Insight: Russia & the CIS with Andrew Corp

Andrew Corporation has been a major player in emerging markets for many years. In Russia and the CIS they are working with all three main operators and have around 30% market share with tier 2 and 3 operators. Julia Sudakova is Head of Sales for Andrew in the CIS & Mongolia. Here she talks with Developing Telecoms about these markets and how Andrew Corporation see communications services developing in the region in future.

Good engineers, but very few good managers - and Ukraine is the number 1 market...

Michael Schwartz: Which contracts are currently being undertaken by Andrew in Russia and the CIS?  

Julia Sudakova: Andrew is currently working with the top three operators in Russia, which include MTS, Vimpelcom and Megafon, as well as an approximate 30% share with several Tier 2 and Tier 3 operators. Some major contracts also include Unified Radio Network (or Anti-Terrorist Project) for the Moscow Metro. All these contracts and relationships represent major revenue streams for the region. 

MS: When did Andrew first become involved in Russia?  

JS: Andrew has been one of the first Western companies to understand Russia's business potential and to make proper investment in the region. It opened its manufacturing facility in Krasnoyarsk at the end of 1991, and in 1992 started its first Russian joint venture offering long-distance and international service to carriers via Andrew's own fibre-optic network. Andrew has had a sales office in Moscow (responsible for the entire CIS region except the Baltic) since 1996. 

MS: You mention 2.5G in your briefing. Is this because 2.5G is seen as a natural and gradual progression towards 3G? Or is there a hesitancy towards adopting 3G on a major scale?  

JS: I see migration to 2.5G as an attempt by Russian carriers to try to maximise return on their investment from 2G networks. With 2G to 2.5G migration, operators do not need to build-out completely new and separate networks, as is the case with 3G, and so they do not require any additional capital expenditure. In addition to this, the Russian government is still holding off on issuing licences, pushing operators to cover the entire country with existing mobile services. This year, in particular, we are seeing major regional expansion, and operators are beginning to invest in CIS countries like Ukraine and Central Asia. 

MS: Are there any 3G applications which these developing markets have in mind? 

JS: If you mean 'killer applications' I am afraid that even developed markets like the US and Western Europe are still searching for the Holy Grail. Delays in issuing 3G licences pushed operators to look for other technologies like WiMax to provide high-stream data, video-on-demand and applications to end users as a way to increase their margins and reduce the voice portion of revenue-generating services. In Russia, due to high competition and the large number of pre-paid customers, ARPU is getting very low.  

MS: Mobile penetration in Russia is 80%. This seems very high for a developing market. Is it a typical figure? And how do other markets compare in terms of penetration?  

JS: Actually, reported penetration rate in Russia is 86%, which, I have to agree with you, is very high (even compared to the US). Analysts believe that the reported number has been miscalculated by as much as 25% due to the number of pre-paid customers. Operators are often counting SIM-cards and not 'live' customers. Even if the penetration rate is 60%, it is still remarkable growth.  

MS: Are there local manufacturing facilities for Andrew in Russia/CIS?  

JS: We are planning to open an operating facility in Russia this year. Manufacturing in Krasnoyark has been moved to the Czech Republic (Brno) in order to supply products for the entire EMEA region.  

MS: When do you feel that 3G licences will be distributed? 

JS: Originally everybody expected licenses to be issued in 2005, but I expect them to have been issued by the end of 2006. 

MS: What should an operator beware of in terms of risks to time and money? Are some markets harder than others?  

JS: From my perspective, I see a lot of operators struggling with 'growth syndrome' - they became big companies very quickly and only 'learn' much later to be true 'corporations' with well-defined processes and policies. Many of them are on a very steep learning curve. In the last few years, they grew via expansion, building more sites, in order to reach more customers. Now as the market is getting closer to saturation, they need to learn to fight for the customer via better services, applications, which is a completely different ball-game.  I also see conservatism, in terms of using old technology, which I view as a major risk to progress and operators' ability to leapfrog the competition. In order to be successful, operators need to learn to think long-term.

MS: What thing or things would you change in the CIS region if you were able to? 

JS: I would try to control, or at least reduce, the bureaucracy and corruption that still surround business activity in the region - including laws and business processes. I would also develop quality management resources through education schemes and foreign exchange programmes. Unfortunately, many Russian people have careers that differ from their original aspirations or education. There is a large number of good engineers, but very few good managers. This must be resolved if the labour market is to realise its full potential. 

MS: How does Andrew Corporation help would-be operators? 

JS: We strive to offer every customer solutions that will best satisfy their needs.

MS: Are there markets for which Andrew has to design or modify equipment to take on board local problems or challenges? 

JS: Absolutely. Andrew built its reputation on being flexible in terms of addressing unique requirements. As an example, we have just finished our first custom-made base station antenna for one major operator in Russia that will allow it to operate BTS at full power (due to interference mitigation), thus reducing the number of base stations necessary to provide the same coverage, and thereby also reducing capital expenditure. 

MS: Which are the markets which are expected to grow the fastest? You mention Ukraine and Kazakhstan. 

JS: In my opinion, Ukraine is the number one market, followed by Kazakhstan. Many operators seem to see Uzbekistan as a very attractive market. It is second after Ukraine in terms of population and has a penetration rate of 5%, which is very low for the region. 

MS: Are there any markets in CIS where mobiles are discouraged? 

JS: Not really. 

MS: How long does a typical roll-out take (I appreciate that 3G is in its infancy in CIS)? 

JS: Broadly speaking it depends on geography and population and the basic requirements for coverage and capacity. Some operators can build 200 base stations/month. Wellcom or Vimplecom, for example, are looking to roll-out services in the Ukraine over the next two to two-and-a-half years (building 1,500-2,500 per year). 

MS: Are bureaucracy and corruption as bad as they are made out to be in CIS?

JS: They still remain an issue. Major operators are trying to fight bureaucracy and corruption, but it requires a change of generation (maybe two). People are still thinking short-term and do not think about their careers in the same way they do in the West. 

MS: Julia Sudakova, thank you for speaking to Developing Telecoms.

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