By Ekaterina Solovova, BISNIS Representative in Samara
December 1999
Traditionally, the former
state providers and their regional subsidiaries monopolized the fixed-line
telecom market in Russia. The wireless telecom market is often characterized as
an oligopoly. However, attempts to
demonopolize the fixed-line telecom market and increase foreign and domestic
investment inflows
to the industry are underway. Additionally, private operators actively
introduce new telecommunications technologies and offer their clients substitutions
of the traditional telephone services. Regional markets, such as Samara, reflect the picture
and changes of the overall Russian market, though with some delay.
Nevertheless, as the competition in Moscow and St. Petersburg grows, companies
will expand their activity into the regions, thus increasing competition,
equipment purchases, and investment in regional markets.
This report gives an insight to the Samara telecom market and its reflection of the country’s market.
BRIEF SKETCH OF THE RUSSIA’S TELECOM MARKET
The Russian telecom industry in general was poorly financed and underdeveloped for years. The number of access lines in Russia is currently about three times less than in the U.S. and Japan. According to different estimates, Russian telecommunication industries will require from $20 to $80 billion within the next 10 years. Some national companies and foreign investors are already implementing their investment projects. For example, Transtelecom, an affiliated company of the Ministry of Rail Communications, has launched construction of a communication network throughout Russia. This company is trying to compete with Rostelecom, the monopolist in the Russian long distance communication market.
There is noticeable activity in the wireless market as well: foreign strategic partners of the major Moscow and St. Petersburg providers are ready to invest significant amounts into their expansion to the Russian regions. For instance, the private company VimpelCom, a major AMPS operator in Russia, started to take over the cellular market of GSM 900/1800 in a number of regions, such as Voronezh, Rostov-on-Don, Samara and Novosibirsk. “Mobile communications services continue to show rapid growth despite the 1998 crisis. It is predicted that the number of mobile phone users will exceed 1 million by the end of the year 1999.” (TELECOM NEWSLETTER, #8-9, 1999)
Besides the lack of financing and technological lag, there are other obstacles to fair competition and industry development, such as the absence of uniform “game rules”, uncertain legislation and bureaucracy. “Today, a license for constructing a fiber optic line is issued for a period of 5 years, whereas its payback period is at least 7 years”, says Mr. Reiman, the Chairman of Goscomtelecom, in his interview for TELECOM NEWSLETTER (#8-9, 1999). Another example is Leap Wireless’s decision to pull out the Russian CDMA market, partly because Goscomtelecom has repeatedly refused to grant mobility to CDMA operators. (According to TELECOM NEWSLETTER, #8-9, 1999)
Rostelecom still maintains a monopoly over long-distance communication in the country. However, its position could be shaken in the near future. Transtelecom claims to rival Rostelecom, although its attempt to obtain a completed package of licenses has failed so far. Transtelecom intends to sell a 49% share to a strategic investor. Other emerging players in the market are RAO United Energy Systems of Russia and AO Gasprom which are developing long distance communications projects.
According to experts, if at least one of the above-mentioned projects is successfully implemented, the long-distance communications market will change considerably. Intensified competition will reduce prices and increase the availability of services.
Regional lines are still controlled by the public switch telephone network that replaced the Soviet Telecommunication Department. In Samara this structure is represented by Svyazinform of the Samara Region. DLD tariffs are controlled by the Anti-Trust Ministry and in many regions they are lower than cost price.
At present there are three major groups of cellular providers operating in Russia. These three holdings will constitute Russian cellular oligopoly in the nearest future.
ú AO VimpelCom controls the biggest network of AMPS/DAMPS standard in Moscow and Moscow region. VimpelCom operates in other Russian regions through its subsidiaries and affiliated companies, such as BeeLine Samara.
ú AFK Systema, which controls the Moscow City Telephone net and its subsidiaries. As VimpelCom, Systema actively promotes GSM standard in the regions.
ú Telecominvest, based in St. Petersburg. At the end of last year, Telecominvest started to acquire cellular companies in other regions of Russia, such as Mordovia and Saratov.
However, neither the cellular market, nor wire communications in Russia can develop without foreign strategic investors. For example, all three companies mentioned above have foreign co-founders:
|
VimpelCom |
Telaris (Sweden +Norway) |
|
AFK Systema |
Deutsche Telecom (Germany) |
|
Telecominvest |
Telaris+Sonera (Finland) |
Telaris, which has some regional affiliated providers of GSM standard, is showing an interest in the big regional GSM-900 provider Smarts-Samara-GSM, based in Samara. Metromedia (USA) acquired PLD Telekom, which was a shareholder in several regional operators. Global One also acquired the full stock of its Russian affiliated provider of data transmission.
