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Russia TV update
TV International, 01 octobre 2010
• Ownership of most TV companies is concentrated into a few major conglomerates with strong connections to the government • There is ongoing heavy investment in network upgrades across cable, IPTV and terrestrial, due mainly to the lack of local loop unbundling and other access • Several IPTV services are operational, with more set to launch • DTH take-up has rocketed, but most homes receive free or near-free services • National DTT rollout began in early 2010, following the allocation of broadcast licenses. After some hesitation, the government decided not to grant settop TV overview
Clarity is about to strike the opaque Russian pay TV sector. Some of the key players are ending their cross-ownership shareholdings. Furthermore, major players are aligning their various pay TV assets with their telecoms ones. This includes integrating their Moscow operations with their provincial ones for the first time. The goal is to provide triple- or even quad-play bundles, irrespective of whether this is on cable, DSL or fiber Incumbent telco Svyazinvest is restructuring its seven regional operations. Rostelecom, formerly its long-distance telephony subsidiary, is busy buying up minority stakes in these regional players. This is in preparation for a Svyazinvest IPO that will probably take place in 2H11. Svyazinvest wants to take 17% of pay TV revenues by 2015. With little obligation to unbundle its local loop, Svyazinvest has not invested heavily in upgrading its infrastructure. However, several private companies have made substantial commitments to construct extensive state-of-the-art networks and Svyazinvest is now The ownership situation became a little clearer in June 2010 when Sistema Mass Media agreed to sell the 17.31% stake (held by its subsidiary Comstar) in Svyazinvest to Rostelecom for RUB18 billion (US$566 million). Furthermore, Sistema subsidiary MGTS Finance agreed to sell its 7.69% stake in Svyazinvest to Rostelecom for RUB8 billion. In return, Sistema gains several advantages, including Svyazinvest's 23.33% stake in MGTS The upshot is that all of Svyazinvest's assets will have single ownership under the Rostelecom umbrella, in preparation of an IPO in 2H11 and the resulting funds for Sistema is one of the new breed of network players. Free of any ownership links with and to Svyazinvest, Sistema will amalgamate its telecoms and media assets under the MTS brand. Apart from Russia's leading mobile player MTS, these assets include Comstar-UTS, with cable and IPTV interests across Russia often under the Stream TV brand, leading Moscow telco MGTS, and Moscow MMDS operator Kosmos. In July 2010, MTS bought A third significant player making moves is Vimpelcom. Another major mobile operator, it is also merging its telecom and media assets (mainly Corbina Telecom and Golden Akado Group is also influential, through its control of Moscow CableCom (MOCC), Moscow fiber-optic player Comcor as well as aggressive provincial expansion. Another major fixed-line player is National Media Group, which owns Mostelecom in Moscow and TKT in St Petersburg as well as several FTA channels. Much of the initial investment was concentrated on Moscow and St Petersburg, but the provinces are becoming more important as these markets mature. ER Telecom, based in the south central city of Perm, wants to take 20% of all Russian cable TV and broadband There are many other TV players apart from the six mentioned above. Most of the overall investment is locally sourced, partly due to strict ownership laws, though several of the major players are listed on foreign exchanges and therefore have foreign institutional Russia's TV assets are increasingly concentrating into the hands of just a few major players. These companies are typically controlled by deep-pocketed conglomerates, which have strong government ties. TV companies need government approval to operate. There are six main DTH services. Tricolor TV is the leading player, with an estimated 6.9 million ‘subscribers' by end-1Q10 (see fig. 1). However, few users pay a subscription fee. Tricolor's strategy of offering free access for the first year may attract a large number of users, but the conversion rate to a paid subscriptions is low. NTV-Plus remains the largest pay DTH service, ending-1Q10 with an estimated 690,000 subscribers. Upgrading the terrestrial network began in 2009. The estimated cost of DTT transition has been put at RUB235 billion. This figure includes subsidies for poorer households, which the government decided not to grant in May 2009. Most of the main fixed line operators are platform agnostic, constructing and expanding cable, DSL and fiber networks. With the Moscow and St Petersburg markets tied up, companies are looking to expand provincial operations. Bundles are key to these companies' expansion plans. Broadband subscriber numbers reached 14.1 million by end-1Q10. Some estimates suggested 66% broadband penetration in Moscow, so most of the future growth will be in the provinces. ER Telecom estimated that total Russian pay TV subscriber numbers increased by 20- 25% in 2009, down from a 40-45% increase in 2008. In July 2010, legislation was passed to require all pay TV platforms to carry eight free-to-air channels: Channel 1, NTV, Bibigon, Channel 5 and four from Rossiya.
