Russia on the Rebound?

The Russian economy got hammered during the global downturn, but the telecom sector largely weathered the storm and is showing signs of growth

October 21, 2009

3 Min Read
Russia on the Rebound?

Russia's economy, so reliant on oil and gas exports, hit something of a brick wall when the recent/current global economic downturn sent energy prices tumbling and the value of the ruble fell sharply against the U.S. dollar.

And with the Russian economy on course to shrink by about 7.5 percent this year, the country's telecom market also felt the heat, although some suffered more than others. While consumers and businesses cut back their spending, demand for mobile and fixed services weren't hit as hard as the broader economy, with operators reporting mixed results. (See VimpelCom Reports Q1, Comstar Reports Q1, and MTS Reports Q1.)

But with the ruble weaker against the dollar, and with Russia's carriers largely reliant on buying technology from overseas, capex budgets were cut viciously. One vendor particularly active in Russia described the market as "brutal." (See Comstar Ends Capex Blowout and More Russian Capex Cuts.)

But now there are signs the Russian market is back in growth mode.

  • Pan-European operator Tele2 AB (Nasdaq: TLTO) announced it is focusing on Russia for near-term growth, is investing in its mobile networks there, and is looking for acquisitions. (See Tele2 Eyes Russian Acquisitions .)

  • Interoute Communications Ltd. has expanded its Moscow network in response to increasing demand from enterprise customers looking for connectivity in and out of the Russian capital. (See Interoute Expands in Russia.)

  • Russian carrier TransTeleCom Co. CJSC (TTK) announced a 23 percent increase in revenues from telecom services during the second quarter of 2009 to RUB9.98 billion (US$343 million). The operator noted particular uptake in enterprise long-distance voice services, and updated on its residential fixed broadband rollout. (See Russian Altnet Makes FTTx Plans.)

  • Russian WiMax player Yota says it's signing up 2,300 new customers each day, even though its wireless broadband service is more expensive than DSL. (See ITU Day 2: WiMax Brings It.)

    Added to these very recent developments, Mobile TeleSystems OJSC (MTS) (NYSE: MBT), which has just taken control of sister fixed line player Comstar United Telesystems JSC (London: CMST), has just provided an overview of the Russian market. (See MTS Takes Over Comstar-UTS.)

    It told attendees at its analyst and investor day earlier this week that the Russian telecom market (services and mobile device sales) is set to grow in value from RUB1.28 trillion (US$43.9 billion) in 2008 to RUB1.63 trillion (US$55.94 billion) in 2012, a compound annual growth rate of around 6 percent.

    That's roughly in line with the prediction made earlier this year by Pyramid Research , which believes pent-up demand for fixed broadband and IPTV services will help the Russian telecom services market grow during the next five years. (See DSL Drives Russia's Fixed-Line Growth.)

    But the impact of the ruble/US money exchange rate is still apparent: While MTS expects single-digit year-on-year ruble revenues growth in Russia, its full-year dollar revenues are set to dip from US$10.25 billion in 2008 to US$8.25 billion in 2009.

    The carrier has, though, decided to increase its group capex budget to US$1.8 billion from US$1.5 billion, though this includes increased spending in some of its international operations in Central Asia.

    MTS is set to announce its third-quarter results on November 12.

    Also encouraging for the sector is the ending of the feud between VimpelCom Ltd. (NYSE: VIP)'s patent companies, Telenor Group (Nasdaq: TELN) and Altimo. (See Telenor, Altimo Make Peace.)

    — Ray Le Maistre, International News Editor, Light Reading

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