 Tele 2 ............................................................................................................................................................ 20 Uralsvyazinform ........................................................................................................................................... 20 Vimpelcom ................................................................................................................................................... 21

REGULATORY ENVIRONMENT ........................................................................................................................ 22



Table of Figures

FIGURE 1. TELECOM SUBSCRIBER GROWTH (2006-09) ............................................................................................... 6 FIGURE 2. RUSSIA, TELECOM SERVICE REVENUE (2004-08) ......................................................................................... 6 FIGURE 3. RECENT INDUSTRY DEVELOPMENTS ............................................................................................................ 7 FIGURE 4. MERGERS AND ACQUISITIONS ................................................................................................................... 8 FIGURE 5. LISTED COMPANIES ............................................................................................................................... 10 FIGURE 6. RUSSIA, TELECOM SUBSCRIBER GROWTH (2006-09) .................................................................................. 11 FIGURE 7. RUSSIA, TELECOM SERVICE REVENUE (2004-08) ....................................................................................... 11 FIGURE 8. RUSSIA, MOBILE SUBSCRIBER GROWTH AND PENETRATION (2006-09) .......................................................... 12 FIGURE 9. RUSSIA, QUARTERLY GROWTH IN MOBILE SUBSCRIBER AND PENETRATION (Q109-Q310) ................................. 12 FIGURE 10. RUSSIA, QUARTERLY GROWTH IN MOBILE SUBSCRIBERS BY REGION (Q1 09-Q3 10) ......................................... 13 FIGURE 11. RUSSIA, WIRELESS MARKET SHARE (2006-09) ........................................................................................... 13 FIGURE 12. RUSSIA, QUARTERLY MARKET SHARE (Q1 09-Q3 10) ................................................................................. 14 FIGURE 13. RUSSIA, ANNUAL GROWTH IN MOBILE ARPU BY OPERATOR (2007-09) ........................................................ 14 FIGURE 14. RUSSIA, QUARTERLY GROWTH IN ARPU BY OPERATOR (Q1 09-Q2 10) ........................................................ 14 FIGURE 15. RUSSIA, ANNUAL GROWTH IN MINUTE OF USAGE BY OPERATOR (2007-09) .................................................... 15 FIGURE 16. RUSSIA, QUARTERLY GROWTH IN MINUTE OF USAGE BY OPERATOR (Q1 09-Q2 10) ........................................ 15 FIGURE 17. RUSSIA, WIRELINE SUBSCRIBER GROWTH (2005-09) ................................................................................. 15 FIGURE 18. RUSSIA, BROADBAND SUBSCRIBER GROWTH BY REGION (JAN 10-JUN 10) ....................................................... 16 FIGURE 19. RUSSIA, QUARTERLY GROWTH IN BROADBAND SUBSCRIBERS (Q1 09-Q2 10) .................................................. 16 FIGURE 20. RUSSIA, QUARTERLY GROWTH IN SUBSCRIBER BY OPERATOR AND MARKET SHARE (Q1 09-Q2 10) ...................... 17 FIGURE 21. RUSSIA, BROADBAND SUBSCRIBER MARKET SHARE IN MOSCOW (Q1 09-Q2 10) ............................................. 17 FIGURE 22. RUSSIA, BROADBAND SUBSCRIBER MARKET SHARE IN ST PETERSBURG (Q1 09-Q2 10) ..................................... 17 FIGURE 23. RUSSIA, MAJOR PLAYERS ...................................................................................................................... 18



Sector Overview

The Russian telecom sector has a high level of subscriber penetration and is among the developed telecom

landscapes in Europe. At September 2010, the industry had 217 million mobile subscribers with a sim card

penetration of 149%, 33.8 million wireline subscribers (Dec 2009), and 13.27 million internet subscribers (June

2010)

The sector is valued at EUR 32.2 billion in 2008 (ICT Russia) with a year on year growth of 19.2%. The sector is

growing with a CAGR of approx. 22.3% over the last 5 years (2004-08). Investment in telecom segment has

increased over the year with operators deploying 3G network and technology up gradation.

Russian telecom market is fragmented with number of operators operating in all the three segments i.e.

wireline, wireless and broadband and stand alone services. The sector has approximately 10,000 internet

service providers and 9 Mobile virtual network operators. Mobile segment is primarily driven by 9 operators

and fixed line services by 3 operators. The industry also has three 3G mobile service operators. State owned

telecom service provider Svyazinvest was also granted 4G license in March 2010 to operate services in the

country.

Telecom sector in the last 2 year has witnessed a number of merger and acquisitions primarily aimed at

expanding telecom operator’s business portfolio and companies trying to benefit from operational synergies

by merging its subsidiaries like in 2010 fixed line telecom operator Comstar-UTS merged its 16 subsidiary to

control cost and gain operational synergies.

Mobile segment is one of the matured mobile markets with a sim card penetration of 149%; however the

segment is also one of the fastest growing telecom segments. During first 9 month 2010 the sector added 8.6

million mobile subscribers. The sector is marked by larges discrepancies between rural and urban penetration,

multiple SIM ownership, significant number of inactive SIMs and growing data usage.

