Russian Communication Industry: Key Tendencies and Regulation Perspectives
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Analytical Report (full version)
Russian Communication Industry: Key Tendencies and Regulation Perspectives
J’son & Partners Consulting presents short results of the research - Russian Communication Industry: Key Tendencies and Regulation Perspectives. Among the most “hot” topics are the followings: provision of quality of mobile communication and network neutrality, fight against SMS spam, and dishonest content providers, frequency regulation and sharing of infrastructure and radio frequencies, tariff regulation and others.
Quality of Communication Services
This question got into attention of Roskomnadzor (Federal Service for Supervision in the Sphere of Telecom, IT and Mass Communications) over 2 years ago, when claims from subscribers against communication services’ quality was 70% of total amount of claims. Main stream of claims was aimed at mobile communication quality in terms of MNP implementation and increasing competition (launch of fourth federal operator, MVNO projects), the topic of communication quality became crucial for operators.
It is important to say that the key disadvantage of current government standards in the sphere of communication services’ quality is the fact that they are non-regulatory. In addition to the existed legislative base, in December 2014 the Ministry of Communication approved the method of handling estimation tests of GSM 900/1800, UMTS 900/2100 and LTE networks on Russian territory and data processing as well. Afterwards, Roskomnadzor used this method on practice due to implementation of mobile complexes to control measurements in seven largest Russian cities: Moscow, St.Petersburg, Kazan, Ekateringburg, Krasnodar, Khabarovsk and Novosibirsk.
Research of communication services’ quality analysis conducted by Roskomnadzor by the Ministry of Communication method, first of all, aims at the research of objective indicators – technical parameters of services provision, which can be measured. To such parameters, in particular, belong voice services: share of unsuccessful attempts to establish voice connection, breaks of voice connections, average intelligibility of speech per connection, share of voice connection with low level of intelligibility, etc. Measurements are being conducted via certified equipment – mobile complexes for radio control, which cover only around 30-40% of coverage zone. It is also planned to use crowdsourcing model, when the quality of provided services is estimated by users via their devices (special app should be uploaded). As a result, trouble zones are being identified, to which, mobile radio control complexes are being sent, for more detailed research of the problem.
Regulator kept minimum level of some indicators in the method, not as a regulation value, not fulfillment of which follows by sanctions, but rather as an indication point. Results of field studies’ quality parameters by the method of the Ministry of Communication are being published in open sources (on web-site: http://качествосвязи.рф), which is according to Roskomnadzor’s plan should include market mechanisms, which could stimulate operators to improve communication services in terms of mobile communication market saturation and further growth of competition. Refusal from legislative administration of communication services quality parameters was chosen, also because of regulator’s fears that by implementation of threshold numbers during estimation of communication quality, it is more profitable for operators not to develop networks in low-inhabitant cities. Besides, large share of claims are out of operators’ control – for example those, which are connected to the failures of subscriber’s devices, purchased not via operator.
Minimum value of mobile communication quality parameters are not specified on legislative level and are not written in rules for provision of communication services. It is expected that requirements towards communication quality will be integrated in legal base on the final stages and in the nearest future, regulator will be restricted only by monitoring of communication parameters and publishing results of tests. According to J'son & Partners Consulting, this approach can only slightly popularize MNP service among subscribers and will influence a little bit on the market in general.
Another problem, which is directly connected to the question of communication services’ quality, is so-called network neutrality. In the end of January 2015, Federal Anti-Monopoly Service, decided to refuse from amendments to the Law about Communication, which could prevent operators to state the priority access to one types of traffic over others. Such decision was made due to the fact that on practice, according to the regulator and market participants, the principle of network neutrality is not being violated, controlling mechanisms exist, it means, there is no need to implement additional regulations. It was decided to organize a working group, which will also discuss mechanisms of different billing for different types of traffic.
Implementation of differential tariffs depending on type of traffic will allow operators to increase the quality of services and ARPU, the back effect from this novelty could become the increasing risk of subscribers’ loyalty decrease.
Fight against SMS-Spam and Dishonest Content Providers
Amendments to the Law about Communication regarding SMS-spam had been accepted and run into force in October 2014. According to them, SMS-advertising is allowed only with subscribers’ consent with some exceptions. As a result, volume of SMS-spam (and claims) is decreasing. For example, according to VimpelComs’ data, the number of SMS-spam decreased from 12 till 0.5 SMS in average per one client per month in November 2014 vs November 2013. In 2013, 5200 claims was received by Tele2 Russia against non-sanctioned SMS-mass messaging monthly, in 2014 this indicator decreased till 2860.
On the other hand, according to SMS-marketing market participants’ estimations, services of mobile content, which are based on SMS, decreased drastically.
