Broadband develops rapidly in Russia
2006-04-14
The number of broadband subscribers in Russia is growing at a rapid pace. The expansion of broadband is especially visible in Moscow and St. Petersburg. In other areas, the perspectives for broadband continue to be hampered by poor telecoms infrastructure, low PC penetration and a much lower level of income compared to the country’s two major cities.
The Russian internet access market is currently the largest in Central and Eastern Europe, in terms of both its value and the number of internet users. We estimate that there were 25 million internet users in Russia at the end of 2005. Over the same period in the second largest internet market in the region, i.e. Poland, the number of internet users was around 15 million less than in Russia, however, this is only the effect of the significant difference in population size. Russia is therefore not the regional leader in terms of internet penetration (21% in 2005) and also lags behind in terms of broadband popularity and quality of the access offered. Nevertheless, the internet market in the country is developing very fast, fuelled also by the expansion of broadband.
e – estimate
f – forecast
Note: An internet user: a person using the internet at least once a month. In population 15+.
Source: PMR Publications, 2006
According to our estimates, the value of the ISP market in Russia amounted to €750m in 2005. Some €200m, or 25% of this figure is accounted for by the provision of broadband services. The ISP market grew by around 40% compared to 2004, while growth of the broadband market was twice as high.
Moscow responsible for broadband boost
A significant feature of the Russian market is that internet use is heavily concentrated in Moscow and St. Petersburg (which is in line with the patterns seen in other areas of the Russian telecoms market). Based on surveys conducted by various sources, we estimate that approximately two-thirds of Russian internet users remain located in these two cities.
Another feature of the Russian internet market is that broadband internet expansion is hampered by underinvestment in telecom infrastructure, which is especially visible outside urban areas. Thus, broadband is currently developing most rapidly in major cities. Internet users there more frequently shift from dial-up to fast and permanent access at home. According to the latest estimates of ACM-Consulting, a research and consulting firm, the broadband internet subscriber base in Moscow has already exceeded the number of dial-up users in the Russian capital. ACM estimates that at the end of 2005, the number of home broadband subscribers in Moscow amounted to 700,000, while the dial-up internet subscriber base stood at 600,000 households. It is worth noting that in comparison with 2004, the number of home broadband users almost doubled, while dial-up lost some of its popularity. According to data of another Russian research firm, J’son & Partners (J&P), at the end of 2004 there were 390,000 broadband-enabled households in the Russian capital, while a total of 710,000 households used dial-up.
Until mid-2004, broadband internet services in Moscow were mainly provided by local area networks, and the average monthly subscription fee amounted to about $45. Subscribers also had to pay for the installation of additional internet infrastructure.
In the opinion of IKS-Consulting, which monitors the Russian telecommunications market, broadband services have become more widespread in Moscow since the fourth quarter of 2004, after MTU-Intel, an ISP which is a subsidiary of AFK Sistema, offered ASDL access on the mass market for a monthly fee of $24. The service was not available in the whole of Moscow, however, the company provided its potential customers with installation of the appropriate infrastructure free of charge. Generally, it can be said that growing investment in the improvement of telecoms infrastructure has resulted in the increased ability of rendering ADSL services and expansion of the market.
Outside Moscow, broadband internet services are much less widespread. We estimate, based on Romir Monitoring surveys, that in most of the districts broadband usage ranges from 3% to a maximum of 10% of all internet users. According to Pyramid Research the overall broadband penetration in Russia amounted to 2.2% at the end of Q3 2005. By comparison, according to the same source, the penetration of broadband services in Moscow stood at 18% over the same period while at the end of 2004 it totalled 9%. Moreover, Pyramid Research expects it to triple by the end of 2010.
e – estimate
f – forecast
Source: PMR Publications, 2006
According to J&P the number of households with broadband internet access in Russia skyrocketed by 135% y-o-y to stand at 1.34m in 2005. This figure is set to increase by 80% this year, i.e. up to 2.4m. This would put Russia among the fastest developing broadband markets worldwide. Consequently, there is also no doubt that the broadband internet access market in Russia will significantly increase this year in value terms. The only question which remains is the rate of this growth, as it is difficult to precisely assess the scale of a further price erosion of broadband services.
Estimates of growth rates of the broadband market presented by various research companies range from 35% to 100% year-on-year. According to predictions of J&P, at the end of 2006 the broadband internet access market in Russia may be worth around €290m. We forecast its value to be some €320m, which would mean a growth rate of more than 60% in comparison with 2005.
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