By U.S. Commercial Service, www. buyusa.gov

The Russian wireless network (WiMAX) market, which started at the end of 2007, will continue to experience significant growth in the next few years, thus creating sizable opportunities for U.S. manufacturers of telecom equipment and for software developers. The market is growing at an average rate of 20 to 25% annually, driven by a constantly increasing number of Internet subscribers and intense competition in the traditional segment of broadband access. In 2008 WiMAX operators sold almost USD90 million in services to both the private and corporate sectors. The share of imported equipment in this sector is currently close to 100%.

WiMAX, meaning Worldwide Inter-operability for Microwave Access, is a telecommunications technology that provides wireless transmission of data using a variety of transmission modes, from point-to-multipoint links to portable and fully mobile internet access. The technology provides up to 72 megabits per second symmetric broadband speed without the need for cables. The technology is based on the IEEE 802.16 (Institute of Electrical and Electronic Engineers) standard, and is also called Broadband Wireless Access. The name WiMAX was created by the WiMAX Forum, which was formed in June 2001 to promote conformity and interoperability of the standard. The forum describes WiMAX as a standards-based technology enabling the delivery of last mile wireless broadband access as an alternative to cable and DSL.”

Market demand

Small – to-medium sized enterprises (SME5) in particular understand the potential of websites and doing business online via the Internet in order to reach the worldwide economy. Since 75% of Russian households cannot get basic dial-up Internet access, wireless Internet service providers (WISPs) are expected to tap into this latent demand for broadband Internet connections. There is huge potential for WiMAX broadband wireless Internet and VOIP (voice-over-internet protocol) services in Russia because there are still more than 40 000-50 000 towns and villages with no basic communications services. And as the technology keeps improving, not only do customers want high-speed connections, but in many areas they now have household budgets to pay for high-speed Internet access.

Several wireless Internet service providers, such as Art Corn, Enforta and Tascom, have already launched WiMAX services in Russia and are enjoying early successes and heavy demand from consumers and businesses. So far, the demand for broadband wireless services has been driven by high-end corporate and residential as well as government users. Russia remains a price sensitive market.

Demand for WiMAX services is exploding, but both service providers and residential end-users are seeking a low cost CPE (Cost of Product Entry) in the USD100 range before they will fully adopt WiMAX. The basic kit’s price for WiMAX Internet costs USD125 plus a USD 25 monthly subscription fee.

Market data

The most active players are companies that belong to one of three very large telecom holdings in Russia:

Alfa, Sistema and Telekom Invest, all of which own both fixed and mobile service providers in different regions of Russia. Other companies, such as Enforta, are smaller yet also benefit from a sound capital base. Vendors and financiers need to be aware of “noise makers,” firms that issue press releases with ambitious plans, but after analysis are known to have little substance.

Some important facts and figures about the Russian WiMAX market are:

• The accumulated WiMAX subscriber base in Russia will reach 4 million in 2012, whereas it was 170 000 in 2008, thus representing a compound annual growth rate of 120% from an admittedly small base.

• WiMAX subscribers will dominate by 2012 and represent around 75% of the total BWA (Broadband Wireless Access) customer base. The majority will be residential users and the SOHO/SME (Small Office-Home Office/Small-Medium Enterprise) segment. At the moment WiMAX accounts for only 8-10% of the total BWA market.

• Russia’s BWA/WiMAX combined equipment market will reach USD 320 million in 2012, representing 5 times today’s USD 64 million, or compound annual growth of 50%.

• Around 70% of the BWA equipment installed during 2009 for WiMAX signal transmission will support the 2.5 GHz and 5 GHz frequency bands.

• BWA projects are still considered high-risk and have difficulty raising capital.

• By 2012 at least two national BWA providers expect to operate in 80% of the regions. Now they operate only in major cities such as Moscow, Saint-Petersburg and Yekaterinburg.

Best prospects

The best opportunities can be divided in to two main fields: equipment and software solutions. Among equipment the main profit makers are WiMAX antennas, receivers, indoor/outdoor access points, WiMAX transmitters and testing equipment. Software solutions are developed in the fields of billing, network access, traffic management and distribution, and server management systems.

