As analysts said one year ago, intensified consolidation was one of the key trends on the Russian telecommunications market in 2011, when seven interregional wireline operators were integrated into one long-distance operator Rostelecom.

The consolidation of the market is not yet complete, analysts now say, adding that Rostelecom and three major mobile operators are likely to keep purchasing regional operators in 2012, as they did throughout last year. One of the key events expected in 2012 is the forthcoming allocation of frequencies to provide long-awaited fourth generation (4G) wireless services via the Long Term Evolution (LTE) technology, but this is unlikely to have any serious effect on the market in 2012, as operators are unlikely to be able to launch full-scale LTE operations by the end of the year, analysts said.

The key event on the telecommunications market in Russia was the integration of seven interregional subsidiaries of state-run telecommunications holding Svyazinvest into Rostelecom, which was completed on April 1, Alfa-Bank and Gazprombank analysts Yuly Matevosov and Anna Kurbatova both agreed. Rostelecom has become a large diversified telecommunications operator and is likely to keep strengthening its positions on the market in 2012, Matevosov noted. “One can expect a lot from Rostelecom, in particular, firm steps within the mobile segment with the main emphasis placed on wireless data transfer services, further expansion in the wireline broadband segment, and development in other telecommunications segments,” he added.

Another key trend on the market was the major mobile operators’ “race for subscribers, which negatively affected their business margins,” Kurbatova from Gazprombank said.

This trend is also likely to continue in 2012, and competition in the mobile segment may become even tougher, as Rostelecom plans to strengthen its position in this segment, Matevosov from Alfa-Bank said.

All major mobile operators, MTS, MegaFon, and VimpelCom, are also diversifying their businesses, as they actively expand into the wireline broadband segment, Matevosov said, adding that they are moving in the opposite direction to Rostelecom, which on the contrary is expanding onto the mobile segment. In general, the emergence of four huge diversified operators is quite positive for the development of the telecommunications market, Matevosov said, adding that subscribers may choose between them, which motivates the operators to develop their networks.

Diversification of services is a logical process on the telecommunications market, Kurbatova from Gazprombank said, adding that diversified operators would be able to offer unified billing, which is attractive to subscribers.

While MTS and VimpelCom already had strong positions in the residential wireline broadband segment, MegaFon made a big leap when it acquired wireline company NetByNet with more than 450 000 residential users in June 2011. After that, NetByNet, controlled by MegaFon, acquired a number of regional wireline operators, alongside MTS and VimpelCom, which also made several acquisitions in 2011.

Consolidation, which is seen in both Rostelecom’s restructuring and regional acquisitions by all major operators, is likely to continue in 2012, as there are still enough medium-sized assets in Russian regions that could be potential acquisition targets for telecommunications majors, both Kurbatova and Matevosov said. Mobile operators are expected to keep on buying regional wireline assets, while Rostelecom is likely to focus on purchasing wireless operators, especially those providing mainly wireless broadband services, Matevosov from Alfa-Bank said, adding that the process of market consolidation has not yet been completed.

Major operators may, in particular, be interested in buying non-core telecommunications assets of large corporations from other industries, Kurbatova from Gazprombank said, adding that “attractive acquisition targets are not that numerous, but they exist.” Also, major operators are likely to finally obtain long-awaited 4G LTE frequencies this year, as tenders for these frequencies are scheduled for early 2012, which is one of the key events of the year, Kurbatova said, adding however that the impact of this event on the telecommunications market is not likely to be seen this year, because operators would struggle to launch full-scale operations of LTE networks and subscribers were unlikely to enjoy LTE services by the end of the year.

Matevosov from Alfa-Bank agreed that LTE frequency allocation itself cannot change the telecommunications market. Mobile operators should take measures to promote their existing services and enhance the quality of voice and data transfer within their networks, he said, adding that operators could further develop third generation (3G) services. Even if operators launch LTE networks in 2012, as some of them claim, LTE services are likely to be available in a limited area only, he also noted.

Among the key telecommunications segments, wireline broadband is again likely to show the fastest growth in terms of both revenue and subscriber base in 2012, both analysts said, adding that the growth rate is likely to slow down. As broadband penetration gradually increases, wireline broadband operators are expected to add 3.6 million households in 2012, while in 2011 they signed up 4.1 million households, Kurbatova from Gazprombank said, adding that the revenue growth rate is expected to slow down also because of the decreasing prices for broadband services.

Mobile revenue is likely to grow in 2012 with the same modest pace as in 2011, or about 5%-6% on the year, Kurbatova said, adding that no significant changes are expected for the mobile subscriber base either. Matevosov from Alfa-Bank agreed, adding that new subscribers are expected to mainly sign up to mobile operators for data transfer services only.

The fixed-line telephone segment is likely to record another reduction in the number of subscribers in 2012, while revenue is likely to increase slightly, mainly because of annual rate hikes for telephone services, Matevosov said, adding that the rate hikes are likely to be partly offset by the increase in the number of subscribers to mobile networks. Kurbatova from Gazprombank said the revenue growth in 2012 is expected to be only 1.5%, as Rostelecom, the largest fixed-line operator, may even abstain from increasing rates in order to prevent a bigger loss of subscribers.