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Telecommunications Market Development in Russia. April 2002. Svyazinvest is the Russia’s Leading Telecommunications Group. 75% - 1 share. 25% + 1 share. Mustcom. OJSC Svyazinvest. State. Over 50%. Over 25%. 51%. 74 regional operators. MGTS Kostroma GTS Komisvyaz Sakhalinsvyaz.

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Telecommunications market development in russia

Svyazinvest is the Russia’s Leading Telecommunications Group

75% -

1 share

25% +

1 share

Mustcom

OJSC Svyazinvest

State

Over 50%

Over 25%

51%

74 regional operators

MGTS

Kostroma GTS

Komisvyaz

Sakhalinsvyaz

Rostelecom

(LD and international traffic)

Государство

  • Services:

  • Local traffic

  • LD and international traffic

  • Radio & TV broadcasting

  • Data transmission & Internet

  • Wireless communication

Telecom companies not incorporated in the holding company:

Chechnya Ingushetia

Tyva Tatarstan

Bashkiria Chukotka

Yakutia



Telecommunications market development in russia

Concept’s Guidelines Group

Results are achieved by:

Objectives

  • To ensure satisfaction of growing demand in telecoms services and advanced development of the national telecoms infrastructure

  • To ensure provision of generally accessible telecoms services to every urban and rural community in Russia

  • To improve the infrastructure efficiency and investment attractiveness of the telecoms sector, to create conditions for a fair competition

  • Creating conditions for balanced dynamic development of the telecoms market

  • Involving all market players in the solution of state social tasks

  • Improving state regulation methods

Target indicators for 2010:

Increase in telephone lines from 31.2 mln to 47.7 mln

Growth of mobile subscribers from 8.3 mln to 22.2 mln

Growth of the Internet users from 2.5 mln to 26.1 mln

Increase in digitalisation of networks in Russia from 26% to 94%

Volume of non-governmental investments - $33 bn


Telecommunications market development in russia

Svyazinvest Structural Problems Group

Disintegration of the holding company –

78 regional operators

(after completion of intra-regional mergers)

Svyazinvest average regional operatorversus American companies

  • high costs

  • poor marketing

  • inefficient management

  • low degree of transparency

  • low market capitalization and liquidity of shares

  • difficulty in implementing large-scale projects

  • inconvenience for customers

  • ….

Increase in efficiency and investment attractiveness

OBJECTIVE


Telecommunications market development in russia

Formal Svyazinvest Restructuring Group

Central region

«CenterTelecom»

Number of line in

service: 5,3 mln

Ural

«Uralsvyazinform»

Number of line in

service: 2,8mln

North-West region

«North-West Telecom»

Number of line in

service: 3,2 mln

Far East

«Dalsvyaz»

Number of lines in

service:1.0mln

Southern region

«Southern Telecom Company»

Number of line in

service: 3,1mln

Volga region

Nizhegorodsvyazinform

Number of lines in

service: 3.6 mln

Siberia

«SiberiaTelecom»

Number of lines in

service: 3.2mln


Telecommunications market development in russia

Comparison with European Operators Group

Main telephone lines (million)

Market capitalization ($, bn)

Average market capitalization in 2001



Telecommunications market development in russia

North-West Group

Restructuring: Distribution of Shareholders’ Votes

97 %

95 %

93 %

3 %

7 %

5 %

Center

Siberia

97 %

95 %

97 %

98 %

3 %

5 %

3 %

Urals

2 %

South

Far East

Volga

  • In favour of the restructuring

  • Against the restructuring


Telecommunications market development in russia

Corporate Restructuring Is a Natural Follow-Up to the Merger Process

OJSC Svyazinvest

Corporate

restructuring

Financial and

economic

policy

HR

policy

Technical

policy

Marketing

policy

  • TTransition to the economically feasible cost calculation of telecoms services

  • IIntroducing advanced corporate governance methods

  • RReporting under IAS

  • UUnification of accounting policies

  • Recruiting and training qualified personnel

  • Improving the system of incentives

  • Providing mega-

  • regional companies

  • with a marketing

  • policy

  • Technical audit of regional operators

  • Guidelines of development of a mega-regional company

  • Drafting a general strategic development plan for the period ending 2007


Telecommunications market development in russia

Tasks Process

Unification of

accounting

policies

Elaboration of an

economically feasible

cost calculation

methodology

Working out

budgeting

procedures

IAS

Svyazinvest Intends to Create an Effective System of Business Planning and Control in Mega-Regional Companies

  • Creating a tariff policy for a mega-regional company

  • Phasing in and broadscale application of tools used in business planning, budgeting and control

  • Ensuring transparency of a mega-regional company’s activity


Telecommunications market development in russia

Svyazinvest is Striving to Provide Mega-Regional Companies with a Strong Marketing Strategy

Main tasks at the current stage:

Regional market valuation to identify its major development trends

Working out guidelines of a marketing strategy for a mega-regional company and elaboration of methodological recommendations on market research and identifying marketing strategies

Identifying a medium-term marketing strategy for mega-regional companies

Advanced training of marketing personnel


Telecommunications market development in russia

Svyazinvest is Taking Steps to Integrate Telecom Networks within Mega-Regional Companies

Main tasks:

  • WWorking out a general development plan for mega-regional companies and Rostelecom as integral parts of the interconsistent communications network of the Russian Federation for the period ending 2007 on the basis of two research papers:

    • system network solutions concerning the development of infocommunications networks of mega-regional companies and Rostelecom as integral parts of the interconsistent communications network of the Russian Federation for the period ending 2007;

    • working out guidelines for the development of infocommunications networks of mega-regional companies and Rostelecom.


Telecommunications market development in russia

Change in Capitalization within Mega-Regional Companies

Growth of capitalization in 2001 - 70%.

3-5-fold increase in capitalization

should the restructuring be completed and telecoms tariffs in Russia reach the level of Eastern European tariffs.


Telecommunications market development in russia

Results of Investment within Mega-Regional Companies

2.4 million

new telephone lines

Cost saving due

to the

restructuring

~$ 200 mln

Additional

investment

opportunities

~$ 1 bn

Or

about 60 000 km

of trunk cable


Telecommunications market development in russia

Thank you! within Mega-Regional Companies

April 2002