Global Insight Perspective | |
Significance | While VimpelCom has not yet specified the areas it will explore as an integrated operator, they are likely to include fixed broadband, mobile broadband, and increased backhaul traffic capacity. |
Implications | While Golden Telecom is already established as a fixed broadband and traffic carrier, the sphere of mobile broadband is unexplored. |
Outlook | Mobile broadband provision is beginning to emerge as a global trend, but, while potentially lucrative, its widespread uptake is not guaranteed in Russia. |
CIS mobile operator VimpelCom has announced that its wholly-owned subsidiary Lillian Acquisition has completed the merger with and into alternative operator Golden Telecom. The deal, which was initially agreed in December 2007, is worth around US$4.24 billion. The deal opens the door to the provision of converged services, a phenomenon not yet seen in Russia. VimpelCom previously indicated in a press release that it expects the transaction to:
- transform it from a mobile-centric operator to an integrated service provider with an established position in high-growth broadband, data and mobile markets;
- create the first fully-integrated telecoms service provider across Russia and the CIS;
- enhance its positioning as a market leader in integrated corporate solutions as a result of product bundling; and
- address high-growth adjacent markets where Golden Telecom has a significant infrastructure advantage.
Outlook and Implications
While the operator has not yet specified the areas of service that it will explore as an integrated operator, Global Insight expects these to include fixed broadband provision, triple- and quad-play services, mobile broadband provision, and increased backhaul traffic capacity.
- Golden Telecom Already Successful in Fixed Broadband Sphere: The provision of fixed broadband will probably see little change—beyond perhaps some marketing alterations—to Golden Telecom's existing, very successful and expanding broadband service. Golden Telecom's multi-faceted broadband service, utilising FTTB, Wi-Fi and xDSL, is primarily concentrated in the economic hubs of Moscow and St Petersburg, but regional expansion is well under way through the "Triple 65" project, aimed at offering broadband in 65% of households across 65 Russian and Ukrainian cities, with a combined population of 65 million. Commercial IP TV services were launched in Moscow last year by Golden Telecom, with a goal of converting 30% of broadband subscribers to IP TV by 2009. With broadband now the fastest-growing industry within the telecoms sphere, fixed broadband, including triple- and quad-play, is a new and lucrative area in which VimpelCom can capitalise.
- Mobile Broadband a New Market: While fixed broadband is an area in which VimpelCom can rely upon Golden Telecom's know-how, mobile broadband will be a new market for the operator. The provision of broadband on the move is likely to be primarily targeted at corporate users. The percentage of higher-end, post-paid users in Russia is traditionally low, with leading operator Mobile TeleSystems reporting at the end of the third quarter of 2007 that just 11% of its subscribers were post-paid users. Within this context, VimpelCom will hope that Golden Telecom's existing broadband corporate subscriber base can be converted to the use of the new parent company's mobile broadband product. Mobile broadband is beginning to gain global acceptance as a viable technology, but its roll-out nevertheless carries some risk, not least because of high tariff costs and faster fixed broadband speeds (see Europe: 19 February 2008: Visions of the Future—Mobile Broadband Goes Mainstream). VimpelCom is already in the process of rolling out 3G services in Russia, and collaboration with Golden Telecom ought to benefit its longer-term mobile broadband strategy.
- Increased Backhaul Traffic Routing Also an Option: A less high-profile, but potentially lucrative, avenue opened up to VimpelCom by the purchase of Golden Telecom is the area of backhaul traffic routing. Of its total third-quarter 2007 revenues of US$350.4 million, Golden Telecom generated some US$129.4 million from carrier and operator services. With its own licensed and operational long-distance network, Golden Telecom can save on the routing of it and VimpelCom's national traffic, and also potentially generate income by leasing traffic capacity to rival operators.
- VimpelCom Deal Increases Pressure on MTS: The birth of VimpelCom as a converged operator increases the pressure on its domestic rivals, most notably mobile market share leader Mobile TeleSystems (MTS), which has long competed with VimpelCom for subscribers in Russia and throughout the CIS, where they have pursued highly similar strategies of geographical expansion (see CIS: 31 October 2007: MTS and VimpelCom in the Near Abroad—An Update). Global Insight expects MTS to respond to VimpelCom's convergence push by exploring possibilities for similar product integration. As VimpelCom and Golden Telecom had in common a number of shareholders (namely Altimo and Telenor), which helped to facilitate their merger, so MTS is owned by Sistema, which also controls fixed and broadband operator Comstar, as well as CDMA operator SkyLink. Sistema has previously indicated that while mergers of its units are not on its agenda, it is eyeing some form of service collaboration, such as joint billing services. Moreover, Sistema has also indicated that MTS is keen to participate in the tender for Ukrainian fixed-line incumbent, broadband operator and 3G licence-holder Ukrtelecom (see Ukraine: 26 February 2008: Russia's MTS Declares Interest in Ukrtelecom Sale). Such a purchase would catapult MTS into the converged services sphere alongside VimpelCom.