Russian Mobile market is primarily led by MTS which has 69.3 million subscribers and holds respective market

share of 33.6%. Its is followed by Megafon with 26.1% market share and Vimpelcom with a market share of

24.1%, Tele 2 occupies 8.3% market share in the country. Average revenue per subscriber in Russia is one of

the most unstable components in Russian mobile telecom market. During 2008-09 the revenue declined due

to global economic crisis however by the last quarter of 2009 mobile ARPU grew. During the last 3 years MTS

has reported lowest ARPU. Revenue from the data services has increased in last few quarters primarily due to

the rising use of smart phones, including Apple iPhone, Android, and blackberry devices driving up data usage

Minute of usage in the country has grown during the last 2 quarters (2010) primarily due to reduction in call

tariffs.

Fixed line segment is one of the stable telecom service segments in Russia. During the last 5 year the industry

has largely remain stable with a very low churn rate. The sector is led by Svyazinvest (through its 7

subsidiaries), Comstar UTS (MGTS), and Vimpelcom. In the last 2 year the industry has witnessed, most of the

fixed line operators entering into triple play services which fixed line, broadband service and Pay TV services to

increase revenue.

Broadband in Russian telecom sector is one of the fastest growing sectors. The segment in the first 6 month

2010 added 1.75 million subscribers. Russian Internet segment is dominated by broadband, xDSL, cable and

FTTH/FTTB technologies; however Wimax use is also growing in the country. OAO Comstar-UTS is the largest

broadband operator in the country with 1.36 million broadband subscribers and respective markets share of



14.4%, followed by Center Telecom with 1.33 million subscribers and 14.1% market share; Vimpelcom has

approximately 1.2 million broadband subscribers and has 12.6% market share.

The Russian telecom industry is led by mainly 5 players namely Svyazinvest, Mobile TeleSystem, Vimpelcom,

Megafon and Tele 2. Mobile TeleSystem is the largest mobile operator in the country with 32% market share

(Q3 2010). The company is also the leading fixedline and broadband operator through its subsidiary Comstar

UTS. State owned Svyazinvest is the largest fixed line service provider in the country together with its 7

subsidiaries. Comstar is the largest broadband operator in the country with 1.36 million subscribers (Q2 10);

North West is the largest broadband operator in St. Petersburg region.

Russian mobile telecom market is fragmented with number of operators and penetration of more than 100%.

The phenomenon has resulted market consolidation in last few years aimed at acquiring market share & gains

on operational efficiencies and an intense price based competition in the sector. The industry is slowly

transforming into data centric model as growth in voice based revenue is declining.

Telecommunication in Russia is regulated by Ministry for Communications and Information of the Russian

Federation. The law Communications Law, which came into effect on January 1, 2004 and is the principal legal

act regulating the Russian telecommunications industry. The Communications Law sets forth general principles

for the regulation of the telecommunications industry, including a description of the institutional framework

for the federal government’s involvement in the regulation, administration, and operation of the

telecommunications industry.

Figure 1. Telecom subscriber growth (2006-09)

Subscribers (Million) 2006 2007 2008 2009

Wireline 33.2 33.8 34.0 33.8

Wireless 149.74 171.24 187.83 207.91

Broadband 11.3

Source: AC&M consulting

Figure 2. Russia, telecom service revenue (2004-08)

EUR billion 2004 2005 2006 2007 2008 CAGR

Revenue 14.4 17.7 20.9 27.3 32.2 22.29%

% Change 22.9% 18.1% 30.6% 17.9%

Source: ictrussia.com



Recent Industry Developments

Figure 3. Recent industry developments

2010

October Comstar-United Telesystems JSC reorganized its subsidiary CJSC Comstar – Region. It integrated company’s regional subsidiaries offering telecom services under Comstar-Region.

October Megafon acquires 100% stake in St Petersburg based fixed line operator MetroKom from St Petersburg city authorityies and MST (45%)

October MTS, Vimpelcom and Megafon reduced mobile roaming tariff in Russia October Sibirtelecom launched internet services in Chita, ZabaiKalsky Krai.

October Russian telecom operator Altaisvyas OJCS and STEK GSM merged into Yenisseytelecom OJSC, a subsidiary of Sibirtelecom OJSC.

October Vimpelcom Ltd agreed to acquire Italian telecoms operator, Wind Telecomunicazioni and 51.7% stake of Orascom Telecom which is owned by Egyptian Tycoon Naguib Sawiris for USD 6.6 billion

August Skartel was granted license and permission to launch 4G in Russia

July Vimpelcom acquired 100% stake in Foratek for RUB 1.4 billion (USD 46.43 million). June Russian court cancels Megafon and Turkcell joint venture erfax June Comstar UTS acquired Penza region based telecom operator Penza Telecom for RUB 630 million. June Jasper wireless and Vimpelcom entered into agreement to offer first Machine to machine service in Russia. June Megafon entered into interconnection agreement with iBasis for high quality international voice services. June May MTS OJSC entered into agreement to sell 25% +1 share in Svyazivest to OAO Rostel for RUB 26 billion.

April Ukraine anti monopoly committee suspended decision to approve merger of Vimpelcom with Ukrainian telecom operator Kyivstar.

March Russian state owned telecom company Svyazinvest announced to deploy LTE technology for its 4G mobile network.

