IHS Global Insight Perspective | |
Significance | Such a merger would create a massive operator within the telecoms market, but would also create logistical difficulties, as the state has made it clear that it intends to keep control of Svyazinvest. |
Implications | Svyazinvest's emergence as an independent, fourth national operator is therefore a realistic alternative, although with only around 15 million subscribers it would struggle to compete with the dominant three. |
Outlook | Although any such merger is very much in the realm of theory rather than practice, Svyazinvest's ambitions are indicative of the evolution of the Russian telecoms market, in which spheres of service provision are converging. |
Russia's state-owned national fixed-line holding Svyazinvest is planning to establish itself as a major player in the country's mobile market, either through a merger with one of the current leading three operators or by merging its own regional mobile assets to form a fourth top-tier national operator. Communications and Mass Media Minister Igor Shchegolev indicated in a business conference yesterday that both options were under consideration, although he indicated that gaining control of or merging with one of Mobile TeleSystems (MTS), VimpelCom, or MegaFon would be the "optimal path". These three operators dominate the mobile market, among them sharing around 85% of the national market, which is approaching 200 million subscribers.
Shchegolev added that the specifics of any such merger were not a matter for immediate discussion, but Svyazinvest spokesman Igor Pshenichnikov is quoted by the Moscow Times as saying that no talks have begun with any of the three mobile operators. Pshenichnikov also indicated that Svyazinvest's mobile strategy would be clarified only once its broader strategy had been established.
Svyazinvest's assets include seven regional fixed-line incumbents, of which VolgaTelecom, SibirTelecom, and Uralsvyazinform have well-established mobile operations, with around 15 million subscribers among them in the final quarter of 2008. Svyazinvest is itself due to be reorganised, under the umbrella of its 51% owned long-distance operator Rostelecom, as part of a government-approved move to allow the state to play a greater role in the telecoms industry (see Russia: 1 June 2009: Russian Government Approves Reorganisation of Svyazinvest Under Rostelecom Umbrella, Moots Future IPO).
Outlook and Implications
VimpelCom and MTS Already Offering Converged Services: A merger between Svyazinvest and one of the existing troika of leading mobile operators would create a behemoth in the national telecoms market. VimpelCom, the second largest mobile operator, in 2008 acquired broadband operator Golden Telecom, creating an avenue for converged services. Although this has yet to reap massive financial gains, IHS Global Insight expects the benefits to filter through in the long term, as subscribers to one of the fixed or mobile services are up-sold the other and converged services are also developed. Leading mobile operator MTS is looking to ape this strategy through a tie-up with broadband operator Comstar, a potential deal simplified by the fact that both MTS and Comstar are owned by the same parent group, Sistema (see Russia: 19 June 2009: MTS to Challenge VimpelCom in Converged Services Sphere as Permission Granted for Comstar Purchase). A merger of Svyazinvest with VimpelCom or MTS, as well as catapulting Svyazinvest into the top tier of mobile players, could also create the potential for a massive fixed-line presence, by adding Svyazinvest's fixed units to those of VimpelCom or MTS.
Svyazinvest Merger Holds Obvious Benefits for MegaFon: MegaFon, the third largest mobile operator, does not offer fixed services, although it has recently indicated its willingness to enter the fixed broadband market (see Russia: 27 April 2009: MegaFon Outlines Plans for Growth in Russian Broadband Market). This explicit aim therefore makes it likelier than MTS or VimpelCom to express interest in a merger, as it would obviously stand to achieve its goal. As yet the Russian market has not witnessed a single operator conquering both the fixed and mobile sectors simultaneously, but a Svyazinvest merger or takeover with one of the top three mobile players could effect this.
Solo Route Would Leave Svyazinvest Unable to Challenge Dominance of Troika: However, this is largely theoretical, and it is not clear whether any of the troika would be willing to upset their ownership structures to accommodate Svyazinvest, with the Russian state having made clear that it intends to retain control of Svyazinvest. This therefore increases the probability that Svyazinvest could be forced to pursue a course as a fourth national mobile operator. The combined mobile subscriber base of Svyazinvest's assets, of around 15 million, compares with around 44 million from MegaFon, 48 million for VimpelCom, and 65 million for MTS at end-2008, indicating that Svyazinvest would be well behind the top tier in the Russian mobile market. A possible alternative would be a merger with second-tier leader Tele2, which has around 10 million subscribers, although this would again throw up the logistical problems of control of the operator. If Svyazinvest promoted itself independently of the top three it would also face the problem of trying to make inroads into a market with limited room for organic growth. Although subscriber uptake continues with penetration well into triple figures, buoyed by multiple SIM ownership, realistically Svyazinvest will not be able to challenge the dominance of the top three in terms of subscriber share. However, the promotion of mobile services under a single brand would give it a route to compete with VimpelCom and MTS as a converged services operator, and would also give it a platform to up-sell mobile products to existing fixed-line and broadband subscribers.
Evolution of Russian Telecoms Market: Although any such merger is very much in the realm of theory rather than practice, Shchegolev's words are indicative of the evolution of the Russian telecoms market. Spheres of service provision are converging, with mobile operators having sought routes into the fixed and broadband sectors and Svyazinvest now making it clear that it wants to add a dedicated mobile product to its already expanding fixed-line portfolio. The heterogeneous fixed-line market is beginning to witness consolidation, with larger alternatives emerging and buying up smaller players. The fixed market is therefore moving towards the shape of the more clearly defined mobile market, in which leading players are already well-established. This evolution is bad news for smaller operators, but is likely to bring about a degree of simplicity for subscribers as large operators increasingly offer holistic service packages.