Ruminations on Russia

I have been a little quiet in the blogging front due to the pressure of work (and the fact that it is dark in the morning which makes getting out bed difficult).

However the purchase of Korbina Telecom by Victor Vekelsburg of Renova fame forces me back to the keyboard.

As the Kommersant article points out a part of the Renova empire is the de facto majority shareholder of Comcor TV or Moscow Cable Com a NASDAQ listed entity (MOCC). For the financially-minded amongst you ignore the per household stats which are a result of thin liquidity not meaningful numbers of around $178 per household passed. MOCC's own stats page highlight the difficulty in selling premium pay TV services to a Russian public that already has access to 14 (or so) free-to-air TV channels. The problem is exacerbated by the lack of meaningful premium content. Discovery TV can be entertaining but it does not create a ROI on network investment.

Korbina, like its privately held competitor, Korvette Telecom (Russian only) (you will find both under the moniker of Corbina and Corvette Telecom K in cyrillic is C in English) (disclosure - where I am a shareholder), is deploying 10/100 gigabit ethernet networks in the sleeping regions of Moscow providing high-speed internet connection to retail subscribers. ARPU's (including VAT/NDS) tend to be in the $22/month region. In the longer established regions penetration rates are around 18% of households passed.

MOCC on the other hand employs a traditional hybrid-fiber coax ("HFC") network. Comparable capex per household passed seem to be $60-ish for MOCC's HFC network and $17-ish for the ethernet network. A recent network audit of the ethernet network by the previous director of network at UPC Broadband was exceedingly enthusiastic. Very simple (stupid) networks with high-throughput potential, well-engineered and very cheap to maintain. Today these ethernet networks only offer retail internet and provide no other services. It is clear that ARPU's will drop over the next 3 or so years to around $14/month so other services will have to replace the lost revenues. There is work ongoing and I would not be surprised if one or other of these companies becomes a trial user of meaningful IPTV-type services.

Possibly a good example of a technology leap-frog? The question to me is whether this will create a meaningful competition to the weight of money behind MOCC and StreamTV, part of the Sistema Group (Russian only.)

I bumped into MOCC's COO in the gym yesterday; whilst he was aware of the Korbina purchase there is as yet no explicit desire to merge Korbina's internet business with MOCC (Korbina is also a MVNO). I hope it stays that way for a while as a MOCC-Korbina merger employing ethernet networks would be a major competitor, in a market where there are already enough well-funded but customer unfriendly players.

Meanwhile the ante-deluvian Mostelekom (Russian only) is being fought over. Mostelekom connects 2.5 million of Moscow's approximately 4 million households with very old copper. If some real oil money gets behind it a large part of the market will be cornered.

Technorati Tags: Russia, Emerging Markets, Broadband