March Russian state owned telecom operator Svyazinvest gets 4G licences. February Megafon acquired fixedline operator Synterra for USD 745 million. February OAO Comstar UTS acquired internet service provider Tenzor Telecom LLC for RUB 32.7 million. January Comstar UTS increased its fixedline tariff by 10%



Mergers and acquisitions

Russian Telecom sector has witnessed a number of acquisition and mergers in the last 2 year. The high number

of transaction in telecom sector is primarily due to growing penetration which has resulted in intense

competition and thus lesser profit margins.

Figure 4. Mergers and acquisitions

Date Investor Investee Description Oct-10 Baring Vostok

Capital Partners ER-Telecom CJSC Russian Private equity Baring Vostok Capital Partners

acquired 10% stake in integrated telecom service provider ER-Telecom. ER is a telecommunications company engaged in the business of providing cable TV, broadband internet, fixed line telephony and VoIP services.

Oct-10 Vimpelcom Polarcom Vimpelcom acquired Polarcom. Polarcom is engaged in the business of providing fixed line telecommunication services.

Oct-10 Mobile Telesystems Comstar-UTS Russian integrated telecom operator Mobile Telesystems (MTS) acquired 9% stake in Russian fixedline telecom operator Comstar-UTS for RUB 8.28 billion. Post acquisition MTS will hold 70.97% stake in the company.

Oct-10 OJSC Megafon Metrocom Russian mobile telecom operator Megafon acquired 100% stake in Metrocom for a consideration of RUB 2 billion from St peter burg Municipality and Russian company MST. Metrocom is an alternative telecom service provider in the North West region of Russia.

Oct-10 Vimpelcom Ltd Wind Telecomunicazioni

Vimpelcom Ltd agreed to acquire Italian telecoms operator, Wind Telecomunicazioni and 51.7% stake of Orascom Telecom which is owned by Egyptian Tycoon Naguib Sawiris for USD 6.6 billion (EUR 4.8 billion). Vimpelcom is the leading telecommunications company, based in Russia. The company has 89.4 million mobile subscribers and 2.7 million broadband subscribers (Q2 2010).

Sep-10 Megafon OJSC ZAO PeterStar Megafon OJSC acquired ZAO PeterStar from Synterra CJSC for a total consideration of USD 215 million. PeterStar is engaged in the business of providing telecom services. Synterra is engaged in the business of providing telecommunication services.

Sep-10 Multiregional TransitTelecom

Nauka-Svyaz Ivanovo Multiregional TransitTelecom (MTT) acquired Nauka-Svyaz Ivanovo for RUB 175 million. MTT is engaged in the business of providing telecommunication services. Nauka-Svyaz is engaged in the business of providing fixed line telephone and internet services to business and residential clients.

Sep-10 Multiregional TransitTelecom

Promsvyaz-Invest Multiregional TransitTelecom (MTT) acquired Promsvyaz-Invest for an approximate consideration of RUB 190 million. MTT is engaged in the business of providing telecommunication services. Promsvyaz-Invest is engaged in the business of providing fixed line telephone and internet services to business and residential clients.

Sep-10 JSFC Sistema Sky Link Russian telecom service provider JSFC Sistema acquired 50% stake in mobile telecom service provider Sky Link for a consideration of USD 168.5 million.

Sep-10 ZAO PeterStar OOO Vyborgtelecom Synterra Group of Companies via ZAO PeterStar acquired OOO Vyborgtelecom. Vyborgtelecom is engaged in the business of providing broadband internet services.

Sep-10 Marshall Capital Partners

Svyazinvest Private equity Marshall Capital Partners acquired 7% stake in Svyazinvest subs Telecom operators and Rostelcom from Russian investment bank Gazprombank.

Sep-10 ZAO Eltel SiAl Integrated telecom service provider ZAO Eltel acquired St Petersburg based telecom service provider SiAl.



Date Investor Investee Description Sep-10 North-West

Telecom Lanck Telecom North-West Telecom, subsidiary of Svyazinvest acquired St

Petersburg based fixed line operator Lanck Telecom for a consideration of USD 26 million.

Sep-10 CenterTelecom OJSC

Akado Fixed line telecom operator CenterTelecom acquired 25% stake in integrated telecom operator Akado from Renova Media Enterprises Ltd for a consideration of RUB 6.13 billion.

Aug-10 Mobile TeleSystems OJSC

Metro-Telecom CJSC Mobile TeleSystems OJSC acquired 95% stake in Metro-Telecom CJSC from Invest Svyaz CJSC for a total consideration of RUB 339.35 million. Metro Telecom is engaged in the business of operating an optical fiber network in Moscow.

Jul-10 Vimpelcom Foratek Communication

Russian telecom operator Vimpelcom acquired Foratek Communication for a total consideration of RUB 1.4 billion in a cash and debt deal. Foratek Communication is engaged in the business of providing fixed line services.

Jul-10 ZAO PeterStar ZAO Kansstel ZAO PeterStar acquired ZAO Kansstel from Synterra Center. PeterStar is engaged in the business of providing telecommunication services in the Northwest region of Russia, Kansstel is engaged in the business of providing telecommunication services to corporate and private clients.

May-10 OAO Volga Telecom

Teleset Networks Plc OAO Volga Telecom acquired Teleset Networks Plc from OAO Svyazinvest for a total consideration of USD 133.5 million. Teleset is in the business of providing fixed line telecom services in Republic of Tatarstan. Volga telecom is in the business of providing telecom services in Volga federal district.

