1. RUSSIA
FEBRUARY 2 3, 2012
Russia Forum Buzz
A New Era in Mobile: Opportunity
Knocks
█ The panelists discussed the future of the telecommunication industry,
focusing on the emergence of new technology that might shape a new era, as
well as prevailing trends and industry obstacles.
█ Michael Hecker has a positive outlook for the sector and anticipates healthy
growth at telecom companies driven by data and voice usage, which still has
potential in Russia to increase from the current level of around 270 minutes to
600 minutes. He thinks that, compared with where we will be in five to 10
years, the industry is still in the Stone Age. At the moment, our only
connection devices are mobile phones, smartphones, tablets and computers,
whereas there are billions of home appliances, cars and other appliances that
in the future will be connected, delivering traffic and revenues for operators.
As an example, he cited machine to machine (M2M) services, which in
Europe generate ARPU of $5 10. In Russia, there are already around 2.5 mln
M2M sim cards, and this number is growing dramatically.
█ Answering a question about why we need LTE, Denis Sverdlov said that in
practice, once the network exits, i.e. has been constructed and becomes
available to customers, massive demand appears. The reason for this at least
in Russia is in undeveloped cable infrastructure and people requiring mobility.
Talking about why operators can still make money, he said that because
Skartel was building infrastructure from scratch, they could apply a business
case that is more suitable for data services, as the company from the first day
of its operation has been focusing on data. He thinks that the industry should
prepare itself for a decline in revenues per base station from the current
R500,000 600,000/month to at best R150,000/month for data. At the
same time, operating expenses will not decrease, which implies that most
operators have the wrong operational model for data. Skartel focuses on
revenues per employee, and has the highest in the industry.
█ Commenting on the issue of fixed lines competing with mobile networks,
Alexander Provotorov stressed that these two technologies do not substitute,
but enhance each other. In Italy, only 10% of people use mobile connections
at home, and this is the country that has the highest ratio. Mr Provotorov
believes that fixed line broadband will remain popular in Russia, as for some
services mobility is not necessary, for example television. The main growth
area for the company is pay TV and there is a trend where people initially
subscribe to pay TV and only then opt for broadband. Therefore, the
challenge for equipment vendors and appliance producers is to make
equipment that would enable the convergence of fixed line and mobile
services that would enable people to automatically switch from one to the
other, depending on where they require an internet connection.
www.TheRussiaForum.com

2. FEBRUARY 2 3, 2012 RUSSIA FORUM BUZZ – A NEW ERA IN MOBILE: OPPORTUNITY KNOCKS
█ Andrey Semerikov noted that people have been discussing competition 15 20 years already, but
revenues from fixed line services continue to grow. His main thesis was that the capacity of
existing networks is insufficient to digest exploding traffic that, among other things, is driven by
content created by users (which is starting to exceed professionally produced content) and cloud
services. In his view, not a single company will be able to digest this coming traffic on its own and,
hence, infrastructure should be integrated.
█ Svetlana Skvortsova believes that despite being not among the Big Four operators, Tele2 does not
consider itself an outsider. In the 37 Russian regions where the company operates, it holds first
place in nine and is among the top three operators in 20. Tele2 has the lowest churn rate in
Russia, implying that customers are currently satisfied with the speed that the network offers.
However, the company wants to develop further and offer customers services using new
technologies, such as mobile TV. Hence, the issue of technology neutrality is important, as it
would enable the operator to launch a next generation network. It is also possible to launch LTE
networks in the 900 MHz spectrum. Tele2 is ready to participate in financing the conversion of
frequencies. She agreed with Mr Hecker that the growth drivers are data and voice usage.
█ Ole Bjorn Sjulstad thinks that we are witnessing a continuation of the current mobile era, rather than
the end of a past era. The dream of mobile business is adapting to the needs of people but also
driving these needs. While new technologies are important, five principles are crucial if the company
wants to deliver profitable growth, he said. The first is services that are offered by the operator. Then
frequencies and licenses. Companies paid a lot during the allocation of 3G licenses, whereas now
they are trying to reduce expenses by teaming up with other operators in rolling out networks. Mr
Sjulstad also said that effective procurement processes would push down prices. Distribution
(staying in touch with customers) is an important aspect of the business; operators that can reshape
distribution will rule the market. Another important principal is pricing of services.
█ The speakers could not reach a unanimous opinion on the cost of the LTE network roll out. While
Mr Hecker thinks that upgrading MTS’ existing network will incur less expense than constructing a
network from scratch and will not require substantial investments. Mr Sverdlov, on the contrary,
insisted that for Skartel, building a new network would require the same investments or even less
than for MTS to upgrade its network. Mr Provotorov said that LTE would require huge
investments, as it is necessary to invest in the cable that goes to the base station, which is costly,
but without which it is impossible to reach the full data transfer speeds implied by LTE.
█ The speakers also defined opportunities and challenges facing the telecom industry in Russia. On
one hand, they agreed that they should focus on reducing operating costs and capex. On the
other, though, they said they need to seek alternative revenue sources, among which might be
considered offering value added services to keep their business from becoming a pipeline.
Panel
Denis Bugrov Senior Vice President, Sberbank of Russia
Michael Hecker Vice President, Strategy and Corporate Development, MTS
Alexander Provotorov President, OJSC "Rostelecom"
Andrey Semerikov General Director, Er Telecom
Ole Bjorn Sjulstad Telenor Group Senior Vice President for Central and Eastern Europe, Head of Telenor Russia;
member of the VimpelCom Ltd. Board of directors
Svetlana Skvortsova Strategy and Development Director, Tele2 Russia
Denis Sverdlov General Director, Skartel
2 TROIKA DIALOG

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