Cable and IPTV
Informa Telecoms & Media estimated 13 million cable subs at end-2009. The number of IPTV subscribers is contentious. Some local estimates put the number above one million, but Informa estimated 0.4 million subs at end-2009. Cable association AKTR optimistically forecasts 25 million cable subs by 2015. About 70% of cable subscribers only pay to receive the 'social package' of terrestrial channels. Monthly urban ARPU is Russia has 600 cable operators and 60 MMDS platforms, but only 10% have more than 20,000 subscribers. Six companies control 60% of subs. Consolidation is likely. Moscow accounts for almost one-third of the country's cable TV revenues. St Petersburg has also The increased popularity of triple-play packages is driving up the value of the cable market. The Russian Cable TV Association estimated the combined value of the broadband and cable markets will be US$4 billion in 2010 compared with US$650 million However, most of the main operators own cable, DSL and fiber networks. This investment in multiple technologies came about as incumbent Svyazinvest is not obliged to unbundle its local loop. Furthermore, consolidation means that these operators are integrating their Moscow operations with their provincial ones. A good example of integration is offered by Sistema Mass Media, which is consolidating its telecoms and TV assets under the MTS brand. Sistema owns 53% of MTS, the leading Many of Sistema's TV interests were placed under subsidiary Comstar-UTS, which trades as Stream TV. By March 2010, Comstar had 125,000 IPTV subs (triple-play subs - see fig. 2) and 860,000 broadband subs in Moscow as well as two million pay TV subs (including 355,000 social TV ones) and 426,000 broadband subs in the provinces. Comstar passes 7.8 million homes in 83 cities and wants to expand to 200 cities by 2013. In October 2009, Sistema transferred its 50.91% stake in Comstar-UTS to its mobile subsidiary MTS, taking the cellco's total stake to 61.97%. In July 2010, MTS offered to buy a further 9%, and is understood to want to take complete control. Also in July 2010, MTS acquired MSO Multiregion for US$123.5 million. Multiregion passes 1.8 million homes (including 1.3 million with fiber) in 37 cities. It has 700,000 In Moscow, the company holds a 50% stake in MMDS operator Kosmos TV, with transmission company Russian TV and Broadcasting Network (RTRS) owning the other half. Network modernization needs to be completed in 2010, when the MMDS license Kosmos TV has 50,000 digital subscribers in greater Moscow. It offers 70 TV channels in 12 languages, with the basic package containing 42 channels. Kosmos TV is planning to add HD channels following the completion of trials. MTS owns a 69.93% stake in Moscow City Telecoms Network (MGTS), which is mainly a telco though it provides OTT services. MTS controls nearly 40% of broadband subs in Moscow and wants a 50% market share by end-2011. Comstar importantly has almost total control of the last mile connections to Moscow's households, which will be upgraded to fiber. Around three-quarters of its Moscow network has access to broadband speeds of MTS is in the midst of a deal to increase its holding in MGTS by taking Svyazinvest's 23% stake. In return, Sistema will sell its 25% stake in Svyazinvest (previously jointly held by its Comstar [17.31%] and MGTS [7.69%] subsidiaries) to Rostelecom. Svyazinvest controls 50.67% of the voting shares of Rostelecom, which was formerly its long-distance
Rostelecom
Rostelecom has been buying out minority shareholders in Svyazinvest's seven regional telcos to create a single unit. Svyazinvest wants a 17% share of pay TV revenues by 2015. The restructure is due to be completed by June 2011, and may lead to an IPO. The IPO will create funds for infrastructure upgrades. Despite the centralization plans, several subsidiaries continue to invest is network upgrades. Central Telegraph is in the process of building its Universal Multi Service Network in Moscow to cover 1.5 million apartments. With a 2,000km fiber-optic network already operational, the company had 180,000 broadband subscribers and 30,000 IPTV subs under the Qwerty TV brand at March 2010. Central Telegraph was the first Russian operator to deploy a PC-based pay TV service. Other operators are monitoring the situation as the legality of the service remains in doubt, as contracts with TV channels for IPTV services do not necessarily allow for Also owned by Svyazinvest, North-West Telecom launched its IPTV service in April 2008 under the Avangard TV brand, which offers a network DVR system with up to 72 hours storage. Avangard TV had 11,000 IPTV subs at March 2010. Southern Telecommunications, another Svyazinvest asset, launched an IPTV service in late 2005 under the brand name DiSeL-TV. Informa estimates that it ended March 2010 with 600,000 broadband subscribers and 35,000 IPTV subs. Sibirtelekom, which ended March 2010 with 642,000 broadband subscribers, offers IPTV under the TVist brand. The 100 on-demand movies on offer cost between RUB30 and RUB100. Sibirtelekom made the service available to the whole of Siberia by end-2008.