May-10 OAO Rostelecom OJSC Svyazinvest OAO Rostelecom acquired 25% stake in OJSC Svyazinvest from OAO Comstar-UTS for a consideration of RUB 26 billion. Rostelecom provides long distance calling services and interconnects all the public operators’ network into one for long distance service.

Apr-10 OAO Vimpelcom Kyivstar OAO Vimpelcom merged with Kyivstar to form Vimpelcom Ltd a USD 22 billion entity. The merger was proposed by majority stake holders in two companies, Telenor ASA and Alfa Group both jointly holding entire shares of Kyivstar and more than 3/4th shares in OAO Vimpelcom. Telenor ASA will hold 39.6% and Alfa Group 39.2% in Vimpelcom Ltd.

Feb-10 Megafon Synterra Mobile telecom service provider Megafon acquired wireless broadband service provider Synterra for a total consideration of USD 745 million.

Jan-10 Comstar United TeleSystems

Tenzor Telecom Integrated telecom operator Comstar United TeleSystems acquired broadband service provider Tenzor Telecom for a total consideration of RUB 220 million.

Dec-09 Mobile Telesystems (MTS)

OAO Eurotel Mobile TeleSystems acquired integrated telecom service provider to businesses OAO Eurotel from Mortifield Holdings Ltd for a total consideration of USD 110 million. .

Dec-09 Uralsvyazinform OOO Yuzhno- Uralskaya Telefonnaya Kompaniya

Urals based telecom service operator Uralsvyazinform acquired 100% stake in telecom service provider OOO Yuzhno-Uralskaya Telefonnaya Kompaniya (YUTK). .

Oct-09 MTS Comstar United Telesystems

Mobile Telesystems OJSC (MTS) acquired 50.91% stake in integrated telecommunication services Comstat United TeleSystems for a total consideration of USD 1.32 billion from AFK Sistema.

Oct-08 Vimpelcom Euroset Vimpelcom completed the acquisition of 49.99% stake in Euroset for USD 226 million.

Oct-08 Alisher Usmanov OAO MegaFon Alisher Usmanov acquired 26.4% stake in OAO MegaFon from Bernudan fund IPOC. Usmanov now holds 31.1% stake in Megafon. MegaFon is the third biggest cellular operator by users in Russia providing mobile and broadband services.



Date Investor Investee Description Jul-08 Vimpelcom Ltd Sotelco Vimpelcom Ltd acquired 90% stake in Atlas Trade Ltd to take

90% stake in telecom service provider Sotelco from Altimo for a total consideration of USD 28 million.

Jul-08 OAO Comstar United Telesystems

Ural Telephone Co OAO Comstar United Telesystems acquired Ural Telephone Co for a total consideration of USD 43.4 million.

Jun-08 Comstar United Telesystems JSC

Interlink Group Comstar United Telesystems JSC acquired 100% stake in integrated telecom service operator in Ryazan region Interlink Group for a total consideration of RUB 200 million in cash.

Mar-08 Vimpelcom Golden Telecom Inc Vimpelcom completed the merger of its wholly-owned subsidiary, Lillian Acquisition Inc with and into Golden Telecom Inc. After the merger, Golden Telecom becomes an indirect wholly-owned subsidiary of Vimpelcom.

Figure 5. Listed companies

Name Reuters code Activities

Mobile Telesystem MTSS.RTS Operates mobile services, also offers fixedline and broadband services through its subsidiary Comstar UTS.

Uralsvyazinform URSI.RTS Offers mobile, fixed line services in Ural region

Vimpelcom VIP.N Operates mobile, fixedline and broadband services in Russia.

Sibirtelecom OJSC ENCO.MM Subsidiary of Svyazinvest operates fixedline and broadband services in Russia.

OJSC Center Telecom ESMO.RTS Operates fixed line and broadband services



Sector Size

Russian telecom sector is one of the most matured telecom markets in Europe. The sector is valued at Eur 32.2

billion in 2008 (ICT Russia) with a year on year growth of 19.2%. The sector is growing with a CAGR of

approximately 22.3% over the last 5 years (2004-08). Investment in telecom segment has increased primarily

due to deployment of 3G network and technology up gradation in the last 2 years.

At the end of September 2010 the industry had 217 million mobile subscribers with a penetration of 149%,

33.8 million wireline subscribers (Dec 2009), and 13.27 million internet subscribers (June 2010)

Figure 6. Russia, Telecom subscriber growth (2006-09)

Subscribers (Million) 2006 2007 2008 2009

Wireline 33.2 33.8 34.0 33.8

Wireless 149.74 171.24 187.83 207.91

Broadband 11.3


Figure 7. Russia, telecom service revenue (2004-08)

Eur billion 2004 2005 2006 2007 2008 CAGR

Telecommunications services revenue 14.4 17.7 20.9 27.3 32.2 22.29%

% Change 22.9% 18.1% 30.6% 17.9%

Source: ictrussia.com



Structure

Russian telecom market is fragmented with number of operators operating in all the three segments i.e.

wireline, wireless and broadband and stand alone services. The sector has approximately 10,000 internet

service provider and 11 Mobile virtual network operator. Mobile segment is primarily driven by 9 operators

and fixed line services by 3 operators. The industry also has 3 3G mobile service operators. In March 2010,

State owned telecom service provider Svyazinvest got license to operate 4G services in the country.