SAMARA TELECOMMUNICATIONS MARKET
Market Overview
Samara Region is considered to be one of the most attractive and potential markets for foreign investors because of its rich resources (oil&gas), advanced economy (Samara produces 4 percent of Russia’s GDP) and favorable political climate. It was the center of the Soviet aircraft and defense industries, which are gradually being converted into consumer goods and other types of production.
The population of the region is 3.3 million, of which 80 percent are urban, including 1.2 million in the Samara city.Besides Samara, there are other large cities in the region: Togliatti, Syzran, and Novokuibyshevsk. Togliatti is particularly attractive because of the concentration of capital around AutoVAZ (the largest car producer in Russia). Taking into account the facts that Samara has one of the highest per capita consumer spending levels among Russian regions (outside Moscow)*,there is growing business activity, and the average wage is above Russia’s average by 14 percent,* one may expect an increasing demand for high-quality modern communications services in the Samara region. Telecommunications industry is relatively developed in the Samara region and there are favorable preconditions for its further development. There is a Regional State Academy of Telecommunications in Samara, which supplies highly qualified specialists to telecommunications companies and conducts research in this industry.
Fixed-line Communications
The penetration rate in Samara is 15 lines per 100 inhabitants, and 30 percent of lines are equipped with metering equipment. About 270 thousands of citizens are in a waiting list now, and 40 percent of residential users are subsidized.* The deficit stems from the absence of technical possibilities of analog telephone exchanges since only 20 percent of lines are digital.* Replacement of old analog telephone exchanges to the modern digital ones is in the nearest plans of Samara standard telephone operators.
Although 30 percent of Samara residential users are low income subsidized households, there is a growing number of corporate clients ready to pay for the high quality services offered by private providers. Furthermore, one-third of installed capacity is equipped with metering equipment, and talk of introducing local per-minute billing started to circulate in the government again. The fixed-line communications sector is not profitable now due to the low tariffs and government control, however, it is still a good case for the long-term investments. This sector will benefit from any positive changes that come to Russia.
Since the beginning of privatization process in Russia the number of joint-stock companies and limited partnerships operating in the sector has increased up to 80. However, all fixed-line operators are interdependent due to the united communications network and limited long-distance access. Apart from the corporate fiber optics communication lines of RAO UES of Russia and AO Gazprom, Samara has two Moscow-based companies, that provide local operators with long-distance access: Rostelecom and Global One. The following are local major fixed-line communications providers in the region.
Svyazinform of Samara Region
Svyazinform of Samara Region is a government controlled, major regional operator. It previously held a monopoly position for all telecom services in the Samara Region and at present resells the long distance communication to other city telephone companies.
|
Indicator |
1998 |
1999E |
|
Lines in service (LIS) |
477,600 |
505,600 |
|
Revenues, $ mln. |
79 |
36 |
|
Revenue per line (Rev/LIS), $ |
165 |
71 |
Source: Troika Dialog Research
Although the company increased the number of lines and ruble tariffs after the crisis in 1998, the revenues are less optimistic in dollar terms. The Rev/LIS ratio is almost at the Russia’s average (75) level, which is one tenth of the average developed market economy telephone company.*
Svyazinform of Samara Region has 38 branches in the Samara region. Among them, there are 29 nodes in the city of Samara, providing long distance and regional telephone services, telegraph, broadcast, data transfer and cellular connection. The company holds a stake in a local NMT-450 operator, Samara Radiotelephones, and a 2.5% stake in a local GSM operator, SMARTS-Samara-GSM. Svyazinform of Samara Region has been audited by PriceWaterhouseCoopers.
Samara Telecom
Closed joint-stock company Samara Telecom was founded in 1996, as one of the independent telephone providers in the city of Samara. This company runs the modern telephone exchange 5ESS of Lucent Technologies (AT&T). Samara Telecom also provides Internet connection. The company plans to replace two old telephone exchanges with modern equipment in the business sector of the city. Another step planned to upgrade the fixed line communications is construction of Asynchronous Transmission Modem network in the Samara region. Previous regional systems of data transmission are not able to process the existing information traffic. The management claims total investments needed for this project is from 4 to 10 millions of U.S. dollars.
Teleross is a regional branch of a telecom network created by the American company GTS and SvyazInform. The network consolidates 14 regions of Russia by a common digital satellite connection. Besides the standard telecom services, TeleRoss provides a direct telephone line to Moscow and the World Access Direct system.
Mobile Communications
The lack of highly developed wire telecommunications systems has resulted in increasingly more subscribers looking for wireless solutions. Furthermore, ruble devaluation after the crisis forced local cellular operators to set prices down. The number of potential users increased and enabled operators to expand their market into the lower income clients segment. For example, VimpelCom (Moscow) has stated it is planning to spend $300 millions on its regional projects over the next five years. Mobile communications show rapid growth in the Samara region and increasing trade and investment opportunities.
