Russian LTE networks are expanding, though progress is still overshadowed by political and ownership issues. In the latest M&A reports, MegaFon may seek to buy Rostelecom or Yota to expand its market share, while Tele2 is also in play.
Yota is expanding its wholesale LTE system, which was built to support services from all four major mobile providers ‘ VimpelCom, MTS, Megafon and the state-owned fixed telco Rostelecom. Many legal and procedural complications have accompanied that plan, but the infrastructure itself is growing rapidly in major cities, and Megafon, in particular, is pushing services.
The four operators also have their own spectrum and build-out plans. MTS has announced a deal with Ericsson to build out LTE networks in four regions covering more than half of the huge country by area, making the Swedish firm the primary supplier to the cellco. Under a three-year agreement, Ericsson will roll out 4G in the Siberian, Ural, Volga, and Southern Federal Districts of Russia.
In phase one of the project, this will involve 10,000 RBS 6000 Series base stations of various configurations. Ericsson will also provide core network hardware and services to these regions as well as the Northwestern Federal District. Also, it will extend its existing contract with MTS to expand 2G/3G networks in several regions.
MTS’s CEO Andrei Dubovskov said in a statement: “The regions we have targeted for 4G service coverage are very important industrial hubs with key sectors driving the Russian economy. We intend to start building 4G networks in Russia in the near future to provide subscribers in approximately 15 regions in Russia with high speed data services by the end of 2013.” Financial terms for the contract were not disclosed.
Meanwhile, Russia’s second cellco, MegaFon, could buy assets of Rostelecom, if the government goes ahead with plans to sell its stake. The administration is considering offloading its 53% stake in the fixed line incumbent ‘ which now has mobile spectrum and services too ‘ to the three main mobile carriers.
An MTS spokesman said it would also examine any proposals though it remains uncertain whether the proposals will result in a concrete action plan. Rostelecom is playing catch-up in mobile and is widely believed to need a cellco partner or merger. One much-discussed possibility would be merger with Tele2 Russia, which was acquired by Russian state-controlled bank VTB in March, from its original parent, Sweden-based Tele2.
However, VTB is expected to sell its asset on to a strategic buyer and the bank said this week that it was in advanced talks to offload at least part of its ownership to private investors over the coming months. Rostelecom is an obvious fit, and a Tele2 tie-up could make it a more attractive business, raising the price the government could command for its own shares. The state-controlled telco is reported to have been in talks about a mutual MVNO deal with Tele2 this month, and that could be expanded to full merger.
Rostelecom CEO Sergei Kalugin told the Prime news agency this week: ‘We are trying to agree on the MVNO model with Tele2 Russia. It does make sense.’ It would involve Rostelecom providing 3G network access to the formerly Swedish-owned operator, which would in turn, offer capacity on its 2G systems. Tele2 has repeatedly been denied a 3G licence or rights in capital Moscow.
Last month, Rostelecom was said to be in talks with Antares Telecom about LTE deployment collaboration. Obscure operator Antares won 1.9GHz spectrum back in 2008 and has planned to use it for LTE, but its attempts to run a trial in Moscow was blocked by the authorities.
Megafon told reporters it was not interested in Tele2 because the latter’s business remained heavily voice-driven while its own strategy was focused on data growth. However, Megafon is said to be in ongoing talks to take control of Yota, which (under its official name Scartel) is majority-owned by Usmanov’s USM Holdings. That would end the government’s former dream of a network shared by all four main carriers, but Megafon CEO Ivan Tavrin told Reuters: “Scartel – its spectrum, its subscribers – is a very interesting asset. If we acquire Scartel, the obvious benefits are that we would own the network that has been built by them, we would be the leader in 4G, we would own the spectrum.”
Meanwhile, Vimpelcom has awarded its own LTE contracts, on a regional basis. Ericsson has already rolled out the cellco’s 4G network in downtown Moscow, while NSN will supply equipment in Altai, Adygeya, Astrakhan and Kalmykia; ZTE in Kalingrad; and Huawei in Ingushetia.