The Russian mobile market has been a twisted tale of alliances and spectrum disputes in recent years, but with the major cellcos rolling out LTE, some clarity is emerging. This week, fixed line incumbent Rostelecom confirmed its long-anticipated mobile joint venture with Tele2, and the state regulator approved the refarming of GSM bands for mobile broadband, boosting the pool of available spectrum.
Rostelecom entered the mobile market last year when it was awarded 3G and LTE spectrum along with the three large cellcos, Vimpelcom, MegaFon and MTS. It has built out some networks but remains in fifth place after those three and Tele2. As a new entrant, it clearly needs to build up its scale and its expertise, and in August it said it would separate its mobile activities under separate management and seek a partner. Now it will merge that unit with Tele2 Russia, which is owned by Russian bank VTB and a group of local investors.
The transaction will create an operator with almost 38m customers and over Rub100bn ($3bn) in annual revenues, equating to market share of 16%. So it will still be very much a fourth player, but will gain a nationwide network footprint, as well as giving Tele2 access to LTE spectrum ‘ the fourth cellco missed out in the recent allocations.
The transfer of Rostelecom’s assets to the new company will be carried out in two stages. By the end of the first quarter of 2014, all Rostelecom’s mobile-related subsidiaries, including Sky Link, will be transferred to the joint venture. At this point, Rostelecom will have 26% ownership, and 45% of voting rights, in the JV. The second stage will be completed by mid-2014, subject to regulatory approval, and will see Rostelecom spinning off its remaining mobile businesses into a new wholly owned subsidiary called RT-Mobile, which will take over its spectrum licences. The state-owned telco will contribute RT-Mobile to the JV – T2 RTK Holding – and increase its stake to 45%.
T2 RTK Holding will invest heavily in 3G and LTE networks and in new services, said the firms. VTB – Russia’s second largest lender ‘ acquired Tele2 Russia in April from its Swedish parent Tele2 for $3.55bn and agreed to sell it in October to companies affiliated with private lender Bank Rossiya.
As of August, Rostelecom had built out 3G in 22 regions, working with suppliers Ericsson and Huawei, and had gone live with HSPA+ services in St Petersburg, forming a quad play with its fixed telephone, broadband and interactive TV offerings. Among its spectrum holdings is a national slice in 450MHz, which has excellent propagation characteristics for cost effective rural coverage, but no LTE ecosystem, making 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.
Last year, Rostelecom, but not Tele2, was part of a government-backed plan to kickstart Russia 4G by creating a shared network. This was to be built and run by Yota, a former WiMAX start-up which has been migrating to LTE. The three major cellcos and Rostelecom were to invest in the smaller firm and launch 4G services on its network. However, the plan foundered on various disputes, and in August, MegaFon announced it would buy Yota’s owner, Scartel, for $1.18b. This netted MegaFon a headstart in urban LTE, with operational networks already covering 27% of the population, plus plentiful (2x30MHz) 2.5GHz spectrum. The deal also marked the end of the shared network vision, upping the pressure for Rostelecom to find alternative partners. A report from Fitch Ratings at the time 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.”
Further LTE spectrum is being made available via refarming, with the SRFC (State Radio Frequency Commission) formally approving the use of the 1.8GHz GSM band (1710MHz-1785MHz and 1805MHz-1880MHz) for LTE, and the 900MHz (890MHz-915MHz and 935MHz-960MHz) for 3G expasnsion. All owners of spectrum below 2.2GHz will be required to provide services to Russian settlements with more than 1,000 residents, while carriers owning frequencies from 2.2GHz to 3GHz will be obliged to cover areas with more than 10,000 citizens.