Russia’s four largest operators could lose LTE spectrum which they acquired last year, as the government revives its ambition to create a single, state-controlled 4G network.
The carriers ‘ VimpelCom, MTS, Megafon and Rostelecom ‘ are reacting angrily to the ideas. The shared 4G network was a pet project of former president Dmitry Medvedev, and came to partial fruition in the Yota project ‘ the former WiMAX operator has converted much of its spectrum to LTE, and supports a wholesale-only model. While the vision was for all four carriers to ride on this network, in order to accelerate 4G availability in Russia, there have been many legal and contractual challenges, and at this point Megafon is the main partner (and potentially a future acquirer).
Now, according to Russian newspaper Vedemosti, the Ministry of Communications has submitted a draft proposal to the president’s office suggesting the ‘redistribution of frequencies for the construction of a pan-Russian 4G LTE mobile network’. This would involve transferring frequencies in the 720MHz-750MHz and 761MHz-862MHz bands – as well as any available spectrum in the 390MHz-470MHz and 694MHz-876MHz bands ‘ to a new state-owned company. That would build the common network and provide access to all cellcos at rates regulated by the government.
This is not a unique idea ‘ it has been adopted in some other countries, such as Kenya, and is seen as a logical longer term move for the industry, given the trend to private RAN sharing and the high costs of building out multiple mobile broadband networks in limited spectrum. For instance, just this week, Malaysia’s Celcom Axiata said it was to roll out LTE infrastructure jointly with new licensee Puncak Semangat, pooling their respective 2’10MHz blocks of spectrum in the 2.6GHz band.
However, the ideal of a level playing field for service providers, to speed roll-out and encourage new competition, is often compromised by political wrangling. Russia has an additional obstacle because some of the spectrum in question has already been allocated to the large operators.
The three major cellcos, and state-owned landline operator Rostelecom, were awarded licences in the 791MHz-862MHz band a year ago and have commitments to meet coverage requirements by 2019 and to invest at least R15bn a year to develop LTE. Last month the regulator, Roskomnadzor, reported that all four had met their licence conditions in terms of launching initial commercial services by June 1 – MTS and Vimpelcom in Moscow, Megafon in Yekaterinburg, and Rostelecom in Sochi.
However, the Ministry wants things to move along more quickly and says the operators have installed only 1,000 LTE base stations between them, while at least 30,000 will be needed to deliver LTE services on a broad basis. According to the reports, the government is concerned that the operators are concentrating only on the most profitable markets and are rolling out overlapping infrastructure ‘in the pursuit of profit’, as well as trying to eke more performance out of GSM and 3G in preference to investing in 4G. By contrast, the Ministry says it would quickly invest R60bn (€1.4bn) to roll out its 30,000 base stations (though critics say this would cost almost four times the sum suggested).
The incumbent operators claim the Ministry’s scheme would reduce their ability to differentiate and their incentive to invest in new services. And analysts warn the move could weaken the investment climate in Russian telecoms, even if the operators are fully compensated for their lost frequencies.
Otkritie Capital analyst Alexander Vengranovich said, in a statement quoted by TotalTelecom: ‘In the event a licence withdrawal is confirmed, it would mean no advantages for Megafon, MTS, Vimpelcom and Rostelecom for LTE services and would open the gate for other operators like Tele2 Russia to provide the same services. As there will be no difference in the quality of the network the operators would compete mainly by means of prices, which will push margins down.’
The ministry also complains that, since the operators were allocated 7.5MHz each, while LTE conventionally runs in multiples of 5MHz, about one-third of the spectrum would go unused unless holdings were consolidated.
Meanwhile, another key element of the original Medvedev plan is being modified. Two years ago, Nokia Siemens set up a joint manufacturing venture, called WTC (Wireless Technology Center) with state-owned investment vehicle Rusnano. This complemented another JV, between state conglomerate Ruselectronics, Samsung and Huawei, to make LTE equipment to support the Yota shared RAN initiative, and to ensure strategic equipment was manufactured in Russia.
Rusnano has now acquired a 25% stake in WTC from NSN, for R330m ($10m). This was prompted by rules stipulating that, in order to be considered Russian-made and cleared for use in domestic telecoms infrastructure, equipment must be produced by a company at least 50% owned by Russian nationals. This issue proved an obstacle in February when Chechnya-based Vainakh Telecom wanted to deploy WTC’s 4G equipment in Grozny. WTC is located in Tomsk, Siberia, with local partner Micran holding a 25% stake, and NSN’s holding is now reduced to 50%.