J'son & Partners Consulting presents brief results of a preliminary research of the Russian market of fixed broadband access (BBA) among private users.
Description of the fixed broadband market
According to preliminary estimates of J'son & Partners Consulting, the number of fixed broadband subscribers in 2016 increased by 1.5% and amounted to 30.8 million.
Source: J’son & Partners Consulting
In conditions of declining growth rate of the market operators increasingly focus on improving service quality, "lifetime" and customer loyalty. To do this, operators choose multi-service development strategy for their business. Operators develop digital communication channels, introducing package offers, create co-branded tariff plans that offer subscribers more modern broadband equipment, and develop additional services based on the Internet channel, such as smart home, video surveillance, burglar alarm.
According to J'son & Partners Consulting, in cities with more than 100 thousand people package offers are used by about 44% of households, and in the further their share will only grow due to the high share of package tariffs in new operator sales. For example, two-thirds of the new subscribers of the operator "Rostelecom" choose package offers.
In 2016, tariff plans which included fixed and mobile telephony from one operator continued developing. In March 2016, VimpelCom launched a convergent offer "ALL in one", in November 2016 "Rostelecom" launched mobile communication services under the brand. The company "ER-Telecom" has launched a joint project with MegaFon for packaging fixed and mobile services. Previously, such projects have been launched by "MGTS" and "NETBYNET", together with their parent companies. Such offers are popular among the population. According to the company "VimpelCom", 500 thousand families have connected to "ALL in one" in 10 months. At the end of 2016 mobile services from the company "MGTS" have been used by more than 200 000 subscribers.
According to J'son & Partners Consulting in medium and large cities 1-2% of families are already using four communication services from one operator. The implementation of such solutions reduces churn, increases customer loyalty and overall revenue from the same household. The operator "ER-Telecom" notes that when connecting the package "4 in 1" the churn is about 3-4 times less than when connecting one separate service. The reverse side of package offers is the decrease in ARPU for each individual service included in the package tariff plan.
In domestic consumption of services of fixed broadband operators see an increase in the share of online videos in the incoming traffic structure. According to "AKADO Telecom" the share of online video consumption per subscriber in the operator's network is approximately 40%. The growth of traffic consumption stimulates the growth of speed and technological development of the network infrastructure of the operator. High-speed offers with the speed of Internet access above 100 Mbps appear more and more often. According to J'son & Partners Consulting in medium and large cities, the proportion of ultra tariff plans among users of fixed broadband access was by the end of 2016 almost 10%.
However, operators go further in promoting high speeds for their users. With the growing number of mobile devices in the family the data transfer rate on Wi-Fi technology becomes more and more urgent. Ultra high-speed tariff plans on a standard Wi-Fi equipment are meaningless due to the limited speed of wireless data transmission. To solve this problem operators offer dual-band routers that work with two frequencies – 2.4 GHz and 5 GHz and provide higher speed of data transfer over Wi-Fi. The emerging trend in 2014-2015 continues developing, more and more operators begin to offer advanced Wi-Fi equipment within their tariff plans for fixed broadband access.
Assessment of the competitive situation
According to preliminary estimates of J'son & Partners Consulting, in 2016 the Top 5 operators served 70% of all subscribers of fixed broadband Internet in the private sector. During the year the proportion of leaders in the market increased by 3.2% due to the activity in M&A and organic growth.
Source: J’son & Partners Consulting
According to preliminary estimates of J'son & Partners Consulting, in 2016 the total subscriber base of the Top 5 players increased by almost 1.3 million subscribers, the annual growth was 6.3%. In 2016 a strong growth was shown by the companies Rostelecom, ER-Telecom and MTS – 56%, 24% and 16% of all new subscribers, respectively. Some part of the new subscribers were obtained through inorganic methods, for example, through acquisition of local operators. In 2016 the company "Rostelecom" bought providers "STORK" and "Morton Telecom". In early 2016 the operator ER-Telecom completed the acquisition of Enforta, and in August the company purchased from the group "WestCall" a business in the segment of fixed communication in Saint-Petersburg and Ryazan (companies called "Interteleсom" and "Nlink telecommunications").
There were no significant changes in the ranking of the Top 5 operators in fixed broadband in 2016. The leaders of the rating are still Rostelecom and ER-Telecom.
The main trends on the Russian market of fixed broadband Internet access among private users
✓ Development of package tariff plans and convergent services
According to J'son & Partners Consulting, in cities with than 100 thousand people package offers are used by about 44% of subscribers, and the total number of users of four services from one company ("quadro play") is estimated at 1-2%.