At the end of September 2010 the industry had 217 million mobile subscribers with a penetration of 149%,

33.8 million wireline subscribers (Dec 2009), and 13.27 million internet subscribers (June 2010)

The industry is witnessing a rise in number of 3G subscribers since operators started to launch services in 2008.

There are three operators offering 3G services in Russia (MTS, Vimpelcom, and Megafon).

Mobile segment in Russia is one of the most matured markets with a penetration of 149%. During the first 9

month 2010 the sector added 8.6 million mobile subscribers.

Figure 8. Russia, Mobile subscriber growth and penetration (2006-09)

Million (y/e Dec) 2006 2007 2008 2009

Subscribers 149.74 171.24 187.83 207.91

% Change 14.4% 9.7% 10.7%

Penetration 104.60% 119.10% 129.40% 143.20%

Net Additions 21.498 16.59 20.08

Source: AC & M Consulting

Figure 9. Russia, Quarterly growth in mobile subscriber and penetration (Q109-Q310)

Million Q109 Q209 Q309 Q409 Q1 10 Q2 10 Q3 10

Subscribers (million) 190.8 196.6 203.7 207.9 210.6 213.4 216.5

% Change 13.6% 13.7% 13.5% 10.7% 10.4% 8.5% 6.3%

Penetration (%) 131.4% 135.4% 140.3% 143.2% 145.1% 147.0% 149.1%

Net Additions 5.8 7.1 4.2 2.7 2.8 3.1




Figure 10. Russia, Quarterly growth in mobile subscribers by region (Q1 09-Q3 10)

Particulars Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10

Mobile subs in Moscow 32.1 33.2 32.5 32.4 32.4 33.4 33.7

Penetration (%) 188.9% 195.6% 191.2% 190.7% 191.0% 196.8% 198.7%

Mobile subs in St.Petersburg 10.7 11.2 11.7 11.8 11.9 12.2 12.6

Penetration (%) 169.1% 176.1% 185.2% 186.8% 187.6% 192.7% 198.0%

Mobile subs in other regions 148.0 152.2 159.5 163.7 166.3 167.7 170.2

Penetration (%) 121.5% 124.9% 130.9% 134.3% 136.5% 137.7% 139.7%

Total number of mobile subs in Russia 190.8 196.6 203.7 207.9 210.6 213.4 216.5

Penetration (%) 131.4% 135.4% 140.3% 143.2% 145.1% 147.0% 149.1%

Source: AC & M consulting

Russian Mobile market is primarily led by MTS which has 69.3 million subscribers and holds respective market

share of 33.6%. Its is followed by Megafon with 26.1% market share and Vimpelcom with a market share of

24.1%, Netherlands based Tele 2 occupies 8.3% market share in the country.

Figure 11. Russia, wireless market share (2006-09)

Subscribers 2006 2007 2008 2009 % Share

MTS 51.2 57.4 64.6 69.3 33.7%

Vimpelcom 48.1 51.6 47.7 50.9 24.7%

Megafon 29.6 35.5 43.3 50.2 24.4%

Tele2 6.5 8.6 10.4 14.5 7.0%

Uralsvyazinform 4.4 5.2 5.7 5.7 2.7%

Sibirtelecom 3.1 4.2 4.9 5.2 2.5%

Smarts Group 3.6 4.0 3.5 3.5 1.7%

NCC 1.3 2.3 2.6 3.5 1.7%

Cellular Communication MOTIV 1.1 1.4 1.5 1.7 0.8%

New Telephone Company 0.8 1.1 1.2 1.3 0.6%

Total 149.7 171.4 185.4 205.8




Figure 12. Russia, quarterly market share (Q1 09-Q3 10)

Company (Subscribers by operator) Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10

% Share

MTS 65.1 67.4 68.7 69.3 69.1 69.4 69.7 32.6%

Vimpelcom 49.4 50.0 51.0 50.9 51.3 50.9 51.6 24.1%

Megafon 43.5 45.4 48.1 50.2 51.6 53.5 55.9 26.1%

Tele2 10.7 11.2 13.2 14.5 15.4 16.5 17.7 8.3%

Uralsvyazinform 5.8 6.0 5.7 5.7 5.7 5.5 4.9 2.3%

Sibirtelecom 5.1 5.2 5.4 5.2 5.4 5.4 4.6 2.2%

Smarts Group 3.5 3.5 3.5 3.5 3.1 3.7 3.4 1.6%

NCC 2.7 2.8 2.8 3.5 2.7 2.7 2.5 1.2%

Cellular Communication MOTIV 1.5 1.5 1.6 1.7 1.8 1.9 2.0 0.9%

New Telephone Company 1.3 1.3 1.3 1.3 1.4 1.4 1.5 0.7%

Total 188.4 194.2 201.2 205.8 207.4 211.0 213.8


Average revenue per subscriber in Russia is one of the most unstable components in Russian mobile telecom

market. Minute of usage in the country has grown during the last 2 quarters (2010) primarily due to reduction

in call tariffs.