Starting May 1st 2014, amendments to the Law about Communication took into force. They oblige operators to inform subscribers beforehand about the cost on content services and receive their consent on receiving of content services. Operators also receive an opportunity to open additional account for content services. According to operators’ data, they observe the decrease in claims against content services starting 2014, as they have started to implement measures against dishonest content providers before amendments were accepted. According to Roskomnadzor’s data, the number of claims against mobility fraud, decreased 15 fold compared with the data before amendments took into force.
Together with the fact that number of subscribers’ claims from subscribers decreased as a result of the fight against SMS-spam and dishonest content providers, operators’ revenues from messages transfer and content services, decreased. For example, MTS’s income share from such services in the total revenue decreased till 14.2% by results of 9 months of 2014, while at the end of 2013 and 2012 this indicator amounted to 15.3% and 16.5% accordingly. In 3Q2014 VimpelCom’s revenue from mobile services increased for the first time (0.2% yearly calculations) after the measures were implemented (against content services on which subscribers’ consent wasn’t received), operator didn’t report about income drop before.
In September 2014, the Ministry of Communication and the Media approved new method to calculate the volume of one time and yearly payments for use of radio frequency spectrum in the Russian Federation, which took into force on 1st January 2015. The volume of operators’ payments is now depending not on number of base stations, but on the used frequency resource.
Another important novelty in the sphere of frequency regulation is principally new form of frequencies distribution for Russia - via auctions. According to the Governmental decree #480, it was planned to organize first frequency auction in 2014, where LTE-frequencies 2570-2595 MHz and 2595-2620 MHz should have been provided. The Federal Anti-Monopoly Service, Roskomnadzor and the Ministry of Economic Development demanded to organize regional auction, in order to provide new market participants to launch the market and receive more funds in regional budgets. As a result, auction was rescheduled on 2Q2015, in which federal lots and regional lots (82 lots) will be included.
State Committee of Radio Frequencies is also planning to review an opportunity of frequencies’ use in 2.1 GHz, which used for 3G networks. So, we can not to exclude the fact that technological neutrality will be expanded on this frequency range in addition to previously accepted positive solutions regarding frequencies 1800 MHz, 301-470 MHz, 890-915 MHz and 935-960 MHz for LTE networks’ construction.
The Ministry of Communication and the Media also accepted a range of decrees in 2014 in order to provide comparability of shared use of infrastructure in RAN part. In particular, in December 2014 it was signed a governmental Decree #1252, according to which it became possible to register radio-electronic equipment (REE) or radio frequency device on 2 or more communication operators. An agreement about joined construction of LTE networks of MTS and VimpelCom company in 36 regions was announced in December 2014.
In general, novelties in the sphere of frequency regulation aimed at the support of dynamical LTE networks development in Russia in terms of financial non-stability and ruble’s depreciation.
Some questions of frequency regulation also need to be liberalized according to the industry representatives, in particular, during registration of low-power REE.
The Ministry of Communication and the Media developed suggestion on how to reform operators’ communication, which includes diversity in time two stages of inter-operators tariffs regulation on voice connections:
- On first stage it is implementing a flat (one price for all regions and operators) and mirror-like (for connections between any operators) billing system on voice connection of main operator and all fixed communication operators (preliminary – 0.95 RUB per 1 min.). Billing with participation of mobile communication operator will remain the same.
- On the second stage, after 2-3 years since implementation, general billing depending on results and other interests, can be distributed on mobile operators or kept only for fixed operators.
Operators and Regulator consider that the implementation of first stage will give a stimule to improve the mechanism of inter-operator communication and cooperation.
Tariffs for End Customers
There was an experiment to cancel government tariff regulation on local and far-distance connections for Rostelecom and Tattelecom in 2014. Federal Tariff Service said that the experiment failed, decision will be made by the Government Tariff Service (FTS). FST decided to renew regulation in regions, where operator dominates (control over 60% of the market). Monitoring regime for local communications was kept in 5 cities, intercity communication – Moscow, St.Petersburg and 3 more Russian constituent regions, interzone phone communications - St.Petersburg and 12 more Russian constituent regions. Unmanaged tariffs remain in package operators’ offers with one account for different services.
In the segment of cellular communication, FAS requires to decrease tariffs on international roaming from Russian operators. Previously, Deputy Head of the Administration announced that if operators do not decrease prices till the end of October 2015, antimonopoly actions will be taken against them. In December last year, the FAS’s representative also announced that prices should be decreased despite ruble’s depreciation.
Besides, in February 2015 it was announced that questions of zero roaming tariffs inside Russia, Belarus and Kazakhstan will be worked out till the end of 2015 by anti-monopoly bodies together with Eurasian Economic Commission. At the same time, the work with other countries is keep going. For example, Russia and Turkey cooperate together with representatives from CIS, Austria, Egypt, China, Macedonia, Serbia and Czech Republic on slow decrease of roaming tariffs based on bilateral and multilateral agreements between operators and regulators.
