Russia’s domestic and international long-distance voice services market was finally liberalised in January 2006. Numerous long-distance licences have been awarded.

The region encompassing the countries of Russia, Belarus, Moldova and the Ukraine republic is a region in transition as strong economic growth fuels demand for telecoms services. Russia’s large population presents much market potential given its underdeveloped telecoms industry although its mobile communications market is now approaching saturation. With alternative operators encroaching on fixed-line markets held by the incumbents in Russia and Ukraine, the focus is now on offering broadband and convergence services, two relatively underdeveloped markets. The desire to offer such services, as well as the need to expand access into previously unserved areas, is driving new infrastructure deployment by both incumbents and alternative operators alike. Mobile penetration levels in all four countries are still growing rapidly despite approaching maturity. Consequently the major Russian mobile operators have expanded internationally in search of new revenue growth opportunities. Despite attempts to expand into Asia, the Middle East and Eastern Europe, most success has been achieved in the CIS region. Third generation services have yet to be launched although Ukraine’s fixed-line incumbent is to launch services by mid-2007 while Russia’s regulator has finalised the frequencies to be used for its 3G service.

Key Highlights

Russia’s domestic and international long-distance voice services market was finally liberalised in January 2006. Numerous long-distance licences have been awarded. Conditional to receiving the licence is the requirement to offer services in all of Russia’s 89 regions. Consequently licence holders have rolled out infrastructure.

Belarus is continuing preparations for liberalisation in 2007 as part of World Trade Organisation entry requirements.

Privatisation of the Russia’s state-owned telecoms group Svyazinvest continues to be delayed. The privatisation of Svyazinvest is significant as it holds controlling stakes in all seven ‘mega-regional’ operators that dominate their respective markets but require upgrades to infrastructure.

Privatisation of Ukraine’s fixed-line incumbent has also been delayed again, this time by the need to adopt a new privatisation program.

Alternative operators are making inroads into the fixed-line market in Russia and Ukraine. A number of Ukrainian CDMA WLL alternative operators are experiencing strong subscriber growth, with a 93% increase in total subscriber levels during 2005. Aggressive expansion plans have been released, with national coverage expected by 2007.

Alternative operator Golden Telecom is also active in the wireless sector, revealing plans to rollout a mobile network with UMA capability in Kiev.

The Svyazinvest companies and alternative operators in Russia and Ukraine are generating increased revenue through mobile and Internet services, with plans to further grow revenue through broadband and IPTV.

Plans to offer the aforementioned convergence and broadband-based services have driven the need to upgrade infrastructure, with numerous network upgrades and NGN deployments underway.

Russian WiMAX deployment activity is continuing, with new deployments including mobile WiMAX underway Operators involved in WiMAX developments include Start Telecom, Enforta, Internafta, MetroMAX, Infoseti, Synterra, Golden Telecom, Peterstar and Sibirtelecom. Services were launched in Ukraine in late 2005 by alternative operator UHT, with plans to expand coverage nationally and offer mobile WiMAX service, while services in Belarus are offered by the fixed-line incumbent.

Broadband services in Russia are becoming increasingly popular and available due to increased infrastructure investment, with a large portion of the residential market continuing to be served by large informal LANs in Russia, with a similar situation in Ukraine. Deployment of faster broadband services such as ADSL2+ and FttH is underway in Russia.

Cable broadband services are experiencing a surge in popularity in Belarus and Moldova, although the phenomenal growth rates recorded have been based on a small initial user base. The growing popularity of broadband in Belarus is reflected in the country’s growing Internet user penetration, which rose by 36% during 2005.

WiFi continues to be popular despite heavy WiMAX activity; Golden Telecom has deployed 3,000 access nodes out a total of 5,000 planned for its mesh WiFi network in Moscow.

Competing IPTV services to that of Comstar-UTS are available in Russia, with other deployments planned both in Russia and Ukraine.

Third generation mobile licences in Russia moved closer towards reality in October 2006 when the State Radio Frequency Commission announced it would offer an unspecified number of concessions in the 1.935GHz-1.980GHz, 2.010GHz-2.025GHz and 2.125GHz-2.170GHz frequency spectrum bands. MTS and VimpelCom have confirmed their interest in acquiring 3G licences. A temporary operating concession was issued in September 2005 to mobile group Skylink for the launch of trial 3G services.

Ukraine’s first 3G mobile licence was awarded without a tender to Ukrtelekom in December 2005. The state regulator released plans in April 2006 to award a second 3G licence by 2007. The fixed-line incumbent has plans to launch 3G services by June 2007.

A number of MVNOs offer services in Russia, including Corbina, Central Telegraph, Matrix Mobile and Megatel. Ukraine’s Privat has gone from gone from strength to strength, tripling its user base during 2005.

Mobile penetration levels in all four countries are still growing rapidly despite approaching maturity. Consequently the major Russian mobile operators have expanded internationally in search of new revenue growth opportunities.

Despite attempts to expand into Asia, the Middle East and Eastern Europe, most success has been found in the CIS region.

Mobile data usage in Russia it is expected to account for 20% of mobile revenue during 2006. MMS interoperability was launched in Ukraine in late-2005 while EDGE services were launched in Belarus and Moldova during 2005.

However setbacks have been encountered, with MTS acknowledging i-Mode has not been as popular as originally anticipated.