Russian Broadband Market Begins Recovery: Report

Russia’s fixed broadband market, the world’s fourth-largest, is entering a stage of maturity, characterized by high competition and slowed growth that is especially noticeable in Moscow, according to a report by Kagan, the TMT arm of S&P Global Market Intelligence.

The country’s broadband sector is overcoming the economic crisis of 2014-15 that had caused a decrease in average revenue per user, with 2017-end numbers showing at 32.6 million subscribers, translating to a penetration rate of 57.6 percent of households, the report highlights.

Subscribers are migrating toward higher-speed plans of 100 Mbps and up, enabled by the growth of connections in optical technologies, including passive optical networks, analysts noted.

“Penetration is, however, not homogeneous, mainly due to low adoption rates in rural areas, whereas organic growth in the markets of large and medium-sized cities has already been exhausted. In Moscow, the fixed telecom market is close to saturation, but the areas outside of the capital still offer opportunities for revenue and subscriber-base growth. In the two years following the drop caused by the economic crisis, annual growth rate returned to the 4% level,” the report says.

Kagan estimates Russian fixed broadband revenues in 2017 at 148.5 billion Russian rubles, or $2.55 billion. Over the last five years, the subscriber base increased, bringing a continuous growth of fixed broadband revenues in the local currency.

However, broadband average revenue per user (ARPU) has slightly declined after the 2015 crisis, as subscribers rationalized their subscriptions and more often chose bundled offers that enable overall service cost reductions, the report says.

The top five broadband providers in Russia serve 71% of subscribers and earn 83% of total revenues, which reached 148.50 billion rubles in 2017.

“The market leaders are expected to further increase their share in total broadband revenues due to ongoing market consolidation. Due to rising market saturation, operators are making every effort to increase user loyalty by bundling services and reducing prices,” Kagan said.