According to FAS’s data, over expensive subscribers’ tariffs are due to high prices between operators – roaming partners: operator receives unreasonable revenue (around 85%) from services of other operators.
In October 2014 Deputy Head of FAS reported about results of International Working Group, which plans to make roaming prices for subscribers till the level of inter country tariffs. According to “hard scenario”, FAS could take measures towards operators from anti-monopoly bodies and/or industries’ regulators.
FAS was planning to provide principles of fair roaming for review in terms of the project – Agreement on Inter-Operators Settlement Payments for Provision of International Communication Services in CIS Countries.
According to J'son & Partners Consulting, “hard” tariffs regulation of international roaming can lead to the fact that operators will compensate “lost” revenue by growth of traffic on basic services of mobile communication inside the country. If tariff regulation is not happening, in a short term perspective roaming prices will be adjusted depending on ruble exchange rate dynamics.
Tougher Rules for Selling SIM-Cards
Amendments to the Law about Communication, which forbid execution of agreements on provision of mobile communication services out of stationary trade buildings, took into force in the beginning of 2014. On 11 February 2015, law draft with new amendments was presented to State Duma: “It is forbidden to provide identification module by operator or person, authorized by operator, without agreements conclusion on provision of mobile radio telephone communication services”. New amendments explained by the necessity to cross promo activities with free provision of SIM cards (with further registration by subscriber himself). Operators say that such activities are being organized by dishonest dealers. Nevertheless these SIM cards are being calculated in one of the most important KPI indicator – growth rate of subscriber base.
According to J'son & Partners Consulting, in case of effective control of legislation the tougher rules on selling SIM cards can decrease operators’ subscribers bases (active SIM cards) for several percents.
Brief results of new telecom regulations accepted in 2014 are presented in the table below:
Detailed Results of the Research are Presented in the Full Version of the Report: Regulation of Russian Telecom Industry: Tendencies and Perspectives
1. Regulation of Communication Operators’ Activity
1.1. Prohibition of SMS-Spam
1.2. OTT-Services Regulation
1.3. Content-Services’ Regulation
1.4. Frequency Regulation
1.4.1. New Method to Pay for Radio Frequency Range
1.4.2. New Approach for Auctions (Frequency Auctions)
1.4.3. Share Use of Frequencies and Active Infrastructure (RAN Sharing)
1.4.4. Frequencies’ Conversion
1.4.5. Technological Neutrality
1.4.6. Use of Low-Powered REE (femto-, picocells, etc.)
1.5. New Approach to Implement Communication Network in Maintenance
1.6. Estimation of Communication Services’ Qualities
1.7. Provision of Access to Operators to Houses’ Infrastructures
1.8. Connection of Communication Equipment to Electricity Grids
1.9. Regulation of Virtual Operators of Mobile Communication (MVNO)
1.10. Subscribers Informing via Mass Media
1.11. Mandatory Notification of Population about Emergencies
1.12. Rules of Non-Discrimination Access to Infrastructure for Communication Networks’ Placement
1.13. Tariffs Regulation
1.13.1. New Scheme of Traffic Throughput (Excl. of Zone’s Communication)
1.13.2. Inter-Operator’s Tariffs Regulation
1.13.3. Tariffs Regulation for End Customers
1.14. Tougher Rules for SIM Cards Sales
2. Regulation in Adjacent Segments
2.1. Regulation of Russian Segment of the Internet
2.2. Personal Data
2.3. Mass Media
2.5. Import Substitution (communication equipment)
2.6. Traffic Shaping and Network Neutrality
3. Conclusions and Recommendations
List of Companies, Mention in the Report
List of Figures
List of Tables
Following TV Programs with Experts Had Been Used During Preparation of the Presented Information:
Conference of PH Kommersant and Pepeliaev Group: Legal Regulation in Telecom Industry: Results of 2014
Kirill Stepanenko, The Ministry for Communications and the Media, RF http://json.tv/ict_video_watch/id-kommersant-i-pepelyaev-grupp-pravovoe-regulirovanie-telekom-otrasli-itogi-2014-goda-kirill-stepanenko-minkomsvyaz-20150202054703
Andrei Rego, MTS
Dmitry Petrov, Megafon
Natalia Ivashenko, Pepeliaev Group
This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.
J’son & Partners Consulting presents short results of the research - Russian Communication Industry: Key Tendencies and Regulation Perspectives.
Market reviewTelecom, 3G, 4G, 5G, TETRA, DMR, Wi-Fi Open
Market reviewTelecom, 3G, 4G, 5G, TETRA, DMR, Wi-Fi Open