A Third Force in Broadband

Only two local ADSL-providers offer coverage over the whole city — one of them is Web Plus, which has been developing its service since 2000, and Northwest Telecom, a local telephone monopoly. They are to be joined by the cable television firm Television Company Saint-Petersburg (TCT), which has recently started active development of such services.

Broadband is used as a general term to describe internet access where data transmission is no less than 128 Kbits per second, which allows, for example, the broadcasting of audio and video in real time.

Today there are a number of broadband technologies. One of them, Ethernet (or Local Area Network (LAN)) uses fiber-optic cables to transmit data. Local office networks are built according to this technology. District (home) networks are built in a similar manner. ADSL technology has become one of the most popular means of access mainly because of its simplicity and convenience of installation — it allows high-speed access through an ordinary telephone line — due to a frequency separation of a signal, the telephone line remains free. The main condition made by the provider is to have the relevant equipment installed in city telephone stations.

Dedicated broadband access is also offered by providers of cable TV which have invested into the modernization of existing networks and set up a reverse channel. There are also providers who offer access for private individuals through radio channels, for example, Weil-Com.

The market for broadband access to the internet is currently at an active stage of development in St. Petersburg. According to some estimates, subscribers already number more than 100,000 (from more than a million St. Petersburg global net users in total). There are more than 100 firms on the market (if we include small home networks). From a technological point of view the picture seems quite varied. Home networks have the upper hand both in the number of companies and number of serviced subscribers — the latter numbering more than 50,000 in total. The distinctive feature of these companies is that they cover only one or two (a maximum of six) city districts (from a total of 17).

Although there are currently only two ADSL-providers, by using the existing telephone network they can reach the majority of subscribers.

Web Plus covers 85 percent of the city, with 35,000 subscribers connected to its ADSL service. Northwest Telecom covers 103 out of 170 automatic telephone stations and its subscribers number 14,000. Accordingly, they account for 30 to 35 percent of the market.

The new candidate for citywide access, TCT, was established on the base of the State Unitary Enterprise “Saint-Petersburg Cable Television” which used to belong to City Hall.

A controlling share in TCT was acquired by the holding company National Cable Networks (NCN) in December 2003, this latter having a number of cable assets in Moscow and in the Russian regions. It increased its share in TCT to 98 percent in 2005.

NCN has also acquired two other companies in St. Petersburg — TelePlus and Svyaz-Capital — whose infrastructure is included in the TCT network. NCN is planning $50 million worth of investments this year.

TCT is the largest provider of cable television on the territory of St. Petersburg — its coverage includes 1.4 million flats.

Having acquired state assets, one of the basic tasks became the modernization of the network, including the launch of interactive services and access to the internet.

However, this service had a long trial period, available only in a limited area in the Moskovsky district (near Zvyozdnaya metro station). At the same time, ever since the new joint-stock company came into existence, they have been renovating the network, so that now 70 percent of the network has been modernized.

At the end of last year the situation began to change. In particular, at the beginning of 2005 a specially developed brand called “Your Internet” was brought out and in the summer, when modernization of the network was completed and new head stations installed, it was put into commercial operation in the Admiralteisky, Petrogradsky and Petrodvostsovy districts.

By the end of last year the service “Your Internet” covered 80,000 flats and 2,000 subscribers. The company has made huge advances over the last year — this service is now available in the Kirovsky, Krasnoselsky, Moskovsky, and Primorsky districts, while the number of connected households is around 200,000 and the number of active subscribers is 5,000 (an index of the well-developed home network in operation in several districts).

“These activities show the providers’ intention to move beyond the city. Its network coverage and a high profile investor allows it to do this,” noted Oleg Lebedev, technical director of one of St. Petersburg’s largest home providers Matrix Network Solutions.

“In current conditions the success of a future player depends on its behavior on the market and on its price policy, which, in conditions of existing competition, needs to be aggressive,” he said.

On the other hand, an analyst at iKS-Consulting, Tatiana Tolmacheva, notes that citywide coverage is already a competitive advantage.

“It guarantees a wider coverage of the target audience, which means higher potential for growth, not to mention such things as unified brand advertising, which is highly effective,” she said.

The company itself is making no secret of its plans. In the near future it plans to launch an internet service in the Frunzensky, Kalininsky, Kronshtadsky and Kolpinsky districts, to increase its presence in Petrogradsky, Primorsky and Moskovsky districts and in southwest St. Petersburg. It will have a presence in 10 districts and serve 15,000 subscribers by the end of the year, according to TCT Director general Victor Pinchuk (see interview, right).

By contrast, the development of broadband access via cable has faced difficulties. Local companies first announced the modernization of the cable network as far back as 1999, though the actual process of renewal started much later.

Now all the city’s large players offer internet services — Telix, PAKT, Aurora, Rico-TV, Dominanta and Katrina. They mainly operate in particular districts and accordingly compete with their closest neighbors — local home networks.

More actively marketing its products is TCT. Over the last six months the company has brought out a new offer of unlimited access — one of the few companies offering 512 kbps — increasing the speed of its packages and decreasing by the half the cost of connection and equipment.

At the beginning of June TCT announced a marketing campaign directed at strengthening subscriber loyalty. It once again reduced the cost of connection to the service “Your Internet” on condition of a minimum prepayment for the chosen tariff.

“In fact, in terms of marketing, TCT is on the same level as ADSL-providers and large home networks which, from the beginning of this year have started to carry out different campaigns, playing around with various offers,” said the commercial director of the company “United Networks,” Dmitry Petrov.

The city’s existing providers, Web Plus and Northwest telecom, are keeping a close watch on their new rival.

According to the deputy director general and commercial director of National Cable Networks, Oleg Popov, “Like other providers which offer internet access through cable TV, TCT is a direct competitor to ADSL-providers, including us. However, the speed of access through the old analog cable TV network is limited and won’t allow the provision of additional services (content, video etc.).”

“At the same time we think that an aggressive marketing policy and the introduction of new technologies can help TCT become a serious competitor to ADSL-providers across the city. Time will show how that will be happen,” he said.

“During the next three years, according to our estimations, there will be a broadband boom in St. Petersburg. Over this period the number of users should rise to 500,000. And by 2010 private individuals alone will number 500,000,” said Andrei Shirenko, general director of Web Plus.

“TCT has a good chance of competing across the whole city but its success will depend not on network coverage but on its direct work on the market and on technological innovation. Nevertheless, market growth will allow the involvement of another large company — that’s why we don’t feel our position is under threat just yet,” he said.