VimpelCom Convergence Drive Continues With US$404-mil. Purchase of Remaining 49% Corbina Stake

Russia's second-largest mobile operator, VimpelCom, has announced that it has agreed to purchase 49% in regional broadband operator Corbina, for US$404 million, subject to regulatory approval. The deal will increase VimpelCom's ownership of Corbina to 100%, as it already indirectly owns 51% through Golden Telecom, which it purchased earlier this year. Corbina operates in 24 Russian regions, serving 550,000 residential and 11,000 corporate subscribers. It is the third-largest internet service provider (ISP) in the capital Moscow, and the fourth largest in St Petersburg. Corbina's fibre-to-the-building (FTTB) networks offer internet access speeds of up to 1 Gbps in apartment buildings in major cities including Moscow, where its network covers over three million homes. Corbina generated revenue of US$140 million in 2007, while VimpelCom itself generated US$1.701 billion from its Russian operations.
Outlook and Implications

• Focus on the Residential Segment: VimpelCom's acquisition of Corbina is very much targeted at growth in the residential broadband sector. VimpelCom has highlighted that it stands to gain additional revenues from the FTTB local access network of its subsidiary and is targeting a 20% share of Russia's regional broadband market by 2012. This focus on the residential broadband market compliments the potential for growth in the corporate market which VimpelCom highlighted when it purchased Golden Telecom, earlier this year (see Russia: 3 March 2008: Convergence to Become Reality in Russia as VimpelCom Completes Purchase of Golden Telecom).
• Well-Timed Entry into Russia's Broadband Market: VimpelCom's entry into the residential broadband market is well-timed. Russia's former IT and Telecom Minister Leonid Reiman estimated that there were around 4.5 million broadband subscribers in the country at the end of 2007, following annual growth of around 50%. However, in the absence of a single dominant player, the market is open to exploitation and retains plenty of growth potential. Many of the leading operators are the regional units of national fixed-line holding Svyazinvest, while Sistema-owned Comstar is the leading alternative operator, with around 743,000 subscribers at the end of 2007. Each of these operators have enjoyed healthy recent subscriber growth, indicative of a market in which residential customers are embracing broadband. Moreover, the FTTB technology used by Golden Telecom and Corbina traditionally provides faster internet access than the ADSL offerings of Svyazinvest's units and Comstar. VimpelCom CEO Izosimov neatly summed up the opportunities for VimpelCom in a company press release, stating: "The combination of infrastructures, technologies, client bases and expertise of VimpelCom, Golden Telecom, and Corbina Telecom will provide a solid base for our successful expansion in Russia’s fast-growing broadband Internet market."
• Opportunity for Bundled Service Offering: Another key facet to the purchase of Corbina is the bundling opportunity it creates. VimpelCom already has around 42.2 million active mobile subscribers, and it has now gained a sizeable broadband subscriber base. As well as this Corbina has announced plans to launch IP TV services based on Microsoft's Mediaroom platform, in mid-2008. The service will provide over 100 channels, over 1,000 on-demand titles, and digital video recording. The potential to bundle the services of Corbina and Golden Telecom alongside VimpelCom's mobile services, under VimpelCom's hugely successful "Beeline" brand and within a single unified bill, creates a converged service of considerable appeal within the residential market alone. Given that only a few months ago VimpelCom was solely a mobile operator, its portfolio diversification has progressed at a speedy rate.
• MTS A Likely Rival in The Converged Services Sphere: Global Insight does not expect VimpelCom's march into the converged services sphere to continue unopposed. Its primary rival is likely to be leading mobile operator Mobile TeleSystems (MTS), which has the potential to harness synergies from broadband operator Comstar UTS, as both are managed by the Sistema group. Although MTS has previously ruled out a merger with Comstar, it has announced plans to roll out fixed broadband services later this year, utilising the fixed infrastructure of Comstar (see Russia: 23 April 2008: MTS Mulling Fixed Broadband Roll-Out).

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