✓ Growth of high-speed tariff plans (100 Mbps and more)
According to J'son & Partners Consulting in medium and large cities, the proportion of super high-speed tariff plans (over 100 Mbps) among users of fixed broadband access was by the end of 2016 almost 10%. More and more companies offer dual-band routers to implement high-speed Wi-Fi. This solution makes it possible to use the potential of such speeds more effectively.
✓ Growth of connections in optical technologies, including PON
By the end of 2016 about half a million users has connected to the Internet via the PON technology. Due to the active development "Rostelecom" and MGTS subscribers using PON reached 10% of the the total mass of broadband users.
✓ Activity of operators in the field of M&A
In 2016 the company "Rostelecom" bought providers "STORK" and "Morton Telecom". In early 2016 the operator ER-Telecom completed the acquisition of Enforta, and in August the company purchased from the group "WestCall" a business in the segment of fixed communication in Saint-Petersburg and Ryazan (companies called "Interteleсom" and "Nlink telecommunications"). According to J'son & Partners Consulting, in Russia there are about 20 independent providers with a subscriber base of more than 50 thousand people.
Views of the industry representatives
While preparing the research J'son & Partners Consulting specialists interviewed key players in the fixed broadband market and asked them about key trends in the market.
PJSC "MGTS", director of marketing and business development
"In 2016 the Russian market of telecommunications was actively transforming under the influence of a number of different reasons, which include the economic crisis, which caused decrease in incomes, and the technology development dynamics. Internet has already ceased to be something innovative and has become a basic product, such as water and electricity. Nevertheless, even in the broadband market of Russia with the market average growth rate of 4-5%, we grew by more than 7%, working actively with the product quality and developing the technological basis – for example, we massively introduced and started selling dual band routers with ultra-fast Wi-Fi.
I should also note our IP TV base growth – the most advanced television technology. During the year we connected more than 100 thousand new subscribers.
MGTS as part of its strategy of multi-service operator and the search for new points of growth focused on the introduction of new services in the framework of the intelligent environment concept such as smart house, smart office, smart city. Video surveillance and alarm systems are already brought to the market and many other "smart" solutions based on Internet access are just waiting for their turn. We occupy our niche, we aim at creating better converged bundled offers from different services and we give our customers the opportunity to save their family budget. At the end of 2016, our mobile services are used by more than 200 000 subscribers. We consider these indicators as a good result.
In 2016, we had a task to actively increase our subscriber base for broadband services and TV and to increase the number of users of new services. The MGTS team fully coped with these problems."
PJSC "VimpelCom", head of service for marketing wired Internet and convergent products
"The main trend of 2016, of course, was the launch of full-fledged convergent offer from "Beeline" called “ALL-in-one”, by the way, the first and only in Russia. In one sentence we have combined mobile communications and home services (home Internet, digital TV, the app "Beeline" TV, etc.). I can call unique not only the product itself, but its price, too – it was added only 1 ruble for home Internet, digital TV and other services to the cost of mobile communication.
After the launch of “ALL-in-one” the Russian broadband market came to life: small and regional players began to "speculate" on the theme of the ruble, and major players began in some form to pilot conditionally convergent products of different composition.
What can motivate better than the price of 1 ruble for home Internet, digital TV, mobile application "Beeline" and other services? But even though it is a really good offer, we continue developing it further. For example, in September, subscribers of ALL-in-one got a new service – insurance of their home. We are also working on the smart home launch, and what else we are will add only time and needs of our customers will tell.
In less than a year the convergent offer "ALL in one" won trust and loyalty of inhabitants of 500 000 households in more than 100 big cities in Russia. The urgency and relevance of this offer are proved by not only the record number of visitors in 10 months of its existence, but also by a high rate of satisfaction (94%) and NPS (65%) of those who joined".
"TransTeleCom Сompany", advisor to the president for business development at mass market
"The year 2016 in the telecommunications market was memorable for the rapid development of OTT technology. We also see a growing number of cases in the field of convergence of the fixed and mobile communication market players, in terms of the development of FMC services and MVNO.
One of the trends, of course, is the vector, specified by a number of players aimed at reducing the prices for services of Internet access and digital TV. If you look at the ratio “speed/quality/price” you will see that the Russian tariffs are already among the world’s lowest.
In terms of market saturation, the Telecom operators are making every effort to increase user loyalty. Our company primarily relies on the quality of services and we do our best to increase it. In addition, we regularly conduct various Federal marketing activities.
This year, we do expect to offer our subscribers a number of new products that meet their basic needs in this field. I mean, of course, digital interactive television platforms. At the moment we are working on functions that will distinguish our product from the rest. Also, as we reported earlier, we are working on the ability to run a virtual mobile operator.