Vimpelcom
Mobile operator Vimpelcom (44.65% owned by Alfa Group's Altimo and 29.9% by Telenor) does not offer much of a TV challenge yet, but is poised to become a major threat. In June 2008, it acquired the 49% stake in Corbina Telecom that it did not already own from Inure Enterprises for US$404 million. Corbina and fellow subsidiary Golden Telecom were rebranded as Beeline. Beeline had 1,167,000 broadband subs by March 2010. It launched its IPTV service to 2.9 million homes in Moscow and St Petersburg in May 2009, and recorded 30,000 subs by year-end. The company will introduce triple-play services during 2010. The IPTV service comprises 166 channels, including seven HD and premium ones from NTV Plus. Subs have VOD access to 3,000 titles and all of the settop boxes have a DVR.
Other players
ER Telecom wants to take 20% of cable TV and broadband revenues by 2014, setting aside US$500 million to achieve this. In 2009, it took 7% of the cable total and 8% of the broadband revenues. Having delayed its planned 2H09 IPO due to the global economic crisis, it may reconsider a flotation as the economy improves. Owned by Perm Financial, this ambitious company passed 3.4 million households in 17 cities in the south west and south central areas by early March 2010. By March 2010, it recorded 1 million cable TV subs under the Divan-TV brand. It expanded to five more cities in March 2010 and wants to reach 90 cities by 2014. ER recorded revenues of RUB4.6 billion in 2009, up 60% from a year earlier. The company is aiming to increase its revenues by 40% to RUB6.4 billion in 2010. EBITDA Another major cable operator is Moscow CableCom (MOCC), which operates under the brand name Akado and passes 2.8 million households in Moscow and the regions. It launched DOCSIS 3.0 in Moscow in 2H09. The Akado Group also owns telco Comcor, which runs a fiber-optic network offering triple-play packages in Moscow. In March 2010 Akado had more than 1 million analog cable TV subscribers, 450,000 digital TV and 650,000 broadband ones. Akado also reported that the number of dual- play users had doubled in the period. ARPU is comparatively high at US$18 per month. The addition of the 1 millionth subscriber coincided with the launch of HD channels. Its HD service rolled out in October 2008. Akado priced its HD service lower than its competitors. Akado become Russia's leading HD service with the launch of an additional 12 HD channels in 2010. This included 2SportS, which covered the World Cup in Akado's growth strategy has been a mixture of construction and acquisitions. However, the global financial crisis hampered this strategy and slowed growth. Akado constructed its Moscow network from scratch, but its regional rollout has involved a combination of construction and acquisition. Majority shareholder Renova is considering a partial equity National Media Group has 4 million subscribers in eight cities. It operates the National Cable Networks (TKT) group of companies, which includes Mostelecom, with 2.84 million subs in Moscow, as well as TKT, St. Petersburg's largest operator with 1.27 million subs When upgrades are completed in 2010, Mostelecom wants 10% of its subscribers to take its 30-channel digital TV and broadband offering. The operator awarded the €204 million upgrade contract to Alcatel-Lucent in 2007. In July 2010, the company launched the Onlime 68-channel IPTV service via Mostelecom's networks. TKT covers 70% of St. Petersburg's TV households. TKT's subscription fees are included with utility bills, making it difficult for residents to change to a different provider. The majority of TKT subscribers take its social package. As well as Mostelecom and TKT, NTK also holds a 100% stake in Moscow broadband provider Corvette and 51% in Moscow
Satellite
After several years of slow growth, DTH user numbers have increased rapidly. However, convincing subscribers to pay for DTH signals remains a challenge. Seven services are available: NTV-Plus, Tricolor TV, Russian TV Time (RTVT), Raduga, Platforma HD and two from Orion Express (Viva TV and Continent TV). An eighth operation, a pre-pay service known as Telekarta, is expected to launch in 4Q10. Tricolor TV is the most successful DTH service in terms of customer numbers. It had an estimated 6.9 million at March 2010. Tricolor has gained scale by offering a free subscription for the first year. The company claims that 71% of subscribers (4.26 million) were pay TV subs at end-2009 – suggesting that most customers have opted to receive its low-cost pay