BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Telecomunications sector of Russia

The Russian government has followed up on its December 2006 announcement that 3G licensing was imminent, issuing tender documentation to five potential licensees. 3G candidates have until February 26 to submit their bids, and the government has said that it expects the results of the tender to be announced on 20 April 2007. Although this timetable makes it unlikely that 3G services will be available on any large scale before summer 2007, it is feasible that commercial services will be available in Moscow and St Petersburg before the end of the year. Based on the anticipated launch of 3G services in 2007, we have predicted a total user base of just over 1mn by the end of the year. We have retained our forecast of steady but slow 3G growth over the next five years, and predict that, by 2011, 13% of mobile subscribers could be using 3G services.

It should be noted that our current 3G forecast depends, to some extent, on how many licences are awarded and to whom. The country’s three largest mobile operators, MTS, VimpelCom and MegaFon, are all understood to have received the necessary tender documents, as has St Petersburg-based telecoms company, Summa Telecom. A fifth company to receive the tender documents is actually a consortium of operators, which includes Sweden’s Tele2 and regional mobile operator SMARTS. Some of these companies may have more of an advantage than others when it comes to the commercial deployment and development of 3G services. For example, the three leading mobile operators already offer EDGE (2.75G services) and have tested 3G technology in preparation for licensing. Furthermore, BMI believes that the licence winners, whoever they turn out to be, will be cautious about investing in new infrastructure until they are confident of consumer demand. We expect that 3G services will initially be restricted to Moscow, St Petersburg and a few other large cities, with EDGE services covering the rest of the country.

Russia has seen its position in BMI’s Business Environment Rankings table rise two places to 11th position. Although the country’s market maturity score continues to slowly edge upwards, it lags behind many of its regional peers in terms of the availability and penetration of telecoms services. Russia’s broadband market remains highly undeveloped, and there is a notable lack of internet access and fixed line telephony in many smaller Russian settlements and rural communities. Furthermore, there are considerable differences between mobile penetration in the major cities and in more provincial parts of the country. Russia’s growth potential score remains high, with significant opportunities for both fixedline and mobile operators. Despite the opportunities for growth, Russia continues to occupy a low position on our table, and this is primarily due to its low scores for political and economic risk, and for its weak licensing and regulatory environment. Russia is a notably difficult environment for foreign investors, with high levels of government intervention in the economy and strong concerns about political and economic corruption. In the country’s telecoms industry, licensing decisions have been slow, as have the preparations to privatise the Svyazinvest group of fixed line operators. BMI also continues to be concerned by the lack of an independent regulator.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - Business Environment

Russia

Table: Emerging Europe Business Environment Ranking

Russia Telecoms Industry SWOT

Chapter 3 - Industry Forecast Scenario

Fixed-Line

Table: Russian Telecoms Sector Fixed-line Historical Data & Forecasts

Internet

Table: Russian Telecoms Sector Internet Historical Data & Forecasts

Mobile

Table: Russian Telecoms Sector Mobile Historical Data & Forecasts

Chapter 4 - Macroeconomic Climate

Competitiveness Under The Spotlight

Table: Growth And Output

Exchange Rate Concerns

Chapter 5 - Country Snapshot: Russia Demographic Data

Section 1: Population:

Table: Demographic Indicators (2005)

Table: Rural/Urban Breakdown

Section 2: Education & Healthcare

Table: Education

Table: Healthcare: Vital Statistics

Table: Healthcare: Expenditure

Section 3: Labour Market And Spending Power

Table: Employment Indicators

Table: Consumption and Stratification

Chapter 6 - Competitive Landscape

Market Structure

Competitor Analysis

Table - Key Players: Russian Telecoms Sector

Table – Selected Operators Financial Indicators

Fixed-Line Overview

Table: Regional Fixed-Line Penetration Overview

Internet Overview

Table: Regional Broadband Penetration Overview

Mobile

Table: Regional Mobile Penetration Overview

Market Data Analysis

Fixed-Line

Table: Comparison of Svyazinvest Regional Companies (2006)

Internet

Mobile

Table: Russian Mobile Market Q306

Table: Russian Mobile Net Additions Q306

Table: Russian ARPU Rates 2005 - 2006 (US$)

Industry Developments

3G Licensing

Investments

Chapter 7 - Company Monitor

Regional Case Study: Alcatel

Table: Alcatel Recent European Contract Wins

Selected Profiles – Operators

Svyazinvest

Golden Telecom

Mobile TeleSystems (MTS)

VimpelCom

MegaFon

Selected Profiles – Manufacturers

Alcatel

Siemens

Lucent Technologies

Huawei Technologies

Motorola

Nokia

Chapter 8 - BMI Forecast Modelling

How we generate our industry forecasts

Telecommunications Industry

Chapter 9 - Appendix: Regional Demographic Data

Wages (ave labour force per annum), US$ PPP

Population

Household Spending Per Capita, US$

Private Consumption Per Capita, US$ PPP

Market Size, GDP, US$bn

Competitive Landscape for Europe Telecommunications Reports: Sample of Companies Ranked

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Commentary on key operators highlighting ownership structures, latest available revenue figures, market share analysis and ARPU counts. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company SWOTS Covering all leading telecommunications operators and manufacturers operating in each market, including competitive intelligence on geographic presence and competitive positioning against local companies; local market share; leading products, services and technologies; foreign direct investments, projects, merger and acquisition strategies.

Network of European Telecommunications Sources

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BMI's European Telecommunications Reports are based on an extensive network of multilateral organisations, government departments, telecommunications industry associations, chambers of commerce and company reports. Information sources include:.