The Russian mobile market is set for further shake-up as fixed line incumbent Rostelecom steps up its mobile activities and top three cellco MegaFon acquires Scartel, owner of the Yota network, which was supposed to be a shared resource for all four leading operators.
State-owned Rostelecom was confined to wireline services until it was awarded spectrum in various recent transactions, and now it says it is taking a ‘strategic change of direction’ focused on mobility. According to the Moscow Times, the company intends to form a separate management team for its mobile activities, to, ‘aggressively expand its share in the 3G market’ and expand LTE in its 450MHz spectrum.
Currently, Rostelecom lies fifth in the mobile sector behind the ‘big three’ cellcos ‘ MTS, MegaFon and VimpelCom ‘ plus Tele2. It has about 13.82m mobile customers, compared to MTS’s 71.82m.
However, it aims to up its tally quickly, and has been linked with various possible M&A or network sharing deals, largely with Tele2. As of August, it says it has built out 3G in 22 regions, working with suppliers Ericsson and Huawei, and has gone live with HSPA+ services in St Petersburg, forming a quad play with its fixed telephone, broadband and interactive TV offerings.
Among its challenges would be the use of 450MHz, which has excellent propagation characteristics for cost effective rural coverage, but no LTE ecosystem, which will make devices expensive or hard to find. There is interest in refarming this band, mainly used in the past for analog services and then rural CDMA, for LTE ‘ notably in Brazil ‘ but no carriers or handset makers have committed yet.
Meanwhile, MegaFon is buying Scartel/Yota for $1.18bn, which will give it a significant headstart in LTE infrastructure, since the company already has an extensive operational 4G network in urban areas, covering 27% of the population, and plentiful (2x30MHz) 2.5GHz spectrum. MegaFon will also assume Scartel’s debt of around $600m.
The deal marks the end of the vision, much supported by the previous government, of turning Yota’s former WiMAX spectrum into a wholesale network for sharing between the main three cellcos plus Rostelecom, giving all of them an early stepping stone towards 4G at low cost. The quartet was supposed to take equal stakes in Yota in return for access to its network, but after a series of disputes and delays, only MegaFon finalized a deal with the wholesaler, while the operators also gained their own 4G spectrum and started their own roll-outs.
A report from Fitch Ratings said: “MTS and VimpelCom have less spectrum than MegaFon but still have enough to successfully compete in Russia. Rostelecom will face the biggest hurdles to launching a successful LTE network.”