No this is not another rant about the stupidity of people in Russia's government - though I will take the opportunity to have a go later on.
I caught the train to St. Petersburg on Wednesday night to speak at InfoCom 2004's wireless forum. Not quite as prestigous as speaking at VON. I took the opportunity to try out my how creative destruction in the telephony world will affect Russia. If I was a good writer I would now set out the state of the telecom industry in Russia. That would take too much time and isn't as much fun as trying to determine where its going.
Substantially all residential is still on pulse dial-up
Large corporations are well covered by a mixture of politically-connected incumbents who have aggregated CLEC's and the one or two CLEC's that made it, such as Golden Telecom - now NASDAQ listed and one of my previous investments.
A motley band of smaller CLEC's trying to service SME's and SMB's who cannot get anything approaching service from the above
Another (motley?) bunch of local home network/cable/ethernet/wireless (quasi-licensed) most of whom are cf positive - they have to be. But none of whom are really growing that quickly. A bunch of them just received investment from Oligarchic groups. A favorite of mine just got funded to the tune of $50mn.
Three principal cellular networks and a WCDMA player in the 450 band trying to break in.
The incumbents are profitable though I would bet that the Sage of Omaha would contend that as free cash flow is less than depreciation that they aren't really. The 2-3 incumbents and successful CLEC's are wildly profitable/cf positive - albeit with crap service. The motley crews are substantially all cf positive but until very recently w/o the capital to grow and capture the opportunity. The mobile guys are an interesting group. Growing rapidly in the regions the main markets are rapidly approaching/have reached the point that customer acquisition costs produce ever lower returns on investment. They really need the wealth to grow in to them rather than reaching down to acquire unprofitable subscribers. Meanwhile, GPRS is only really a reality in Moscow (Blackberrys don't work in St. Petersburg - roaming issues related to billing infrastructure rather than lack of network). But you can already see trial UMTS networks in Moscow with the right equipment. In addition an also run network is the first to trial WCDMA (I think) in Russia in an attempt to break in to data markets. It's an interesting play in Russia but I'm not sure what roaming capabilities it will have.
So that's the preview I wasn't going to give. What's the opportunity in creative destruction?
The cable guys aren't selling cable TV but high-speed internet and quasi-IP telephony. The PSTN's won't invest in local access, except in "elitny" housing and cannot provide business services. Cable TV is an add on sale (I'll go into this more some other time - think German cable in the meantime.)
Voice is free in the local loop - all of Moscow's 8mn inhabitants plus calls to all local mobile numbers call each other for free, so its difficult to disrupt a model where you will be charged the same for interconnect - which leads to a thought; is SkypeOut just a discount calling card with a fancy GUI?
I have always struggled with the opportunity to disrupt mobile companies from a business model point of view. I just don't buy in to mobile operators providing a pipe to better-than-Skype's. Put another way - the big mobile companies intend to keep the walls around their gardens very high. I also understand that Vodafone is not going to use a true VoIP solution when they launch UMTS. Which would suggest that they have not solved packet hierarchy issues. So they can lock in a lot of their value. Don't get me wrong - technology advances will eat away at/destroy roaming charges, lowest cost routing savings will be passed on to the customer. Data will at best keep ARPU's where they are. Single number plans will do further damage. However nothing is as fundamental as the pain that fixed line providers are going to face.
My conclusion is that in addition to creative destruction in applications we will also need to see alternative delivery methods. I don't believe that Intel's WiMax push will be part of the creative destruction. I was bamboozled today by a Professor talking about Russia's efforts in DAB/DVT in conjunction with GSM - is this it?
Anyway my takeaway is that I failed to be controversial because Russia is still getting used to what already exists and does not want to see a disruptive future - more importantly it does not care less about the disruption to its PSTN's.