Who’s on top of investments in Russian telecom?

23.05.2007

CNews: Please, give us the telecom market evaluation of the past year from the systems integrator's point of view. What are the key changes that you could emphasize in comparison with the year 2005?

In my opinion, the main changes on the market are related to the amendments to the Federal Law "On communications" which virtually demonopolized telecommunications market. These amendments had an impact on the telecom operators business. For example, such services rendered by VoIP-operators as traffic termination turned out to be unprofitable and virtually were terminated as a telecom operator's business unit. And the changed tariff scheme for incoming calls led to the reduction in the traffic-based revenues of mobile operators. As a result, many of the telecom operators faced the challenges to find new ways of their business development. In turn, this initiated building domestic and international communication networks, and the main financial resources were invested in this technological segment.

I should mention the other important trend on the market last year. This is a noticeable growth of the regional activity in the sector of wireless and wireline broadband access networks. In 2006, a large-scale construction of multi-services networks started in the regions. And these networks are of high quality that enables providers, for example, to deliver Triple Play services. Actually this tendency appeared in 2005 but the real action in this sector took place last year.

I suppose that the reason is that major Moscow-based telecom companies offered high acquisition values when buying small telecoms with large subscribers base. As a result, this tendency was noticed in the regions. For example, such companies as "Net By Net", "Corvet Telecom" and others purchase small operators and tailor subscribers to their business processes. Nevertheless, those large telecom companies are often enforced to change their infrastructure, they are ready to pay $500-$600 per a subscriber.

Accordingly to the growth of the population payment capacity in the regions, most of the investors have started to invest in local telecom operators to resale them later to large telecom companies such as Komstar or Golden Telecom. And the wave of investments has captured not only ‘million cities' such as Krasnoyarsk, Nizhniy Novgorod, Novosibirsk, St.-Petersburg, but also cities with population of 300-500 thousand inhabitants. Now, the average ARPU level of broadband networks in the regions is $10-30 depending on a region and types of services. This level of revenue enables companies to design networks with the average pay-back period of 3-4 years. Obviously, in spite of the lower price of purchase in the regions than in Moscow, companies are putting up money in networks construction because they anticipate expenses to be returned with some dividends anyway.

Moreover, some regional large industrial enterprises joined this process, when searching new ways to diverse their business and to invest free money. And we can definitely say that these are the regions that take now the most significant part of the investment schemes in telecom industry.

As a rule, having entered the regions, investors are likely to acquire existing small networks of local telecom operators. I should mention that those networks are based on inexpensive and poor-quality equipment, and many of them were put in operation properly. I mean those networks don't meet the requirements and the rules and regulations of Rossvyaznadzor and Mininformsvyaz in Russia. So, the networks enhancements are in need in Moscow as well, even right up to reconsider their concept. And investors act this way: they do put up financial resources to upgrade the networks, because the primary quick asset, which they receive from the regional telecom operators, isn't infrastructures but subscribers. Of course, such a situation encourages systems integrators in a great number of opportunities from an infrastructure construction to a billing and customer care system deployment.

By the way, there is one more regional trend which directly relates to the above-mentioned tendency. It's the opportunity to render services to municipal organizations based on the constructed city-wide networks, including deployment of the road traffic monitoring system or utilities management system, rolling out social programs etc. And this trend also gives us a chance to act as a systems integrator.

The most interesting tendency, which I'd like to pin-point, is the mobile subscriber base saturation in 2006. As for investing money in this sector, expanding the subscriber base is no longer the main part of the investments. Now the key investment target is to increase ARPU by developing new services. I should say that we work hard in this direction because we expect this trend to be of a long-term nature.

CNews: Could you please estimate more precisely the situation on the telecom market after the amendments to the Federal Law "On communications" were adopted? And how did it impact on systems integrator activity?

Above all, I should say that a number of VoIP operators decreased on the market since the amendments to the said Federal Law had been adopted. In fact, new companies don't appear in this sector. As for the present companies on the market, they are busy to diversify their business or to get licenses for local and international communications and attempt to build large-scale networks.

There is a nuance regarding licenses, the thing is that there are a lot of telecom operators who have received licenses for local and international communications, but in fact only a few operators started using the licenses, namely Rostelecom, MTT, TransitTelecom, GoldenTelecom and others. As a systems integrator we deal with all of them, and I think that these legislative changes are a positive result for us. This is a large enough segment of telecom business which requires getting licenses, creating a wide range of cross-points all over the Russian Federation. So, it means that the financial resources will flow in this new sector of business.

Some of the telecom operators quit VoIP business and started developing broadband networks based on Metro Ethernet or cable TV in the regions to render services to individuals primarily. And this business line is also perspective for a systems integrator; for example, our company possesses great expertise in city-wide networks deployment.

CNews: You have said that development of the regional broadband networks was exactly the most attractive object to invest. Does it mean that the growth of the telecom industry directly depends on the regional financial resources?

No, I wouldn't say that. Actually, the main investors are Moscow-based companies. There are a few regional large-size industrial companies to invest. And those companies invest money in the regions which have spare financial resources. These resources flow into local and international communications. There are some telecom operators dealing with the trunk networks construction or wireless networks deployment, and some of them invest money in regional Metro Ethernet networking.

