With the recovery of the Russian economy, major players on the country’s telecom market are prepared to earmark more funds for capital investments in 2010.

As a whole, the telecom sector did not suffer significantly from the economic crisis. Lowered investment activity in 2009 was for the most part a safety measure. At the same time, even while a boost in investments is anticipated, the total capital expenditure figures for the current year are not likely to be as high as those in 2008. Most investments will go to high speed internet services and other cutting-edge mobile technologies.

After making public good performance reports in November of 2009, two of Russia’s biggest mobile carriers VimpelCom and MTS declared their intentions to intensify investment for the new year. The economic downturn had only slight effects on the telecommunications industry.    

The measures taken for reducing capital expenditures during the recession included postponing key development projects. In 2009, VimpelCom put a stop on its work of implementing broadband FTTB  (fiber to the building) technology. Less funds were allocated to the development of GPRS capabilities, though lowered enthusiasm may well be explained by the obsolescence of that connection standard.

Svyazinvest also lowered its investment program for 2009 by nearly 50 percent compared to the previous year.

The CEO of VimpelCom Boris Nemsic issued a statement that the company’s slowed investment strategy was adopted as a precautionary measure in the face of the economic crisis. In 2010, VimpelCom’s capex outlays will increase by more than a half. Two years ago, the company’s capital expenditures stood at USD 2.57 billion, accounting for nearly a quarter of the company’s revenue during that year. In 2009, the capex figure was between 10 and 12 percent of revenues.

The MTS carrier anticipates that capital outlays during the next year will total from 22 to 25 percent of revenues. Even though the company’s 2009 capital expenditure results of USD 1.8 billion amounted to 22 percent of the its revenues, the capex figure was 20 percent lower than the results of 2008.

Still, many experts suggest that a ratio of capital outlays to revenues of 18 to 20 percent can be looked upon as normal.   

Akin to largest mobile operators, Svyazinvest, one of the biggest providers of residential broadband and fixed-line services, likewise was not affected by the crisis in any profound way. The market proved to be surprisingly resistant to the downturn. As of yet, Svyazinvest has not come forward with an estimate of capital outlays for 2010. During the latter half of 2009, the company did revise its plans for capital expenditure outlays from RUR 26 billion to RUR 33 billion. The company’s investment in 2008 was RUR 73 billion.

Capital expenditures in 2010 are not going to exceed the figures for 2008. According the estimates of Gazprombank for 2010, MTS will invest USD 1.9 billion, VimpelCom’s outlays will total USD 1.9 billion, and Svayzinvest’s investment figure will stand at USD 1.6 billion. 

The most important sector for investment development in 2010 will be wireline and wireless broadband. Svyazinvest will devote nearly half of its capital expenditures to its broadband projects.

MTS’s subsidiary Comstar UTS plans to spend USD 400 million over the course of the next 2-3 years to digitize existing fixed-line network of its daughter company Moscow City Telephone Company (MGTS), according to Comstar UTS President Sergei Pridantsev. 

The largest mobile carriers are similarly expected to earmark more funds to the development of 3G mobile networks. The government’s decision to allocate 3G frequencies in the city of Moscow represented a major breakthrough for the mobile carriers. VimpelCom and MTS are expected to accord special attention to the wireline broadband services, as both carriers have recently acquired fixed-line providers, namely Golden Telecom and Comstar UTS.

Another major mobile carrier MegaFon will also invest in broadband development. MegaFon’s financial situation is considered to be better than that of its two chief rivals. At the same time, the company needs to establish its presence on the broadband market to become an integrated operator. Moreover, according to the carrier’s CEO Mr. Sergei Soldatenkov MegaFon also entertains plans to buy out the Synterra communications group.

Exprets are united in the opinion that the safest way for MegaFon to expand into the broadband sector is to buy existing operators, including those in the Russian regions. It makes no sense to start establishing a new network now, as large cities are already serviced by the other major providers.    

Regional companies serving the needs of corporate clients were the ones most touched by the economic downturn and plummeting company demand. The values of these smaller carriers went down during the crisis, making it possible for bigger carriers to make new acquisitions during the new year. 

Some of the big operators have already expressed their intentions to expand into the Russian regions by buying small and medium-size telecommunication firms. Svyazinvest intends to spend USD 1 billion for buying other communications companies. The company plans to augment its mobile operations by facilitating the acquisition of Bashinformsvyaz and Sky Link. 

Comstar UTS that now provides broadband and fixed-line services in 70 cities also plans to expand its coverage to more than 130 other towns with a population of at least 100 000 people each. The company is poised to realize its projects by 2012.