– Low elasticity of demand will make it possible to maintain revenues from both mobile communications and broadband access.
– Over time, limited access to new equipment and lower capital investments will have a negative impact on the quality of telecommunications services and may result in a technology gap.
According to ACRA’s approaches, the telecommunications market has very low industry risk. This is due to the high capital intensity of the industry, which creates considerable barriers for new players, and the low elasticity of demand for core telecommunications services. Although these factors — low elasticity of demand and high capital intensity — will continue to have a considerable impact on the industry in forthcoming years, the Agency believes that this impact may be multidirectional.
The backbone of the telecommunications market is mobile communications and broadband internet access, which accounted for 51% and 11% of the market, respectively, in 2021. ACRA assumes that as operators’ pricing plans are indexed and their content is potentially adjusted, some subscribers will switch to cheaper plans. At the same time, the Agency does not expect a significant change to the size of the subscriber base due to extremely high demand for communication services in everyday life, which will allow revenue growth rates to be maintained in these segments. The decline of the fixed-line telephone communications segment will continue, and may even accelerate in 2022–2023. However, due to the fact that its share is already quite low (4% in 2021), this will not have a substantial impact on the market in general.
The high capital intensity of the sector requires regular investment. The ratio of operators’ capital expenditures to revenues has historically been one of the highest among all nonfinancial companies. Against this backdrop, a possible shortage of new telecommunications equipment and the wear and tear of existing equipment are among the most serious challenges faced by the industry, as they not only slow down the transition to the new communication standard (5G), but also make it difficult to maintain the overall operation of communications infrastructure.
Figure 1. Revenue structure of telecommunications companies
Part of the revenues of telecommunications companies comes from such segments as cloud technologies, online entertainment, and other areas, which, according to the Agency’s methodology, are part of the IT market. This market has a medium level of industry risk. ACRA has identified several sub-sectors for this market, which will have different trends over the next three to five years. For the first of these segments — providers of various IT infrastructure solutions (data processing centers, cloud technology, etc.) — ACRA expects trends to dominate that are similar to those of the telecommunications market. Long-term stable demand for services, on the one hand, will be limited by potential difficulties in purchasing equipment, on the other hand.
Another segment is various digital services. For the most part, these products are not essential, and this may lead to a certain decline in revenues during a period of reduced incomes among the population. The third market segment highlighted by the Agency is Russian software developers. These companies have significant growth potential due to a number of foreign players exiting the Russian market.
In general, the Russian IT market, in addition to the abovementioned equipment difficulties, may face a shortage of relevant specialists. In light of this, the market needs comprehensive support measures aimed at ensuring an uninterrupted supply of equipment, retaining and developing qualified personnel, as well providing access to sources of financing, which are often out of reach for small companies in the IT market.
ACRA’s rating portfolio includes practically all of Russia’s major telecommunications companies and representatives of the abovementioned IT market segments. The Agency assumes that major companies will be able to find alternative channels for supplying equipment, which will enable them to maintain the scale of their business. For small companies, the key issue of 2022–2023 will be access to sources of financing, and in connection with this, ACRA will keep a close eye on the liquidity of these issuers.
For small companies, the key issue of 2022–2023 will be access to sources of financing, and in connection with this, ACRA will keep a close eye on the liquidity of these issuers.