March 2008
Russia/CIS ready for high-speed mobile broadband?

Russia & CIS Market Development

Eleven companies have filed bids in a tender for three 3G licenses in Russia, according to the country's Federal Communications Agency. Applicants include the three largest operators in the country - MTS, VimpelCom and MegaFon; Network Telecommunications, which includes regional operator SMARTS; Tele2 subsidiary Chelyabinsk Cellular Communications; and New Telephone. Other bidders include Astelcom, Avora-Telkom, Corbina Telecom unit Investelektrosvyaz and Summa Telecom. The results of the tender are due April 20. Finally, it seems, Russia is ready for a higher-speed, richer mobile data experience. There will, however, be challenges. With low ARPU vs. European norms, the level of solvent demand for new services may need some stimulation.

Meanwhile, in neighbouring Ukraine, the Ukrainian State Property Fund has announced that a 37.9% stake in fixed-line incumbent Ukrtelecom will be put up for sale on international stock exchanges between August 1 and year-end. A 50%-plus-one share of Ukrtelecom will remain in state hands. Ukraine is hoping to raise €750 million (US$1 billion) from the sale. Ukrtelecom was awarded Ukraine's sole 3G licence in December 2005 but has yet to offer services. The hoped-for injection of foreign capital may provide the necessary spark.

The cellular market in Ukraine has grown at an exponential rate in recent years, hitting a peak of 118% growth in 2005, before slowing to 63% growth in 2006. Over 2006 Ukraine's operators attracted nearly 19 million net additions in a country with a population of approximately 47 million. The Ukrainian market has always been slightly behind the Russian market in terms of the development and penetration of cellular services but is rapidly catching up, with Russia's penetration standing at 107% at end-2006, according to Informa Telecoms & Media's World Cellular Information Service.

The majority of recent growth in Ukraine can be attributed to users acquiring second or third SIMs: as prepaid subscribers are not required to register their SIM cards these are often given away as 'free gifts'. This drastically dilutes ARPU: the country's two main operators have averaged ARPU of US$8.00-8.50 in 2006 while new-entrant Astelit had ARPU of only US$2 in 4Q06. Informa estimates that Ukraine's actual user penetration stood at approximately 60% at end-2006. Again, this is a market where ARPU is a major challenge and operators must be hoping to push the enterprise and higher-value consumer segments towards greater use of value-added services.

A challenge may come from new entrants deploying alternative broadband wireless access technologies. Ukrainian High Technologies is using Alvarion's BreezeMAX 3500 equipment to extend its commercial WiMAX network in Ukraine, according to reports. UHT plans to use its 3.5GHz spectrum to augment coverage, starting with Donetsk, Dnipropetrovsk, Odessa and Lviv. The move builds on UHT's deployments in Kiev and Kharkov.

Informa Telecoms & Media annually gathers a large, senior and diverse group of the CIS region's operators and service providers to discuss optimally profitable strategies to take on these all challenges. Meet, network and do business with them at GSM>3G Russia/CIS in Moscow, June 5-6.