Key suppliers

Key suppliers are from the technically advanced countries with high levels of research and development expenditures. The leaders are: U.S., Israel, Germany, Taiwan, South Korea and China.

Among the key producers are: Cisco Systems (U.S.), Aperto Networks (U.S.), Redline Communications (U.S.), Siemens-Sky Max (Germany) and Samsung (South Korea). These companies have already signed contracts with local WiMAX providers and now maintain installation and service works.

Prospective buyers

Market participants are represented by a small number of pioneers in this prospective market. The first WiMAX mobile network for individual users was “Yota,” managed by Scartel and associated with Russia’s Rostekhnologii State Corporation (Russian Technologies). The first network for corporate clients was launched by Synterra Company, a member of PromSvyaz Group.

Considering potential investment prospects for WiMAX and the absence of basic communications services, other key telecom players may start investigating this market. Among these companies are Svyazinvest and Comstar.

Cellular operators can also consider the WiMAX segment as a field of interest. At present “The Big Three,” Beeline, MTS and Megafon, are integrating 3G internet access. But this initiative may encounter difficulties from arguments between the Ministry of Defense and cellular operators for the allotment of 3G frequencies that can interfere with some of the frequencies used by the Russian Army. Integrating WiMAX into cellular operators’ product portfolios may boost this market because it will automatically attract millions of existing subscribers for mobile connections and Internet access.

Market entry

There are three main ways to enter the market:

• Distribution — The majority of telecom equipment suppliers, including WiMAX suppliers, prefer working through local distributors. Some telecom equipment distributors have been in business for more than a decade and have broad experience and good connections in the government, as well as in the management of big telecom companies. Their detailed knowledge of the market and excellent business networks enable them to find both a buyer and a seller for a wide range of equipment. They often represent a number of companies, and may cover a large part of the country.

• Strategic Partnerships — Aligning with other equipment vendors that already have a strong presence in the market is a creative way to enter. The advantage for vendors is being able to provide a wider range of equipment.

• Service Providers — Service providers sometimes prefer working with equipment manufacturers directly, which facilitates meeting their complex needs more efficiently.

Finding a local partner knowledgeable of the industry (with experience in participating in procurement tenders) would be the shortest path to entering the Russian market.

Market issues and obstacles

• Low PC penetration, excessive bureaucracy, and high CPE costs limit Russian BWA market growth. However, the large penetration of mobile phones might facilitate the transition to broadband applications, as more users become accustomed to MMS and mobile email.

• Shortage of spectrum and intricate regulation contribute to delaying massive adoption of BWAIWiMAX in Russia.

• Low personal incomes in many Russian regions will slow down the penetration of mobile WiMAX in rural areas.

• Companies entering the market should also be aware of the complex regulatory environment. Bureaucracy, corruption and lengthy decision-making processes are major problems in this and other Russian sectors.

Trade events

The U.S. Commercial Service in Russia encourages firms to take part in local trade shows and conferences. Participation in industry events is very important in this sector and facilitates successful market entry.

Svyaz ExpoComm

Moscow

May 13-16, 2009

www.svyazexpo.ru

Organizer: E.J. Krause & Associates

Profile: One of the major tradeshows covering the whole IT and Telecom industries.

InfoCom

Moscow

October 28-31, 2009

www.infocomtech.ru

Organizer: Restec-ICT

Profile: Innovative IT & T technologies and services; telecom solutions for business, government and social spheres.

Mobile & Wireless

Moscow

November 11-13, 2009

www.inconex. ru/mw

Organizer: Midexpo Exhibitions and Fairs

Profile: Telecommunication systems and IT technologies.

CSTB (Cable & Satellite TV, Teleradiobroadcasting and Broadband Exhibition)

Moscow, Crocus

2-5 February 2009

www.cstb.ru

Organizer: Midexpo Exhibitions and Fairs

Profile: Pay-TV systems and relevant broadband technologies.