Figure 13. Russia, Annual growth in mobile ARPU by operator (2007-09)

Operator (RUB/Month) 2007 2008 2009

MTS 236.25 260.80 247.50

Vimpelcom 316.75 337.75 319.78

MegaFon 355.50 369.00 318.00

Source: telecom operators, mforum

Figure 14. Russia, Quarterly growth in ARPU by operator (Q1 09-Q2 10)

Operator (In RUB) Q109 Q209 Q309 Q409 Q1 10 Q2 10

Vimpelcom 307.0 322.8 332.4 316.9 307.7 329.9

MTS 234.0 245.0 256.0 248.0 237.0 254.0

Megafon 312.0 318.0 325.0 317.0 290.0 323.0 Average 284.33 295.27 304.47 293.97 278.23 302.30

Source: Telecom operators, mforum , ARPU/month



Figure 15. Russia, annual growth in minute of usage by operator (2007-09)

Average Monthly minute per user 2007 2008 2009

MTS 157 208 213

Vimpelcom 192.1 219.1 211.4

Tele 2 - 201 215

Source: Telecom operator

Figure 16. Russia, Quarterly growth in Minute of usage by operator (Q1 09-Q2 10)

In Min per subscriber Q109 Q209 Q309 Q409 Q1 10 Q2 10

MTS 205 216 213 219 211 230

Vimpelcom 203 211.8 213.6 218 203.9 219.3

Source: Telecom operator

Fixed line segment is one of the stable telecom service segments in Russia. During the last 5 year the industry

has largely remain stable with a very low churn rate. The sector is led by Svyazinvest (through its 7

subsidiaries), Comstar UTS (MGTS), and Vimpelcom. In the last 2 year the industry has witnessed most of the

fixed line operators has started entering into triple play services which fixed line, broadband service and Pay

TV services to increase revenue.

Figure 17. Russia, Wireline subscriber growth (2005-09)

Millions 2005 2006 2007 2008 2009

Subscribers 32.5 33.2 33.8 34.0 33.8

% Change 5.2% 2.2% 1.8% 0.6% -0.6%

Net addition 1.60 0.70 0.60 0.20 -0.20

Source:mforum.ru



Broadband in Russian telecom sector is one of the fastest growing sectors. The segment in the first 6 month

2010 added 1.75 million subscribers. The most prominent broadband technology in Russia is ADSL; however

Wimax use is also growing in the country. OAO Comstar-UTS is the largest broadband operator in the country

with 1.36 million broadband subscribers and respective markets share of 14.4%, followed by Center Telecom

with 1.33 million subscribers and 14.1% market share; Vimpelcom has approximately 1.2 million broadband

subscribers and has 12.6% market share.

Major urban cities such as Moscow and St Petersburg have the highest broadband subscribers. The sector

presents huge growth opportunities, both from expanding into urban and rural regions and the development

of additional services such as super high-speed broadband and IPTV.

Figure 18. Russia, Broadband subscriber growth by region (Jan 10-Jun 10)

Region Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10

Russia 11.53 11.77 12.12 12.50 12.90 13.27

% Change (monthly) 2.1% 3.0% 3.1% 3.2% 2.9%

Moscow 2.95 2.98 3.02 3.04 3.06 3.07

% Change (MoM) 1.2% 1.3% 0.7% 0.5% 0.4%

St Petersburg 1.07 1.08 1.10 1.12 1.13 1.14

% Change (MoM) 1.4% 1.6% 1.4% 1.0% 0.8%


Figure 19. Russia, quarterly growth in broadband subscribers (Q1 09-Q2 10)

Region Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10

Russia 9.135 9.57 10.22 11.3 12.122 13.274

% Change (Q-o-Q) 32.7% 38.7%

Moscow 2.724 2.77 2.801 2.929 3.022 3.072

% Change (Q-o-Q) 10.9% 10.9%

St Petersburg 0.936 0.958 0.986 1.049 1.1 1.135

% Change (Q-o-Q) 17.5% 18.5%




Figure 20. Russia, quarterly growth in subscriber by operator and market share (Q1 09-Q2 10)

Operator Q 109 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 % Shar e

Comstar 1.12 1.13 1.16 1.20 1.29 1.36 14.4%

Centertelecom 0.75 0.77 1.01 1.14 1.27 1.33 14.1%

Vimpelcom 0.85 0.88 0.93 1.07 1.17 1.20 12.6%

ER-Telecom 0.64 0.71 0.81 0.96 1.04 1.10 11.6%

Volgatelecom 0.83 0.79 0.83 0.90 0.95 0.97 10.2%

North-West Telecom 0.66 0.71 0.77 0.84 0.88 0.91 9.6%

Uralsvyazinform 0.55 0.58 0.62 0.67 0.73 0.75 7.9%

AKADO 0.61 0.62 0.63 0.65 0.66 0.66 7.0%

Sibirtelecom 0.41 0.44 0.49 0.54 0.58 0.63 6.6%

Southern Telecom Co 0.38 0.41 0.48 0.53 0.54 0.57 6.0%

Total 6.79 7.02 7.72 8.48 9.10 9.49


Figure 21. Russia, broadband subscriber market share in Moscow (Q1 09-Q2 10)

Operator Q 109 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 % Share

Comstar 0.83 0.79 0.81 0.83 0.86 0.87 34.2%

AKADO 0.57 0.57 0.58 0.59 0.60 0.60 23.7%

Vimpelcom 0.57 0.54 0.55 0.58 0.63 0.62 24.5%

NetByNet 0.21 0.22 0.23 0.23 0.24 0.25 9.7%

qwerty 0.16 0.17 0.18 0.19 0.20 0.20 8.0%

Total 2.34 2.29 2.34 2.41 2.52 2.54


Figure 22. Russia, broadband subscriber market share in St Petersburg (Q1 09-Q2 10)

