Rostelecom Sees Revenues Triple by 2013 on Broadband Growth and Market Expansion

Russia's state-owned, former long-distance monopolist, Rostelecom, has outlined its plans for the next five years. The company aims to increase annual revenues from the 64.6 billion roubles (US$2.630 billion) generated in 2007 to around 160.8 billion roubles in 2013. Operating income before depreciation and amortisation (OIBDA) is projected to increase from 11.1 billion roubles in 2007 to 48.1 billion roubles by 2013, and the OIBDA margin from 17.2% in 2007 to 30% in 2013. In operational terms, Rostelecom projects that its current 84% share of the consumer market for long-distance calls will dip to around 60% by 2013, decreasing at a rate of 2.5% per year. The operator is also aiming to obtain a 15% share of the retail broadband market in 35 of Russia's largest cities by 2013. In order to achieve these goals, capital expenditure (capex) is to total around 35.6 billion roubles from 2009 to 2013, with a further 30-46 billion roubles to be directed towards mergers and acquisitions (M&A). Rostelecom is aiming to increase its presence in the CIS region through organic growth, network construction and M&A activity. Further afield, the company is eyeing entry into the markets of China, India and Japan over the next one to three years through joint ventures and partnership schemes, while similar approaches will be used to enter the markets of the Middle East, Europe and Asia-Pacific.

There are some eye-catching elements to Rostelecom's strategy, notably its target for broadband market presence and its international expansion plans. Since the liberalisation of the fixed-line long-distance market in January 2006, Rostelecom has seen its market share diminish and understandably has sought alternative means of revenue generation, since 30 competitors have applied for long-distance licences. Rostelecom had already reported an 11% share of the wholesale internet services market at the end of 2007, and had previously indicated that it was mulling broadband market entry. Given the current strength of broadband uptake levels in Russia and the extent of Rostelecom's existing infrastructure, confirmation of broadband market entry is unsurprising. The moves into the CIS, Middle East and Asia-Pacific markets had also been hinted at, although the approach of establishing partnerships in some of these regions seems well-judged as Rostelecom would be able to draw on local expertise, while offering data-traffic routes across Russia and the CIS to interested parties.

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