IDC Predicts Strong Growth For Russia Telecoms Market

PRAGUE – May 17, 2000 – Despite the financial crisis that hit Russia in 1998, the country remains the largest telecoms market in the East/Central Europe region with a telecoms market that was worth $4.4 billion at the turn of the millennium. Of this, $1.6 billion were from cellular services, which are expected to almost double in size to $3.1 billion by 2004, according to IDC forecasts.

“The financial crisis turned out to be a benefit for cellular users as it forced operators, particularly in Moscow and St. Petersburg, to slash their tariffs and begin courting lower-paying users,” said Jill Finger, program manager of IDC’s East/Central Europe Telecoms program. While the number of fixed-lines has decreased in recent years, the number of cellular subscribers has increased by a larger percentage than ever before. Though ARPUs (average revenue per user) declined drastically during the financial crisis, the larger increase in subscribers meant that overall cellular revenues increased more than in the previous year. IDC forecasts that the cellular penetration rate will increase from 1% in 1999 to 4% in 2004, with the majority of cellular users concentrated in Moscow, St. Petersburg, and other large cities in the regions.

“Russia’s population of 146 million people and low level of fixed and mobile connectivity represents a huge opportunity for growth, but this opportunity comes with extremely high risk,” Finger said. “For the telecoms sector, the absence of an independent regulator means that decisions affecting all market players are usually made on political rather than economic and legal grounds.” Participants in the Russian telecom sector continue to report cases of discriminatory practices in licensing, frequency allocation, and equipment certification – problems that have plagued the sector for a decade and have only marginally improved. It is too early in the presidential term of Vladimir Putin to assess the impact a new president will have on the market, or if it will be business as usual.

“Because of these risks, entrants to the Russian telecoms market should come prepared with deep pockets and the ability to change their business strategy abruptly if political winds shift,” Finger advised. “Perhaps most importantly, a well-connected and shrewd local partner who is favorably regarded by local government leaders is an absolute must for any foreign investor in a Russian telecoms venture. The opportunities in this multibillion-dollar market do exist, particularly in the less-regulated sectors of cellular and data services, but to tap these opportunities, investors need to be aware of the hurdles they will need to overcome before the profits begin."

The Telecommunications Network Services Market in Russia (IDC #ET04G) includes description and analysis of the regulatory environment for telecoms and profiles of the major fixed line and mobile operators. The regulatory analysis covers the privatization status of state-owned public operators and the degree of liberalization in public network services. The report contains a forecast for the fixed and mobile telecoms market in Russia. This report is available to purchase from your local IDC office.

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