Operator Q 109 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 %

Share

North-West Telecom 0.30 0.30 0.31 0.32 0.33 0.34 49.6%

NTC (TKT, tvoe.tv) 0.12 0.16 0.17 0.17 0.18 0.18 26.9%

InterZet 0.12 0.12 0.13 0.14 0.16 0.16 23.5%

Total 0.54 0.58 0.60 0.63 0.66 0.68




Major players / Competitive environment

Russian telecom market is a fragmented with number of operators operating in all the three segments i.e.

wireline, wireless and broadband. The industry is primarily led by 5 players namely Svyazinvest, Mobile

TeleSystem, Vimpelcom, Megafon and Tele 2. Mobile TeleSystem is the largest mobile operator in the country

with 32% market share (Q3 2010). The company is also the leading fixedline and broadband operator through

its subsidiary Comstar UTS. State owned Svyazinvest is the largest fixed line service provider in the country

together with its 7 subsidiaries. Comstar is the largest broadband operator in the country with 1.36 million

subscribers (Q2 10); North West is the largest broadband operator in St. Petersburg region.

Figure 23. Russia, Major Players

Operator Services Data

Mobile Telesystems OJSC (MTS) Offers mobile, fixedline and broadband services.

69.7 million mobile subscribers (Q3 10), 1.36 million broadband subscribers (Q2 10, Comstar UTS)

Megafon Offers mobile services 55.9 million mobile subscribers (Q3 10) Tele2 Offers mobile services 17.7 million mobile subscribers (Q3 10)

Vimpelcom Offers mobile, fixedline and broadband services.

51.6 million mobile subscribers (Q3 10), 1.20 million broadband subscribers.

Center Telecom Offers fixed line and broadband services.

1.33 million Broadband subscribers.

Svyazinvest Fixed line, mobile and broadband

4.6 million mobile subscribers (Sibirtelecom, Q3 10), 4.9 million mobile subscribers (Uralsvyazinform Q3 10), .7 million broadband subs (Volga telecom), .91 million broadband subscribers (Northwest), .75 million (Uralsvyazinform) in Q 2 10

Akado Group

Akado Group (Comcor), founded in 1992 is an integrated telecom operator in Russia. The company is primarily

engaged in offering package TV, high-speed Internet and telephony (triple play) services for corporate

subscribers and homes using advanced fibre optic technology. The company offers its internet and Pay TV

services through AKADO-Stolitsa ZAO (previously COMCOR-TV). The company offers telecommunications

services in Moscow. Akado provides unlimited high-speed Internet access and over 100 digital TV channels

(including NTV Plus, Russian terrestrial channels and AKADO LIVE) as well as digital telephony and radio

services. Akado is Moscow’s leader in double play package telecommunications services (Internet + TV) and

serves more than 800,000 homes in Moscow, Zelenograd and Lubertsy.

The company offers its telecom services through COMCOR OAO in the Moscow region and joined Renova

Media telecommunications group (now Akado Group) in June 2006. Akado Telecom provides data transfer,

Internet access, digital telephony, corporate network architecture, data security, data centre services, digital

transmission lines, TV rebroadcasting and digital audiovisual content transfer.

The company is a fully owned subsidiary of Comcor OAO



Comstar - UTS

Comstar is the leading integrated telecom operator in Russia. The company is primarily engaged in offering

fixedline, broadband and Pay TV services other value-added services to residential and corporate subscribers

and operators in 84 Russian cities. As of Q 2 2010, the company service approximately 1 million fixedline

subscribers, 1.4 million residential broadband subscribers and 2.2 million residential Pay TV subscribers. The

Company also offers communications services in 82 cities in the Russian regions, Armenia and Ukraine.

Recently the company integrates its regional business (16 companies) in its one subsidiary Comstar Region.

The company merged includes CJSC Astro-Tel and CJSC IMA Trunk Media in Astrakhan; CJSC Comtel-Kemerovo

in Kemerovo; CJSC RusLan-TV in Moscow; CJSC Simbirsk CTV in Ulyanovsk; CJSC SALLAK Group of Companies in

Krasnodar; CJSC Comtel-Vologda in Vologda; CJSC Comtel-Taganrog in Taganrog; CJSC Network TV and Telesat

in Nizhny Tagil; CJSC Elecom-Service in Voronezh; CJSC Electronica in Balakovo; CJSC Inter-TV Cable Systems

and Ivanovo Cable Systems in Ivanovo; CJSC TVK-Kursk in Kursk; and CJSC Penza Telecommunications in Penza.

For the year ended December 2009, the company generated USD 1.484 billion in revenue. At the end of June

2010 the company generated USD 818.1 million in revenue. The company owns approximately 25% stake in

state owned fixed line incumbent Svyazinvest.

Mobile TeleSystems OJSC

MTS is one of the largest providers of mobile cellular communications services in Russia. MTS is primarily

engaged in offering voice services, voicemail, SMS, GPRS, and various SMS- and GPRS-based information and

entertainment services (including a multi-media messaging service). It also offers a number of

telecommunications services such as the design, construction, and installation of local voice and data networks

capable of interconnecting with fixed line operators, the installation and maintenance of cellular payphones,

and the lease of digital communication channels.

