ANALYSIS: MegaFon targets growth in Caucasus region with SWAN project

Russian operator MegaFon has exclusively revealed to Capacity details of its terrestrial project South-West Asia Network (SWAN), which links Russia to the Caucasus region and Turkey.

Launched in Q1 2015 with an initial capacity of 100Gbps, SWAN is the result of a partnership between MegaFon and Georgian fixed-line operator Silknet.

The move will provide Russia with greater access to the rapidly expanding Georgian telecoms market, which has experienced a 25% increase in broadband penetration between 2006 and 2014. It claims to reduce the round trip delay between the Georgian capital of Tbilisi and Frankfurt, Germany, by 7-10 milliseconds compared to existing routes. 

SWAN consists of a terrestrial link crossing the Russia and Georgia border, Megafon’s international network and Silknet’s network in Georgia. From Georgia, it is said to offer access to neighbouring Armenia, Azerbaijan and Turkey.

The project is designed to tap into the high demand for Russian IP transit services across the Caucasus region, which MegaFon claims has been historically underserved by Russian operators. “As MegaFon is one of the main IP providers in Georgia and the commonwealth of independent states (CIS), the decision to embark on a transit project within the Caucasus region was strategically important for us,” said Alexander Teremetsky, carrier business director at MegaFon.

Tremetsky said the terrestrial route will help serve Megafon’s growing enterprise customer base, with the operator recording a 15% growth in enterprise revenues in 2014. “Since the region has a limited number of Russian suppliers, we saw it as a priority to grow our business-to-business (B2B) and business-to-operator (B2O) sales,” he added. 

It also hopes SWAN will serve the growing needs of Russian operators in the Caucasus region. 

Moving forward, Megafon believes the project will open up further connectivity options between Russia, Turkey and the Middle East. “SWAN can potentially present an interest for major market players who provides global connections between the Middle East and Europe. Traffic exchange between these regions is growing steadily and SWAN is on equal footing with alternative backbones when it comes to being part of global network projects,” said Tremetsky. 

Russian operators have been more active in the Caucasus region in recent years. In March 2015, Alfa Telecom offered $2.8 billion to purchase a 13.8% stake in Turkcell. If approved by Turkish regulators, the deal would give Russian billionaire Mikhail Fridman group control of the operator. 

In 2013, Rostelecom and Alcatel-Lucent launched the Russian segment of the Europe-Persia Express Gateway (EPEG), a 100G fibre optic network designed to offer ultra-broadband transit across Russia to meet growing demand for broadband data services from the Middle East.

MegaFon’s launch of SWAN comes as the country’s telecoms operators struggle to find sources of revenue amid sanctions on Russia. The company’s Q2 2015 net profits declined 6.4% to $218 million (13 billion Russian rubles) compared to the same period last year while its number of mobile subscribers grew by 5.1% to 73.8 million. 

“We are constantly looking for new sources of growth and SWAN has an important place in these strategic tactics. It is an opportunity to expand our presence geographically and diversify international B2O sales,” concluded Teremetsky. 

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