There are 6 operators, working in different standards in the region. However, two of them, BeeLine – Samara (AMPS/DAMPS) and SMARTS-Samara (GSM 900), cover 90 percent of the market. These companies assess potential of the local market as 250,000 users, now the total amount of subscribers is about 35,000, including 1,500 users of NMT-450 standard**. The number of mobile phones users is increasing while the prices are coming down.
BeeLine
BeeLine-Samara was founded in 1994 as a subsidiary of Moscow-based VimpelCom. It was the first cellular operator in the Samara region and now remains a leader in this sector, serving 60 percent of regional market. In 1998 the company joined the Universal Wireless Communication Consortium. The number of BeeLine’s clients has increased from 15,000 in August 1999 to 17,900 in December 1999.
BeeLine has a long-term agreement with Ericsson (Sweden) for equipment supply and technical service.
SMARTS-Samara-GSM
The Central Volga Inter-Regional Association for Wireless Telecommunication Systems (SMARTS) started to work in Samara region in 1995. This company unites regional operators of GSM 900 and covers the Saratov, Astrakhan, Volgograd, Penza and Ulyanovsk regions. The company’s next major project is to organize a GSM1800 digital cellular communication network in those regions. The project costs are assessed as $ 50 million. Both foreign and Russian investors and companies will be involved in implementing the project.
Internet and Television Technologies
Along with conventional telecom services and Internet, local providers are developing new markets, such as IP telephony and cellular television. Approximately two years ago, IP telephony service first appeared in Samara. Now there are three providers of this service in Samara:
ú SAMARA INTERNET,
ú PICSEL
ú GLOBAL TELECOM
SAMARA INTERNET and PICSEL are connected to TARIO network, GLOBAL TELECOM is connected to RGC network. Currently there are four IP Telephony servers in Samara with total capacity of 240 telephone lines. However, according to expectations of the given providers, the demand for IP telephony equipment will be growing in the nearest future.
The following trends can be noted regarding modern TV technology:
ú Cellular TV. The newly founded company OAO Telecommunications Network is to develop this market in Samara region. The company assesses the potential market as 300,000 users. The main shareholders of the company are the Administration of Samara Region and Samara Telecom, 51 percent of shares is to be sold to the potential investor. The cost of a pilot project is $1 million. The total cost of the whole project is about $18 – 20 million.
ú Interactive channels introduced by the Teleradiocompany RIO.
ú Commercial satellite digital TV. The Moscow based company NTV+, which has a representative office in Samara, serves this market.
There are also a number of paging companies in Samara, the largest of which are: ADVK, Radiocommunications, and Westcom.
Telecommunication Equipment
Local production of the modern telecommunication equipment is insignificant and hardly competes with leading foreign manufacturers. There are some attempts to design cellular equipment for NMT-450 and GSM operators undertook by ZAO MOBICOM. There is an optical fiber cable production: Samara Optical Cable Company (SOCC) and number of companies offering design of different corporate networks.
Samara Optical Cable Company
SOCC was founded in 1997 as a joint venture between Samara Cable Company and Corning International Inc.(USA). The company’s quality management system has ISO 9002 certificate, issued by Dutch Certification Company KEMA (member of IQNet). Corning Incorporated is an exclusive supplier of optic fiber to SOCC; the equipment used in the production is supplied by SWISSCAB (Switzerland) and MALI (Austria). One of the main customers of SOCC is Rostelecom. The company is also looking to expand its market by participating in different tenders and studying export opportunities.
MOBICOM
MOBIKOM is a small company, which produces base stations controllers for cellular connection in small regional towns. These controllers are used in NMT-450 and GSM-900 standards. To produce them, the company buys foreign hardware and inserts the necessary software. MOBIKOM started to develop base stations for SMARTS-Samara GSM. MOBICOM is interested in products of EXCEL SWITCHING CORP (USA) especially EXCEL platforms, which could be transformed particular to the regional needs.
The majority of telecommunication equipment used by Samara providers is imported. Equipment, offered by Russian producers is either not of adequate quality or made with foreign hardware and technology.Besides MOBICOM there is another example of such production: Moscow-based company SVETETS, which produces equipment for IP telephony, using Dialogic (USA) platforms.
This situation offers an opportunity for U.S. manufacturers to form joint production with small Russian companies. By switching the assembly and adjustment of components to the Russian partner, import duties, and therefore, retail prices of the equipment may be reduced.