The company also operates in Uzbekistan, Turkmenistan and Armenia and the second largest in the Ukraine, in

terms of number of subscribers. The company has license to operate 2G and 3G services in Russia. As of

September 2010, the company has 69.7 million mobile subscribers with a relative market share of 32.6%

In the year to end-December 2009, MTS achieved revenues of USD 9.8 billion (annual decline of 3.9%) and net

profit of USD 1.0 billion (annual decline of 47.4%).

North-West Telecom JSC

North-West Telecom JSC, founded in 2001, is a telecommunications company in Russia. The company offers

local, long-distance and international communication services; telegraph services; Internet access solutions

(dial-up and broadband); data transmission network services; intelligent network services; and audio and video

conference services. The company also broadcasts television over cable networks and offers inquiry and

information services, physical lines and channel leasing services. As of June 2009, the company has 910,000

broadband subscribers in Russia with a respective market share of 9.6%.

In the year to end-December 2009, North-West Telecom generated revenues of RUB 27.1 billion (annual

growth of 5.1%) and net profit of RUB 3.2 billion (annual decline of 12.5%).

Rostelecom Corporation

Rostelecom Corporation is a Russian telecommunications operator offering fixed line, broadband services, and

domestic and international long-distance communication services. Rostelecom owns and operates a large



telecommunications network (approximately 150,000 km) and carries most of Russia's long-distance and

international traffic. It has a 30% market share in the Internet segment. The company is also engaged in

related telecommunication services such as Internet access, data-based services for voice transmission,

videoconferencing, virtual private network services, and data centre services. In March 2010, Russian govt.

allotted license to operate 4G services in Russia

In the year to end-December 2009, Rostelecom achieved revenues of RUB 65.5 billion (annual decline of 1.7%)

and net profit of RUB 3.5 billion (annual decline of 71.1%).

Sibirtelecom OJSC

Sibirtelecom OJSC, established in 1919, is a telecommunication services provider in Russia. The company is

primarily engaged in offering fixed line telephone and mobile communications, local, long-distance, and

international telephony and VoIP services. The company offers a range of telecommunication services in the

Siberia region of Russia, including cellular and mobile communications, VoIP, and local and international

services. It provides GSM and CDMA mobile services with its associated mobile operators (Bailkalwestcom,

Eniseytelecom and STEK GSM). The company also offers mobile radio communication services. As of

September 2010 the company has 4.6 million mobile subscribers and 630,000 broadband subscribers.

In the year to end-December 2009, Sibirtelecom achieved revenues of RUB 38.0 billion (annual growth of 0.8%)

and net profit of RUB 1.9 billion (annual growth of 26.7%).

Svyazinvest OJSC holds 50.67% stake in the company.

Tele 2

Tele 2 Russia is one of the leading mobile operators in Russia. The company has license to operate mobile

services in 37 Russian Regions. As of September 2010 the company has 17.7 million mobile subscribers in

Russia with a relative market share of 8.3%.

As of December 2009, the company generated SEK 7.54 billion in revenue from Russian operation with a year

on year growth of 11%.

Uralsvyazinform

Uralsvyazinform is a leading Russian telecom service operator. The company is primarily engaged in offering

fixed line, mobile telephone and Internet access services in the Urals region. The company was established as a

result of the merger of 6 regional operators in the Urals region and Uralsvyazinform, an operator in the Perm

region. Under telecom services the company offers including local and intra-zone telephone communications,

international and domestic long distance services, mobile communications (GSM, NMT and CDMA), data

transmission and Internet services. It also provides cable television and wired radio broadcasting services,

telegraphy and channel lease services. As of September 2010 the company has 4.9 million mobile subscribers,

750,000 broadband subscribers and approximately 3.7 million fixed-line subscribers (2008).

In the year to end-December 2009, Uralsvyazinform achieved revenues of RUB 40.4 billion (annual decline of

0.7%) and net profit of RUB 3.7 billion (annual growth of 44.1%). The mobile segment accounts for around 30%

of the company's total revenue.

State-owned OAO Svyazinvest holds 53% stake in the company.



Vimpelcom

Vimpelcom is one of the 3 largest telecom operators in Russia. The company is primarily engaged in offering

mobile services both 2G (through out Russia) and 3G in certain part of Russian Federation. Recently Norwegian

telecom operator Telenor acquired 31.7% stake in the company. As of September 2010, the company has 51.6

million mobile subscribers in Russia and 1.2 million broadband subscribers.

For the year ended December 2009, the company generated USD 10.078 billion in revenue. In Q2 2010 the

company generated USD 2.14 billion in revenue with a Q-o-Q growth of 23.1%.



Regulatory Environment Telecommunication in Russia is regulated by Ministry for Communications and Information of the Russian

Federation. The law Communications Law, which came into effect on January 1, 2004 and is the principal legal

act regulating the Russian telecommunications industry. The Communications Law sets forth general principles

for the regulation of the telecommunications industry, including a description of the institutional framework

for the federal government’s involvement in the regulation, administration, and operation of the

telecommunications industry. Ministry for communication and Information is authorized to grant license to

communications service providers, allocate radio frequencies, certify telecommunications equipment, allocate

numbering capacity, ensure fair competition and freedom of pricing and conduct oversight of operators’

compliance with the terms of their licenses and Russian law.



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