Russian Altnet Makes FTTx Plans

Just as other Russian carriers have announced plans to cut their planned capital expenditures, alternative operator TransTeleCom Co. CJSC (TTK) , now calling itself TTK, has revealed plans to invest $1.5 billion as part of its plans to become a major retail broadband service provider in Russia. (See More Russian Capex Cuts and Capex Watch: VimpelCom Cuts Back.)

To date, TTK, which is 100 percent owned by the national Russian railways (and so totally state owned), has provided voice and data services to large businesses and other operators using its 55,000-kilometer optical backbone, which includes about 30,000 kms of DWDM links and more than 1,000 points of presence (POPs). (See Huawei Deploys 40G in Russia.)

During the past few years it has built a 10-Gigabit Ethernet IP backbone using Cisco Systems Inc. (Nasdaq: CSCO) routers, and added national VOIP capabilities with softswitches from Huawei Technologies Co. Ltd.

In 2007, TTK generated revenues of 24.5 billion Russian Rubles (US$875 million) and net income of Rub2.54 billion ($91 million), with about 60 percent of those revenues coming from its wholesale and enterprise telecom services customers, and the rest coming from construction and other services linked to its railway heritage.

But while the carrier expects its revenues to grow to $1 billion this year (including $600 million from telecom services), it sees little in the way of growth opportunities from its existing services and so is embarking on a major push into high-speed broadband access, focusing on Russia's less well served cities and towns: About 93 percent of Russia's 140 million inhabitants live outside Moscow. TTK has no plans to compete with the Russian capital's existing broadband players such as Comstar United Telesystems JSC (London: CMST) and VimpelCom Ltd. (NYSE: VIP).

"We expect to see growth in the regions, and we'll partner in Moscow where the broadband penetration is already above 50 percent," says Sergey Shavkunov, head of international market analysis at TTK. "We have 17 regional divisions that are already working on building out our metro networks and the access infrastructure -- we have 40 metro networks already."

Shavkunov says TTK will deploy a mix of point-to-point fiber, GPON, and WiMax to provide broadband connections to homes and small businesses, using whatever is most appropriate. But TTK is keen to build high-speed fiber access links wherever possible so it can offer a wide range of services, including IPTV and virtual hosting.

"Fiber is preferable for rich content services," he notes, adding that TTK plans to prepare for, and test, IPTV and video on demand (VOD) services during 2009 with a view to launching commercial offerings in 2010.

TTK's plan is to grow its annual telecom services revenues to $2 billion in 2015, with almost two thirds of its sales being generated by 2.1 million broadband users, a customer base that would give it an estimated 10 percent market share. To achieve that it plans to invest $1.5 billion, most of which will be spent in the 2008-2010 timeframe.

TTK also plans to boost its international presence by building global POPs and working closely with partners like Japanese giant NTT Communications Corp. (NYSE: NTT). (See Japan-Russia Cable Lit.)

In particular, it plans to pitch its cross-Russia terrestrial network as an alternative route for companies wanting wholesale capacity between Asia/Pacific and Europe, noting that subsea networks have been prone to service outages in recent years. (See Carriers Repairing Middle East Cables, Subsea Cable Outage Hits Mideast, India, Earthquake Cuts Cables Near Taiwan, and Quake Shakes IP Transit Market.)

TTK believes the volume of purchased network capacity will grow by about 500 percent to 1.5 Tbit/s between 2008 and 2015, and wants to capitalize on that demand. It also wants to be able to provide global connections using its own infrastructure, and so plans to open international POPs in New York and Los Angeles to add to its existing locations in Hong Kong, Tokyo, London, Amsterdam, Frankfurt, Stockholm, and Helsinki. It also has a standing partnership with China Telecom Corp. Ltd. (NYSE: CHA) to reach into that market.

The carrier is already forecasting a 50 percent growth in revenues from international operations in 2009, to about $45 million, on the back of existing demand for wholesale capacity.

— Ray Le Maistre, International News Editor, Light Reading