Russia: A journalist's perspective on its telecom market

Editor’s Note: RCR Wireless News Editor Sylvie Barak delved deep into the Russian wireless landscape during a recent trip to the country. She delivered a feature report for RCR Wireless News that was included in our November Special Edition. Click here to read her report. But Barak still had more that couldn’t fit in that report. As such, here is Part 2 of our Feature Report: Russia: A Vibrant Powerhouse Straddling East and West.
To read NSN’s perspective on the Russian market, Click here.
To read about MTS, the largest Russian operator, Click here.
To read about Brightstar’s wireless distribution plans, Click here.
While in Russia recently, RCR caught up with Editor-in-chief of PC World Russia, Alexander Baulin, to get his perspective on this rapidly evolving market.
“The Russian market is a typical market in that companies have the ability of making a big profit (net profit), whilst also having the ability to get themselves into rather a lot of problems,” sighed Baulin.
The main problem in Baulin’s book is that of government regulation. “Companies here have to worry not only about their own business but also about maintaining a good relationship with the local government.”
Smaller companies, said Baulin, felt less of this type of pressure than larger companies, but in general telecom companies were under double or triple the pressure because they had to have good relationships not only with the local government but the federal government too.
The Russian market is also an expensive one for new players to join, according to Baulin, although the price may be worth it owing to the loyal relationship between Russia and Asian brands. “We haven’t really got strong local brands,” Baulin noted.
Human resources in Russia are also rather a lot cheaper for firms to acquire, with some workers costing as little as between $300 and $500 a month, depending on region, with young specialists costing between $1,000 and $1,500. Middle managers’ salaries are between $2,000 and $4,000 and only top managers able to command truly high salaries.
Advertising costs are not cheap, however, with Baulin noting that PR agencies can churn out press releases and build media relations for around $5,000 a month. Meanwhile typical one-page ads or banners on a title site can cost anywhere from $5,000 to $10,000, which puts the price for achieving decent market share in Russia up to about $100,000 a month.
Since much is made of reputation in Russia, foreign companies hoping to strike it big in the Russian market also need a strong global ad campaign, which could even raise the spend level to millions before the Russian nut is cracked, says Baulin.
Another way into the Russian market, however, is through local distributors, but Baulin warns this can be a tricky tightrope to walk. “Big distributors will not think about one more partner, while small distributors may not have enough selling power,” he said.
It’s also worth bearing in mind that the brand-conscious Russian market has already picked several favorites that would be strong competitors to any new entrant on the handset side. Nokia, Samsung, Apple, Sony Ericsson, LG and HTC are rather well entrenched, says Baulin, although cheaper Asian smart-phone brands are starting to make their way, white label, to operators.
“Smart phones are changing the Russian telecom climate,” Baulin said, noting that while the process had only really begun in earnest within the last year or so, smart-phone growth was rapidly expanding with predictions they could take 50% of the market or more in the relatively near future.
“Mobile phones give people who can’t afford a fully fledged the chance to gain access to some still rather powerful computing and the Internet,” he told RCR. “Thus, it’s potentially a very big market.”
Russians, he said, are keen to catch up with their European and American counterparts, not only in terms of the infrastructure technology (3G in most towns and cities with 4G WiMAX already available in both Moscow and St Petersburg. Indeed, Russians are particularly good at riding the breaking wave of technological advances, due to the strength of the population’s scientific education. “R&D is a major competitive advantage for any firm wanting to set up a development center in Russia,” Baulin claimed.
That technology know-how, however, can cut both ways, with many of the major hacking attempts (mobile or otherwise) emerging from Russia, as well as a rather serious problem with illegal downloads via torrents, something which clogs the networks terribly.
“Broadband is generally used for torrenting, e-mail and VoIP,” explained Baulin, adding that operators were fighting hard to try and stop downloading over torrents, freeing up future data traffic for e-mail and social networking. As of yet, it’s still unclear how successful this battle will be.
One thing is abundantly clear, however, and that is that Russians refuse to be left behind in terms of fashionable brands, gadgets and phones. “Infrastructure in Russia develops at a much slower pace than the devices which flood our market,” said Baulin, noting that his countrymen were usually quite happy to buy phones even if all their features didn’t currently work. This, he said was the case for a plethora of 3G smart phones – available in the Russian market before 3G was – and the propensity of buying iPhones without value-adds like iTunes being available.