Private companies with significant capital investments work only with leading foreign brand names. Cellular operators use equipment supplied by Ericsson (Sweden, BeeLine), Siemens (Germany, SMARTS) and Nokia (Finland, NMT-450). BeeLine also sells Motorola (USA) cell phones. Fixed-line communication provider Samara Telecom is partly equipped by Lucent Technoloies (AT&T, USA). Other foreign companies represented in the Samara market are Italtel (Italy), Alkatel (France).
Although European competition is very high, U.S. equipment producers also take significant market share. Internet and IP telephony providers prefer to buy equipment from Cisco Systems. Most of the satellite TV equipment sold in Samara is American.
Usually, equipment for big projects is bought from manufacturers directly along with supporting services. Small and medium-sized companies buy their equipment in Moscow and St. Petersburg. Due to difficult customs clearance at the regional level, there are no direct purchases from Samara. Small trading companies in Samara prefer to pay additional transportation costs rather than going through the bureaucratic and time-consuming process of dealing with local customs. American equipment is respected for quality, but often is more expensive than that of European competitors’. However, there is a good opportunity to take over Russian regional markets by organizing a consignment warehouse in Samara and supplying products to surrounding regions. Some local suppliers of cable TV equipment are ready to organize sales in the Volga regions and beyond.
Based on the above mentioned upcoming changes and developments in the telecommunications market in the Samara region, the demand for the following telecom technologies and equipment exist in this region:
1. Asynchronous Transmission Modems
2. Digital telephone exchanges
3. IP telephony and supporting equipment (servers)
4. Satellite digital TV equipment (converters, receivers, amplifiers, etc.)
5. Cellular TV technologies and supporting equipment
6. Hardware and technologies for production of base stations and controllers, working in different cellular standards (GSM, NMT-450)
Contact List:
1. Department of Information and Communications
at the Samara Regional Administration
210 Molodogvardeyskaya street, 443006 Samara
Alexander Kartashkin
Tel.: +7 8462 32 39 83
2. ZAO Samara Cable Company
9, Kabelnaya street, 443022 Samara
Tel.: +7 (8462) 271 717, 271 080
Fax: +7 (8462) 272 200, 270 824
Email: scc@gin.global-one.ru
General Director: Anvar Bulkhin
3.ZAO Samara Optical Cable Company
9, Kabelnaya street, 443022 Samara
Tel.: +7 (8462) 27 06 20
Fax: +7 (8462) 27 11 93
Email: Boyette@socc.saminfo.ru
General Director: James Boyette
4. ZAO Mobikom
2, Dachnaya street, building 2
Tel: +7 (8462) 381 837, 389 487
Fax: +7 (8462) 381 837
Email: mobicom@mail.samtel.ru
General Director: Sergey Yurtaev
5. Svyazinform of Samara Region
24, Leningradskaya street,
443099 Samara
Tel.: +7 (8462) 32 10 20
Fax: +7 (8462) 70 40 20
General Director: Boris Skvortsov
6. ZAO Samara Telecom
43, Polevaya street,
443001 Samara
Tel.: +7 (8462) 70 40 70
Fax: +7 (8462) 70 41 22
http: // www.smrtlc.ru /
General Director: Andrey Skvortsov
7. TeleRoss Samara
43, Polevaya street,
443001 Samara
Tel.: +7 (8462) 79 20 20
Fax: +7 (8462) 79 20 22
General Director: Grigoriy Mostovoy
8. Global-One
17, Krasnoarmeyskaya street,
443010 Samara
Tel.: +7 (8462) 78 40 00
Fax: +7 (8462) 38 42 02
http: // www.global-one.ru /
General Director: Uiry Sshelocov
9.BeeLine Samara
77, Moscowskoe Shosse,
443090 Samara
Tel.: +7 (8462) 22 60 26
Fax: +7 (8462) 22 61 34
General Director: Sergey Shvaikin
10. Smarts Samara GSM
2, Dachnaya street, build. 2
443013 Samara
Tel.: +7 (8462) 36 05 89
Fax: +7 (8462) 43 80 44
General Director: Gennadiy Kiriushin
11. Samara-Internet
1, Akademika Pavlova, Samara
Tel.: +7 8462 70 31 08
Fax.: +7 8462 16 14 26
Email: market@samara.net
Commercial Director: Nikita Sinyaev
12. Teleradiocompany RIO
122, Dybenko street, 443066 Samara
Tel.: +7 8462 22 08 51
Fax: +7 8462 22 43 91
President: Vitaly Dobrusin
13. Radiocommunications (OAO Telecommunications Network)
Samara
Tel.: +7 8462 16 16 46
Email: rcomm@vis.ru
President: Valery Semyenychev
14. Westcom
29, Volzhskiy prospect “Volga Hotel”
Tel.: +7 8462 42 18 80; 42 11 77; 42 35 78
Tel/fax: +7 8462 42 35 76
General director: Igor Nalivayko