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Russia, the world’s fourth-largest market by subscribers, is poised for a period of rapid transformation as its big three mobile operators – MegaFon, Mobile TeleSystems (MTS) and VimpelCom – get set to rollout high-speed WCDMA and WCDMA-HSPA networks this year. All three operators were awarded licenses in April 2007 and signed-up their equipment vendors later in the year. Last month, market-leader MTS unveiled its full commercial rollout plans.

MTS plans to switch on its pan-regional WCDMA network initially in four cities beginning in St Petersburg and later to Sochi, Yekaterinburg and Kazan. It plans to build-out the network to ten cities by year-end and up to 40 cities in 2009 with a total investment of US$1.6 billion over the next three years, which includes build-out in its neighbouring subsidiaries of Uzbekistan and Armenia where it also holds licenses. Interestingly, the operator has also committed to upgrading some of the WCDMA networks to WCDMA-HSPA, offering download speeds of up to 3.6 Mb/s.

Rival operators are not far behind. MegaFon has been testing WCDMA in St Petersburg since October last year and plans to launch services in 16 regions in 2009. It plans to spend US$250 million on high-speed network rollout this year. Meanwhile, under its five-year agreement with Ericsson, VimpelCom plans to cover seven out of the nine ‘macro’ regions in Russia, including Moscow, the North Caucasus, Siberia, Volga, Northwest Russia, South Russia and the Urals, with WCDMA-HSPA networks. SkyLink, Russia’s CDMA-450 operator, has already begun upgrading its networks to the high-speed EV-DO Rev A. The operator launched its first EV-DO Rev A services in Yekatrinburg earlier this year and had close to 55,000 connections in total on its EV-DO network by the end of first-quarter 2008.

Russia continues to enjoy strong connections growth; it was the world’s sixth-largest market in terms of net additions in fourth-quarter 2007. While penetration is well over 100% in some highly-populated regions (Moscow and St Petersburg, for example), there is plenty of growth remaining in Russia’s rural areas. In some respects, Russia’s late (by European standards) migration to WCDMA will be an advantage. Many WCDMA handsets – and even some WCDMA-HSPA-enabled handsets – are already available in the market, which means the Russian operators will not be hampered by the shortage of compatible handsets that affected some of the early WCDMA rollouts in Europe. Similarly, the relatively poor fixed-line infrastructure in the country may mean that many subscribers move directly to mobile broadband.

Despite these advantages there are challenges ahead. The market is heavily dominated by prepaid connections (97% in the case of VimpelCom), which means operators may need to tailor high-speed network offerings to a traditionally highly price-sensitive customer base. Similarly, while compatible handsets are available (sometimes via the black market) they are expensive, and unsubsidised by operators. For these reasons, the market for high-speed networks outside of the main metropolitan areas could take time to take-off.

Currently, ARPU for MegaFon, MTS and VimpelCom is in the range US$10 to US$15. Compared to western European mobile operators this is low. Vodafone UK, for example, recently reported ARPU of £21.8 (US$43.2) for the quarter ended March 31, which means its customers are generating as much as four times more revenue. The key to growing Russian ARPU will be to ramp-up data services using the high-speed networks. The trend toward data services is already happening on the current networks. MTS, for example, saw revenue from messaging and data services grow 40% year-on-year between 2006 and 2007 reaching US$803 million (voice revenues grew 24% to US$3.7 billion over the same period). The operator attributed the rise to a growing contribution from services such as ringback tones, GPRS usage, WAP access and content services. MTS and its rivals will be hoping that new data services made possible by high-speed networks – mobile TV and video calling, for example – will further drive this trend.

Wireless Intelligence expects WCDMA/WCDMA-HSPA connections to start taking growth out of GSM connections by the end of 2010. Total WCDMA/WCDMA-HSPA connections for the top three Russian operators (MTS, MegaFon and VimpelCom) is set to pass just over the 10 million mark by fourth-quarter 2010, by which point it will represent around 5-6% of the three operators’ total connections.