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Industry Overview

According to TMT Consulting analytical agency, the Russian market for telecommunications services with the exception of mobile communication segment, in 2015 amounted to RUB 701.9 bln The annual growth rate amounted to 2.5% against 1.4% y-o-y.

In 2015, the volume of Internet access market exceeded the fixed telephony market for the first time in Russia.

The volume of the mobile communication market in 2015 amounted to RUB 958.6 bln, with increase by 0.5% compared to 2014.

Dynamics of segments, %
Dynamics of segments, %

The main growth drivers were the increase in ARPU for Pay TV service and the number of subscribers of premium Pay TV, as well as revenue growth in the segment of cross-border inter-carrier services, mainly due to the effect of changes in foreign currency exchange rates.

Currently, the major players in the Russian telecommunications market is Rostelecom, MTS, VimpelCom, Megaphone and Tele2 Russia - companies that provide a wide range of basic communication services and generating over 80% of all revenues of the Russian telecommunications market. Despite the potential for the development of alternative players, 5 key market players have the major share in the industry growth due to geographic expansion and M&A.

Russian telecommunications market in 2015 (excl. mobile), %
Russian telecommunications market in 2015 (excl. mobile),  %

Market by customer segments

B2C

Over 2/3 of the Russian telecommunications market are formed by a segment of private users. In terms of number of subscribers and revenues in the key market segments:

  • Internet access — 70%;
  • Pay TV — over 95%;
  • Fixed telephony — 54%;
  • Mobile communications — 90% of the service revenues.

B2B & B2G

B2B/B2G is the second most important segment in terms of the revenue volume. Corporate segment as a whole may be characterized by:

  • a high level of saturation of most segments;
  • a reduction in revenues in fixed telephony segment, trend to move from leased lines to VPN use;
  • increasing pressure on the financial terms of the bidding from major customers, including the federal government customers;
  • desire of customers to optimize capital costs for telecom solutions and, as a consequence, an increasing demand for rental services of telecom infrastructure (data centres);
  • growing demand for solutions that increase the customer’s operational efficiency (VAS and cloud-based solutions).

In 2015, there were two trends in the customer’s activity:

  • optimization of expenses of big and medium-sized business;
  • reconnection of the small businesses to the services as private users.

In previous years, an important factor of the segment growth was operators’ involvement in largescale government projects. Construction of most of the major government networks and the some major projects that will be implemented in the coming years will become a source of income mainly for a limited number of major operators.

B2O (wholesale segment)

In 2015, due to the prices denominated in currency, revenues of market players rose sharply from a number of services:

  • Rent of international channels
  • International IP transit
  • International voice traffic transit
  • Services through Europe — Asia transit route

In 2016, according to TMT Consulting analysts, most of these market segments will show growth of around 1%. An exclusion traffic transit segment can be an exclusion with considerable potential, however, depending on the willingness of foreign, especially Chinese, operators to increase the capacity of channels.

Key market trends in 2016:

  • Reduction of fixed voice traffic.
  • Decrease of revenues from the rent of channales by the operators.
  • Reduced revenues from IP-transit, where undercompetition policy offer of a wider bandwidth for the same money no longer prevents the market from reduction; In addition, VPN becomes a common alternative to IP-transit.
  • Optimization of the costs by the operators on operation through infrastructure sharing and outsourcing of some network infrastructure operation functions.

Company on the market

Rostelecom is the undisputed market leader in fixed-line services. Rostelecom provides a wide range of services and enters the new market segments. Last year, the Company continued steady growth in high-tech sectors, developing broadband Internet access and data transfer, interactive services, data centres, cloud-based services, VPN, video conferencing services, and intelligent network services. The Company also maintained its leadership in the traditional fixed-line telephony markets. The company managed to gain the position of an absolute leader of the telecommunications services market for Russian government authorities at all levels, government agencies and organizations.

Key competitive advantages in the key markets:

  • Russia’s largest fixed network infrastructure
  • Nation-wide operations scale
  • Unique content proposition
  • Stable high level of brand awareness and customer base loyalty
Basic Brand Health KPI 2015
Local communication DLD/ILD communication Pay TV Broadband
Rostelecom Immediate competitor Rostelecom Immediate competitor Rostelecom Immediate competitor Rostelecom Immediate competitor
Aided awareness 91 31 97 28 79(+4) 53 81 54
Unaided awareness 78 24 90 17 55 39 59 39
First mentioning 64(+3) 18 79(+4) 9 22 19 23 18
Past use 74 19 86(+4) 9 28 23 29 21
Current use 68 18 82(+4) 6(-4) 23 20 24 18
Main operator 82(+4) 6(-4) 23 20
Future use 64 19 76(+5) 6 23 19 24 18
Positions of Rostelecom and its immediate competitor by indicators in the category are shown Rostelecom is ahead of all competitors in this category

Further development

The key task of the Company may be identified as improving customer care through the expansion of the range of content and digital services and the transition to a model of an integrated digital services provider.