In 2016, the TTC managed to get good results on connecting new subscribers. Without making acquisitions of assets, we increased our subscriber base by 4 %".
PJSC "Rostelecom", director of department of mass segment products
"The Russian market of fixed broadband is at the stage of maturity, which is characterized by high competition and a slowdown in growth. However, Rostelecom continues growing at rates above the market, thanks to our ambitious programme of construction of optical access networks (expanded to 32 million households throughout the country). The number of subscribers connected to the "optics", is growing at year-on-year rates above 20%. It is important to note that the optical technology allows us to offer high-speed Internet in conjunction with other services, particularly IPTV. It is also important to note that two-thirds of new subscribers of "Rostelecom" take a pack of at least two services (broadband+TV).
Now we are talking about the telecommunications industry transformation in Russia, the country’s operators are following the new trends: digital services, convergence, product line extensions and launch of niche offers for specific target segments, enter into adjacent markets, transition to personalized relationship between the operator and the subscriber (the Big Data tools and artificial intelligence).
Every year customers' requirements to quality of provided services and are getting higher. Therefore, a particularly important initiative for us is to improve our customer service: the company has created a separate vertical which is responsible for client experience in all aspects. Rostelecom learns to look at all business processes as a customer, optimize the Customer Journey (from the first contact to issues in the contact center). Our goals are to increase user satisfaction and NPS and decrease churn. Also, Rostelecom continues to develop its own Federal loyalty program for private clients.
"Rostelecom" is constantly working on creating new offers to the needs of clients in accordance with the market trends. In 2017, Rostelecom will continue developing the playing area (co-branding offers with leading game developers). In 2016, Rostelecom, in partnership with Wargaming for the first time launched a unique tariff "Game", especially for Russian players: reliable, high-speed Internet access (up to 200 Mbps) and exclusive in-game bonuses that are unavailable to subscribers of other operators, in particular, an exclusive tank.
The main effect that we expect from the introduction of this package offer is a significant decrease of churn of users of fixed and mobile communication services. Mobile services under the brand "Rostelecom" were launched into commercial operation in November 2016, so it is premature to draw any conclusions now. Our expectations, in addition to reducing churn, is to increase the revenue from households (families), as well as increasing customer loyalty".
"AKADO Telecom", director of department of product development
"The broadband market is saturated, so operators are not so much aimed at attracting new customers, they shifted the emphasis on preservation of the existing subscriber base by enhancing the quality of their services and creating additional services.
Promotions, low rates and various package offers can also be used as tools. For the first few years we see a declining ARPU. Due to the slowdown of new housing the number of connections of new apartments also decreased, accordingly, reducing the market growth rate through new subscribers. the share of online-video in the structure of broadband traffic continues to grow. In "AKADO Telecom" this share is approximately 40%.
The market map has not undergone significant changes: the Russian broadband market players with a few exceptions, retained their positions. The same applies to the Moscow broadband market, in which "AKADO Telecom" is among the three largest players, according to analysts.
Our strategy is based on improving the quality of Internet access and customer service. For example, last year we began to connect subscribers to the Internet and carry out maintenance work to the day, which allowed us to significantly increase the number of applications processed quickly as well as customer loyalty. We have launched several great package offers, which include Internet access and DTV with new packaging, and new services based on high-speed Internet, for example a burglar alarm system for subscribers – physical persons. This year we have also developed complex offers with the ratio “price-quality” among the best in Moscow. Our plan is to start operating the service "Smart home" and interactive television service. We are actively working to launch these projects".
JSC "ER-Telecom holding", deputy general director – director of b2c
"In terms of market saturation, operators are looking for new ways of development, including sharing the telecommunications infrastructure, launching convergent services, entering into niche segments.
One of the key trends of the industry is bundling of fixed and mobile services, MVNO. Operators that in the near future will not launch convergent offers, will start losing competitiveness.
The second trend is the decline in the share of local players. They begin to yield their position, because they can not provide a sufficient volume of investments into construction and modernization of networks, launching new products and the "Internet speed race."
The third trend is that all Federal providers have begun to pay more attention to increase customer loyalty, which in the future should lead to lower churn. Operators are investing in Big Data, loyalty programs, technical support of call centers.
Among other trends I can note increase in speed performance rates. There are more and more offers with speeds over 100 Mbps. A constant increase in the number of devices that need to access the Internet leads to higher demand for dual-band Wi-Fi routers that work on two frequencies – 2.4 and 5 GHz and provide more rapid and stable access to the network.