service at the expiry of their ‘free' year – instead of reverting to the 13 Security for Tricolor's service is questionable. It uses non-standard Russian-designed conditional access, which reportedly means that the service is easily compromised. Moreover, Tricolor access cards do not work with any other settop boxes. Having initially been announced in 2009, it took until August 2010 for Gazprom-Media (a subsidiary of the gas giant Gazprom) to complete the acquisition of Tricolor TV. Gazprom already controls premium pay DTH service NTV-Plus and has not yet made clear how it plans to develop these two services that serve different markets. NTV-Plus ended March 2010 with 690,000 subscribers. Additional channels and a greater range of services have not resulted in the desired subscription growth. Despite having the highest monthly ARPU of the country's pay TV operators (€25), the service remains unprofitable. Breakeven is understood to be at one million subscribers. NTV-Plus pushed HDTV hard and even broadcast some matches from the 2010 World Cup in 3D. NTV-Plus was the first pay TV provider to offer HD. The company wants to double its HD offer to 12 channels during 2010. Its NVOD movie service Kinodrom started in September 2008. This was followed by a trial of on-demand sports programming, where subscribers had access to several European soccer matches for RUB75. It has announced its intention to offer PPV soccer matches to viewers that have not subscribed to its Supersport package. This will allow subscribers to view UEFA Champions League and UEFA Europa League matches that had only previously been available on its NTV-Plus Sport Classics and NTV-Plus Nash Football channels. NTV-Plus holds exclusive rights to sports including NHL and NBA matches, Grand Slam tennis, the Federation Cup, the Davis Cup, the Cup of Russia figure-skating tournament Viva TV, the DTH service provided by Orion Express, a subsidiary of Moscow-based Telecom Express, had 143,000 subscribers at March 2010. Although the price charged for 12 months access (€36) is considerably lower than NTV-Plus, the service offers little more than the same free-to-air channels provided by Tricolor. Viva TV does provide better security through Irdeto conditional access cards, which are also compatible with a greater number of settop boxes. Orion took additional capacity with Intelsat in late 2009 and in March 2010 launched a second platform, branded Continent TV. Launched in May 2008 with 17 Russian-language channels, Russian TV Time (RTVT) wanted 60 channels by end-2009. Irdeto DVB conditional access was used at launch and RTVT began deploying Irdeto's DVB SmartStart solution in September 2008. Sweden's Modern Times Group took a 50% stake in Raduga in February 2010, with the other 50% held by Continental Media. Launched in February 2009, 50-channel Raduga had 83,000 subs by June 2010. MTG will merge its Raduga interest with its Ukrainian Platforma HD launched in August 2008 as a premium HD-only service distributed via Eutelsat's Eurobird 9 satellite. Platforma HD broadcasts Eurosport, MTVN, National Geographic, Nat Geo Wild, Teleputeshesviya, HD Life, Women's World, High Life and Kinopokaz 1 & 2 HD. Subscribers can also receive free-to-air HD channels MelodyZen and Luxe TV. The service is available to subscribers in Western Russia. Encryption is provided by DRE and settops are supplied by Humax and General Satellite. Subscribers receive the first six months for free, then pay RUB300 per month. National DTT rollout began in January 2010. The Prime Minister's Office gave official approval to a digital switchover plan in November 2007. Five or six national multiplexes as well as a regional one will eventually be used. The government wants at least 13 national channels, with urban areas to also have three HD and 10 mobile TV channels. Analog switch-off is set for 2015 – or when more than 95% of TV households have a digital settop box. DVB-T is the standard and services are likely to launch using MPEG-4 The estimated cost of digital switchover is RUB235 billion. Central government is likely to pay a third of the total, with the remainder paid by broadcasters, operators and regional authorities. However, this figure included an allocation for subsidies, which were rejected by the Ministry of Mass Communications in May 2009. Fig. 1: Russia, multichannel TV providers by subscribers, 2006-1Q10 (000)
Year-end data
11 366 13 252 16 554 20 196
Source: Informa Telecoms & Media

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