Igor Kelshev is the Senior Vice President and Head of International Operations at TTK (TransTeleCom). Mr Kelshev has worked in business development for a number of Russian and Ukrainian trade companies, importing goods from the Asia-Pacific region. Before joining TTK (TransTeleCom), he served as General Director of Transneft-Orel, a subsidiary of Transneft, the Russian oil transit monopoly. He also worked for Kachalov and Colleagues, managing market research, company strategy and product distribution for FMCG clients. Igor Kelshev graduated from Tomsk State University and his post-graduation education includes the London School of Public Relations.
Russian telecommunications has been growing rapidly since the sector’s liberalisation; it is now an important driver of the economy. In addition to meeting growing domestic communications needs, Russia’s telecom sector offers an efficient alternative to the submarine cables currently linking the highly developed western and eastern economies, an attractive content market and a gateway to the growing CIS economies. A new Russia, ‘switched-on’ by the Internet, hungry for broadband and rich content is also emerging.
Russia - switching on The Russian market has plenty to offer. The Russian Federation, in fact, has a very mature mobile telephony market. We also have a high penetration fixed telephony market, a liberalised long distance telephony market and a number of new alternative operators - without the burden of legacy infrastructures - exploiting both corporate and retail markets. Russia also offers the world efficient east to west data transit and a very attractive market for content distribution. Data transfer With the recent explosion in communications, since its liberalisation, the telecoms market has been a main driver of the Russian economy, and the broadband landscape is starting to evolve to reflect this change. There is no longer a single, monopoly, Internet provider in Russia, which is good news for investors, and for customers, who benefit from the competition and the innovation that accompanies it. Just as important, Russia acts as a gateway for the opening up of the growing CIS economies. Competition between the abundant new providers has brought greater flexibility and network diversification. Some of the most demanding service level agreements on the planet now back pure capacity leasing, and this comes hand-in-hand with extended reach, voice and data highways that reach right across Russia to link Europe to Asia and, perhaps most important, the fact that local knowledge has become available to non-domestic companies. Combined, these factors have made Russia, arguably one of the most solid of the BRIC economies. The importance of this is that emerging economies are champing at the bit for new telecoms services. With their large populations, the BRIC (Brazil, Russia, India, China) countries are building out new telecom services ‘leapfrogging’ to advanced, best-practice, solutions which have resulted in significant economic gains for the telecoms industry and for the business world in general. Russia is now very much ‘open for business’, delivering next generation telecommunications services both for domestic companies reaching out to the global economy and for the international community reaching in for new investment opportunities. Technologically advanced fibre-optic networks in Russia are not only a gateway into the hugely attractive Russian and CIS markets, but a transit path between the powerhouse economies of Western Europe and the Far East. Geographically, Russia is advantageously placed. Given its size, and its location between the world’s most active economies, it has unparalleled opportunities to function as a conduit for European and Asian economic growth. Its ‘Eurasia Highway’ provides the fastest, most efficient telecommunications route between the two ends of the macro continent and the emerging powerhouse economies it contains. According to the ‘Global Bandwidth Research Service 2009’ report by TeleGeography: “Terrestrial systems traversing Russia provide an alternative path to Europe-Asia submarine cables... these trans-Russian systems follow a more direct route between Europe and Asia than submarine cable, resulting in a shorter round trip delay.” The sheer scale of Russia’s land mass means that its terrestrial networks have the capacity to reach out extensively, both domestically and internationally. The ground-based infrastructure of its terrestrial networks also makes them more resistant to natural disasters than submarine alternatives, and easier to maintain. A digital society Over several decades, the world has witnessed some significant changes that have prompted intensive development of the Internet in Russia, and transformed the everyday needs of the Russian people. According to the Ministry of Communications of the Russian Federation, speed of data transfer has improved remarkably, to the extent that the broadband market in Russia is growing significantly faster than the rest of the telecoms sector. Furthermore, due to the success of fibre-optic technology, the carrying capacity of telecom networks has jumped from a few kilobytes per second to several terabytes per second. The rapid changes since market liberalisation in usage according to socio-economic and demographic factors - gender, age, education and income - have led to a sense that Russia has finally ‘switched on’. In Russia, as elsewhere in the world, the higher the income and education the higher the rate of Internet access and use, all pointing to a very promising and burgeoning market for telecommunications companies. Roughly 50 per cent of Internet users in Russia are aged 18-24 and this younger age group, which accounts for only 14 per cent of the population, has the highest Internet penetration at 67 per cent. This age group is naturally sociable and for the most part surfs the Web daily, making it a highly attractive market for operators, particularly since the liberalisation of the Russian telecommunications market in 2007 - now fully in effect and proven. Before the liberalisation of the market, this segment went largely untapped by telco operators and consumer-facing organisations looking to grow their businesses. The Internet is encouraging Russians to communicate with each other both online and offline, and entertainment is currently the most popular Internet service segment in Russia. The sector’s total revenues broken down by sector are: • Gaming - 49 per cent; • Match-making services - 25 per cent; • Music - 19 per cent; and • Video - 7 per cent. However, it is worth noting that content development in Russia is still in its infancy, and many users only regard the Internet as a free information resource and do not even consider its potential to improve their lives through rich content services. In 2008, just 15 to 20 per cent of Russian Internet users had paid for content. According to data produced by Advanced Communications and Media, in the first quarter of 2009 the number of Internet broadband subscribers in Russia grew by 38 per cent to nearly 9.5 million, or 17.6 users per 100 households. In Moscow, the total number of subscribers had reached 2.78 million, meaning that its Internet penetration is currently at levels comparable with the more developed European economies. Because of this growth, as well as competition between Internet providers, it is reasonable to expect that tariffs for broadband services in Russia over the next few years could fall to match the levels of developed countries. The future is rich content Content is becoming increasingly digitalised - we are producing, replicating and storing more and more information in digital format, and digitalised content is increasingly becoming a means of social interaction, particularly with the 18 to 24 age group in Russia. The growth of broadband connections has had a catalytic effect on the development of various content projects in Russia. Content services are one of the key focuses of operators’ strategies in retail markets. Because of the rapid growth of broadband users, content producers see large operators as a new channel for the distribution of their services. On the other hand, telecom operators act as aggregators for several content suppliers since economies of scale make this business model run more efficiently than for smaller companies. According to Russian telecoms research agency, iKS-Consulting, content revenue will reach US$550 million among fixed-line operators by 2012. The competition for capacity Although the broadband market is expanding globally, revenues are shrinking due to high competition and the commoditisation of capacity. To maintain revenues, Russian Internet providers need to expand capacity so that Russia can become the transit hub of choice for East-West data exchange. If Russia increases its Internet and international private line capacity, it can achieve greater connectivity with global carriers, and expand its international presence on the world stage by offering a complement to, a back-up for, or even an alternative to, existing submarine cable routes. Because of the current backdrop - the tough economic climate - it is essential Russian operators think strategically and invest in infrastructure. This can be achieved by upgrading service portfolios, by launching additional capabilities and services, and by upgrading voice, data and managed services for carriers, large enterprises, SMEs and private users. The future is bright, not just for Russia or the telecommunications industry, but for the entire world. However rich content and services actually develop, for more than half a decade, telecommunications has been one of Russia’s fastest growing industries. Today it is worth well over US$30 billion, with Russian networks carrying 150 petabytes of Internet traffic per year. Although Internet penetration has grown rapidly, it remains low at around 30 per cent. This clearly leaves plenty of room for growth, and so it looks very much as if broadband in Russia will show tremendous development in the coming months and years.