December 1998

by Maria Breiter

At present, the Russian telecommunications market presents great potential for foreign investors, equipment suppliers, and communications operators. During the past four years, foreign investment in this industry has amounted to about US$2.5 billion.

Satellite systems in the former Soviet Union were designed mainly for military, government, and TV broadcasting purposes; any civilian communications by satellite has primarily been for international calls. As a result, Russia's domestic communications satellites have lagged behind world standards in transmission capacities, position stability within orbit, and time of usage. However, since the early 1990s, satellite communications have been developing rapidly in Russia. A significant increase in information traffic is predicted for Russia in the near future, in particular from Internet users.

High demand for satellite communications in Russia is due to the country's expansive territory and the poor condition of its wireline network. The national satellite network now consists of 12 satellite links, owned by the state-owned Russian Satellite Communications Company (RSCC).

Over 700 types of foreign telecommunications equipment have been certified for the Russian telecommunications market, and more than 20 telecommunications companies from the United States, Western Europe, and Asia have obtained licenses for service provision, including Alcatel, AT&T, Ericsson, Motorola, NEC, Nokia, Qualcomm, Samsung, and Siemens.

Space and Ground Segments
Demand for geostationary commercial satellites is strong in Russia. There are currently 71 Russian transponders, used by Rostelecom, the national long-distance and international telephone service provider, mobile telephone service providers, television broadcasters, and various other users. Forecasts indicate that by 2010 capacity demand will require as many as 380 transponders.

Russia's out-of-date satellite fleet is the sector's major problem. In 1997, the Russian Space Agency (RKA), together with Goskomsvyaz, held the first Russian tender for the development of a new generation of telecommunications satellites for the Russian Federation. With new satellites launched by Lockheed Martin, Intersputnik, Sesat, and Intelsat, the number of transponders could reach as many as 500 within the next three years.

The number of satellite earth stations (SES) is limited in Russia. The major Russian SES sites include Moscow, Dubna, Vladimir, Khabarovsk, and Komsomolsk-na-Amure. RSCC currently owns five large SESs in Moscow, St. Petersburg, Dubna, Vladimir, and Medvezhyi Ozera, 40 kilometers from Moscow.

Satellite Communications Services
Radio-based communications systems are a rapidly growing sector of Russian industry and are expected to overtake fixed line networks in terms of number of new subscribers. Other radio-based services such as paging, subscriber radio, and TV delivered by satellite, as well as systems for navigation and air and maritime safety, and proposed services such as Global Mobile Personal Communications by Satellite (GMPCS), are expected to develop in the Russian telecommunications market.

Domestic Production
Russia is actively manufacturing communications satellites for both domestic use and export of parts. Currently, most satellite manufacturers in Russia are former defense enterprises that have become more open to international business. These include NPO PM, RKK Energiya, NPO Lavochkina, and KB Salut of the Khrunichev Space Center.

In 1997, locally owned companies provided approximately 61 percent of total satellite equipment and 58 percent of satellite services. They are expected to retain this share because of a competitive advantage derived from legislation currently in effect. Rostelecom, Russia's major operator of communications networks, is starting to penetrate the satellite communications market, as are major companies from Europe and Asia.

U.S. Market Position
American companies are actively involved in satellite development projects through international alliances. Hughes, Lockheed Martin, and Space Systems/Loral are all present in the Russian market. Motorola cooperates with the Khrunichev Center in the implementation of the Iridium project, which was commercially launched at the beginning of November. This project will form the world's first global satellite system of personal mobile communications.

Import Climate
The present regulatory situation in Russian satellite communications encourages more active involvement of foreign partners. Given the current slow pace of network development and high market fragmentation, Russia is expected to face greater deregulation and competition due to its geography, which lends itself to satellite communications.

The three most promising fields in the Russian satellite market are the manufacture of satellites, launch services, and infrastructure ground control. The market is expected to grow to around US$30 billion in the next 10 years. Russia launched 48 commercial satellites in 1997, 18 on behalf of U.S. firms. In addition to U.S. satellites, Russia also has sent up satellites for China, Germany, and Luxembourg.

Satellite services constitute a more profitable segment than satellite equipment. It is estimated that the markup in the service segment is 30 to 35 percent higher than that in the equipment segment. The best prospects for this market are television transmissions, worldwide telecommunications, very small aperture terminals (VSAT) and VSAT fleet management, satellite newsgathering systems, satellite-based personal communications networks and services, and mobile telephones. Data transmission is expected to be the most requested satellite service.

For more information on the telecommunications market in Russia, visit BISNIS OnLine at www.mac.doc.gov/bisnis/isa/981012r3.htm.

Maria Breiter covers telecommunications for FCS-Moscow.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)