Mobile Broadband Says Nyet to Recession

August 21, 2009

MTS Russia recently said it has sold 600,000 MTS Connect modems since July 2008 and is currently selling about 60,000 3G modems every month. This is welcome news in a market that has been hard hit by unemployment and a sharp fall in income over the past year. It is, however, news that we have been expecting.

In our Europe Telecom Insider Europe to See Huge Growth in Mobile Broadband Services despite Recession, we stated that demand for mobile broadband is strong in Russia, boosted by the lack of fixed broadband coverage. At the end of 2008, fixed broadband penetration stood at 5%, and we project it will reach 7.3% by the end of 2009. In comparison, in most European countries fixed broadband penetration exceeds 15% and in some cases even 30%. Moreover, fixed broadband providers, including the incumbent Svyazinvest operators, have announced capex cuts. This means that network digitalization and ADSL rollouts will slow in 2009 and 2010.  

At the same time, although Russia has been heavily affected by the global economic slowdown, 3G and especially mobile data services seem to be immune. Local operators confirm this. In its Q1 2009 report, CDMA  operator SkyLink said growth in the 3G segment remains strong, and its CEO, Gulnara Khasianova, said the company “connected more new users in March 2009 than in December 2008, in spite of the significant decline in the mobile retail market.” Mikhail Shamolin, the CEO of MTS, mentioned during that company’s Q4 2008 earnings call that “one segment which we feel is not sensitive to the current economic situation is data usage.”

At the moment more than 50 cities in Russia are covered by 3G – good progress has been made in the past year by the main Russian mobile operators — MTS, VimpelCom and MegaFon — as well as mobile WiMAX operators and SkyLink. Currently speeds of 3.1-3.6Mbps are available in all the largest cities. Pyramid Research estimates that at the end of 2008, there were already 1.2m mobile broadband subscriptions in Russia. We project that the number of mobile broadband subscriptions will reach 11.4m in 2014. It is likely that mobile broadband will be neck-and-neck with fixed broadband sometime in 2015. Mobile broadband revenue will grow from US$0.7bn in 2008 to almost $2.0bn in 2014.

— Bakhyt Weeks, Analyst, EMEA

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