"Dom.ru" focuses on increasing user loyalty. We have launched a global project to improve the customer experience, which will review all business processes at all points of contact with subscribers. One of the stages of the project is a unified system of collecting, analyzing and processing feedback from customers, the opinion which becomes the basis for addressing both systemic and specific issues related to maintenance. We involve our users in the process of improving our services to become the most open and comfortable for everyone. All feedback is analyzed in a single system and in real time enters the relevant services and superiors.
Another important project is a loyalty program called "Dom.ru Club", launched in 2016. By joining the program, each client receives points for purchases in stores, which they can spend at their discretion. More than 100 Federal and regional companies have become partners of this program.
One of the important events of the year was a joint project with MegaFon, which is now operating in 30 cities. Subscribers can receive a permanent discount of 20% for services of both companies – Internet, digital TV and mobile communications. Bundling mobile and fixed services is becoming a new industry standard.
We are considering the possibility to run video surveillance and "smart house". Active development of this area is constrained due to the complexity of integration and insufficient technical readiness of related industries. Another promising direction in Russia and around the world is related to content distribution. Operators looking for niches related to the business and focus their efforts on developing an ecosystem around the customer.
By the end of 2016 we exceeded the number of planned indicators, which confirms customer interest in converged product that gives them the opportunity to save on communications services. The project remains interesting for clients and operators. We see a positive trend in the global and Russian markets: strong demand for converged services, while the outflow is minimal. When connecting the package "4 in 1" it's about 3-4 times less than when connecting a single service.
In 2016, we strengthened our position in the broadband segment. Our subscriber base and, consequently, revenues have increased due to the high quality of our staff, launching new offers and services and M&A".
Detailed results of the research are presented in the full version of the report:
"Key indicators of the fixed broadband market in Russia. Development forecasts till 2025"
2. Introduction. Survey description and methodology
3. Russia in comparison with other markets of fixed broadband
3.1. The number of users and the service penetration, 2013-2016
3.2. Comparison of tariff plans
3.3. Technological structure of the market
4. Description of the main parameters of the fixed broadband market in Russia, 2013-2025
4.1. General analysis of Russian households by type of access (mobile/fixed)
4.2. The number of subscribers and the penetration of broadband services
4.3. The market volume in monetary terms and ARPU
4.4. Structure of users by seed (tariff plans)
4.5. Technological structure of the market
4.6. The penetration rate of broadband access devices
4.7. Drivers and barriers for the market development
4.8. The competitive situation
5. Regulatory landscape of the market
5.1. Description and analysis of key Russian legislative initiatives in the field of communication
5.2. Structure of the communications licensees
List of figures
Fig. 1. The number of subscribers of fixed broadband and the penetration per 100 inhabitants in the world, 2013-2016, mln
Fig. 2. The global geographic structure of growth of new fixed broadband subscribers, 2015
Fig. 3. The global geographic structure of fixed broadband subscribers, 2013-2015
Fig. 4. Volume of the global fixed broadband market, 2013-2016, billion USD
Fig. 5. Top 10 international markets of fixed broadband in the private sector, 2013-2015
Fig. 6. Comparison of average tariff plans for fixed broadband services in Russia with the world's macro-regions, 2016
Fig. 7. Comparison of unit cost for 1 megabit of Internet access speed in Russia and the world, by technologies, 2016, USD per month
Fig. 8. Technological structure of the global fixed broadband market, 2012-2015
Fig. 9. Dynamics of fixed broadband subscribers by technology, 2015.
Fig. 10. Increase in bandwidth of “copper” technologies
Fig. 11. The total number of households with Internet access in Russia, 2013-2025, mln
Fig. 12. Structure of Russian households connected to the Internet by access type, 2013-2025, mln
Fig. 13. The number of BBA connections in the private sector in Russia, 2013-2025, mln
Fig. 14. The market volume and average revenue per subscriber of fixed broadband in Russia, 2013-2025 Fig. 15. The quality of broadband services and the level of importance on a 10-point scale on the survey results 2015
Fig. 16. Structure of Russian households with fixed broadband by access speed in Mbit/s, 2013-2025
Fig. 17. The broadband market structure by fixed access technology in Russia, 2013-2025
Fig. 18. Penetration of devices with broadband access per household in Russia, 2008-2024
Fig. 19. Shares of top-5 largest operators in the fixed broadband market in the segment of private users in Russia, 2013-2015
List of tables
Table. 1. Ranking of the top 5 players by subscriber base of fixed broadband services in the private sector in Russia, 2013-2015
Table. 2. The number of licensees by type of services provided in Russia, October 2015 – November 2016
The newsletter was prepared by J'son & Partners Consulting. We make every effort to provide factual and forecast data that fully reflect the situation and are available at the time of the release of the material. J'son & Partners Consulting reserves the right to revise the data after the publication of new official information by individual players.
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