Moreover, the processes in broadband sector, which I've mentioned already, are not the base for the fierce competition between regional telecom operators for a while, because, on a background of buying up existing regional networks, the part of brand-new operators is insignificant.

However, regions will influence development of the telecom industry in the nearest prospect. And the key point is that the expanding market of broadband networks causes the market of content services. To obtain competitive advantages, local telecom providers have to render services of proper quality as well as to care about technical features.

CNews: What was the reason to separate the Department of telecom solutions from the INLINE Technologies Group to found Inline Telecom Solutions? What were the background and circumstances of this decision?

I'd like to start by saying that in spite of the fact that Inline Telecom Solutions was founded in 2006; our company isn't a newcomer on the market. The core of our team comprises experts and engineers which have been carrying out lots of projects for the last five years within Telecom Solutions Department of INLINE Technologies. Excellent results and increasing business of the department encouraged us to organize an independent company.

The obligation to provide telecom operators with the high quality sophisticated expertise in telecom industry was the main reason to organize Inline Telecom Solutions. We are the company which knows everything about telecom operators business, and we are ready to develop, install and support any hardware and software solutions for them. The telecom market is changing every day and we strive to react fast and pro-actively by offering new solutions. And the essential needs of telecom companies are in the focus of our company. The status of the self-depended company encourages us to be closer to the business of our clients by generating unique proposals on the base of our in-house developments and leading and innovative technologies of our partners. At present we possess all opportunities needed to implement any projects in any sector of telecom integration.

CNews: Inline Telecom Solutions owns one of the biggest system integration laboratories in Russia. Please tell us about the facilities.

Our principle position is that our laboratory must be equipped with the contemporary equipment to provide solutions to our customers and to simulate equipment interaction of our strategic vendors. For the last time, one of the most widely employed stands is the hardware-and-software complex combining Cisco Systems' ISG solutoons and a BroadHop product. This complex enables telecom operator to automate subscriber connection. Also, there is a stand to test and debug TVoIP solutions.

We pay great attention to the equipment for a backbone network construction, access network based on Metro Ethernet and contemporary softswitches (SoftSwitch class 4/5) because of great demand. The laboratory resources enable us to test access point equipment produced by D-Link, LinkSys, Allied Telesis, Cisco Systems, Huawei3Com, etc. We also deal with the following vendors in the sector of backbone networks: Cisco Systems, ECI, Alcatel-Lucent, Nokia, Juniper.

CNews: What are the most important and significant projects realized in 2006 by Inline Telecom Solutions? What are their key specifics?

One of the major projects of the last year is the project for MTT in Novosibirsk. Our specialists created an NGN node to terminate traffic. A unique character of the project is that this was a hardware-based mixed solution: the gateway is based on ZTE softswitch, and the border routing is based on Cisco Systems and Juniper routers.

Another big project was implemented for "Start Telecom". Our company has built the backbone network based on IP MPLS and DWDM. This was also mixed solution: MPLS infrastructure was built on the base of Cisco Systems and Juniper equipment, and DWDM-trunk - based on ECI equipment.

We are aggressively pursuing the cooperation with the regional operators. For example, we provided assistance to "Intera" company which builds Metro Ethernet networks all over Russia. These projects were also based on multi-vendors solution. Furthermore, we had implemented a complex project last year. Within the project we built backbone and aggregation networks for "Electro-Com" telecom operator (trademark SPARK) in the following cities: Moscow, Kaluga, Nizhniy Novgorod, Rostov, and Ryazan. Besides, I'd like to mention the project implemented in "M2C" operator in Murmansk. The deployed multi-service broadband network enabled M2C to render Triple Play services.

We consider successful changes in strategic positioning of B&CC Bill-Master being one of the brilliant achievements of the last year. Now the large-size telecom operators are a new target audience for Bill-Master positioning. First of all, I mean telecom operators rendering all types of IP services as well as providing Internet access over dedicated lines, public switched lines etc. Because of the enhanced billing system performance, we've already implemented billing solutions in a number of large-size telecom operators. For example, B&CC Bill-Master is deployed in "Euroset" company to provide support for unified access pre-paid cards and accounting for internal network recourses.

CNews: You do plan to expand your business in the telecom industry, don't you? Please tell us about your targets to achieve and tactical steps to make to reach them?

Well, first, a 40% increase in turnover is expected this year. Second, we intend to gain leadership position in the area of solutions integration in building backbone networks. At the same time, we assist traditional telecom operators to deploy backbone networks infrastructure and local/international communications. As for mobile operators, we have well-approved VAS and SDP solutions. Due to our great experience in broadband access solutions, we've been dealing with alternative operators for a long time.

We are eager to accomplish the above goals based on new business development, business process enhancements and effective use of our experience.

Taking into consideration our business plans and targets, we put a high attention to qualification of our staff. To develop their skills and talents has become our strategy goal. Well-educated and experienced personnel will enable our company to achieve goals and overcome obstacles. I consider the human resources to be our ‘trump card' in developing technological and project expertise in the telecommunications industry.