Virgin may enter Russian market despite LTE chaos

The Russian LTE market is starting to develop despite numerous complexities and regulatory delays. The latest player to show interest in the potentially huge base is Virgin Mobile, which is reported to be considering a venture in the giant country, though another key player, wireline incumbent Rostelecom, has made a U-turn in its LTE plans.

Speaking at a recent press conference to launch the Virgin Poland MVNO, the increasingly international brand’s head of central and eastern Europe, Kristian Myrup, said: ‘Virgin Mobile Central and Eastern Europe is a new regional company in the Virgin Group. We are looking into expanding our business into Poland obviously but also potentially to Turkey, Russia, Hungary and others.’

Sources indicate that Virgin has already taken the first steps to deploy its own LTE network in 3.5GHz spectrum. This would be a departure from its usual MVNO model, possibly because it wants to establish a brand during the inevitably long process of negotiating such a deal with one of the major Russian operators. The 3.5GHz band has limitations in terms of coverage and cost, but can support fixed wireless and small cells, and there are several potential spectrum partners for Virgin, most of them initially working on WiMAX.

Virgin has previously tried to establish a beach-head in Russia. According to TeleGeography, in 2007 Swiss telecoms holding company Trivon, which operates the ‘Virgin Connect’ brand, acquired licences for broadband and voice services in Russia. This group holds WiMAX spectrum in the 5.7GHz-6.5GHz bands, covering 32 Russian regions, including the 20 largest cities in Russia, and it has WiMAX live in 32 cities.

One option for Virgin would be to collaborate with Sweden’s Tele2, whose Russian operation is overshadowed by the big three cellcos (MTS, VimpelCom and MegaFon). Tele2 has only 10% market share and has not gained spectrum in the first round of 4G awards, while it has new competition with the entry of fixed line incumbent Rostelecom into the mobile sector.

However, Tele2 is also understood to be a potential merger partner for Rostelecom. An alliance or merger with the Swedish group’s subsidiary would give the state owned giant a 3G base (Tele2 is the fourth cellco), and it would bring increased 4G assets to its Nordic partner (which has objected to being excluded from some spectrum sales).

Reports of an imminent tie-up were fuelled by the news that Rostelecom, having intended to launch MVNO services on September 1, has now postponed this ‘indefinitely’, following disagreements with over the terms of the deal with Scartel’s Yota, the firm which was to have hosted its offerings.

Last year, a government backed plan was conceived to kickstart LTE services in Russia while the cellcos waited for new spectrum to be opened up. This centered on former WiMAX carrier Yota, which would build an LTE network in its 4G spectrum, to be shared by the big three cellcos (VimpelCom, MTS and MegaFon) plus Rostelecom, which is entering the mobile space for the first time. The participants would also invest in the network’s costs and take stakes in the venture.

However, an LTE spectrum auction has now been held, and the cellcos are focusing more heavily on their own build-outs. MegaFon is the main supporter of the Yota plan, and there have been rumors it will take control of Scartel, while VimpelCom has apparently distanced itself, though MTS is still participating ‘ in conjunction with its own roll-outs.

The successful side of the troubled venture is seen in Kazan, the capital of the semi-autonomous republic of Tatarstan, which has become the first Russian market to boast LTE services from three different carriers. Here, MegaFon and MTS are both using the Yota network for MVNO offerings. Yota also offers services under its own brand.

MTS COO Aleksander Popovskiy said: ‘MVNO partnerships allow MTS to quickly launch LTE networks and optimize capex on network roll-out. Kazan is the first city in Russia where MTS will begin offering 4G services under the MVNO model. Going forward, the experience gained in this region can be used nationwide.’ MTS will also go live with its own LTE network in the Moscow region on September 1.

According to an unconfirmed report by news agency Vedomosti, Yota itself has signed up around 600,000 LTE subscribers since turning on its commercial network earlier this year. It offers services in Krasnodar, Sochi, Ufa, Vladivostok, Samara and the Volga Region; further launches have been planned for St Petersburg and Kazan by year end. Prior to switching its existing WiMAX subscriber base to LTE this spring, Yota had an estimated one million customers.

Meanwhile, MTS has announced the commercial launch of Russia’s first TD-LTE network in Moscow, using its own much disputed WiMAX spectrum. It has also gone live in 40 surrounding markets. Konstantin Markov, head of the MTS Moscow unit, said in a statement: ‘To further enhance connectivity and the development of the region’s economy and lifestyle, MTS will by year-end year make 4G services available in 96% of Moscow’s territory and will double the number of population centers with 4G coverage in the surrounding Moscow region.’

In other Russian news. VimpelCom is upgrading its national fiber network, largely to expand core/backhaul capacity for the LTE launch. It is using Ciena’s 6500 Packet-Optical Platform, to upgrade the Moscow-Urals and Urals-Siberia connections as well as the southern part of the western Russia network (the ‘Big European Ring’), and to build a 100G network in the far east. Ciena said: ‘The scalable and cost effective core network will support the roll-out of VimpelCom’s LTE network in Russia and will be able to meet the increasing demand of its client base for mobile broadband services as well as the increasing volume of network traffic.’

Also, MegaFon has filed for an IPO, planning to float a 20% stake with a potential value of $4bn in Moscow and London. And smartphone penetration should rise, benefiting all the carriers, with Russia’s joining of the World Trade Organization last month, after an 18-year wait. This will reduce the charges levied on imports and cheaper products for Russian consumers. According to Ovum, smartphone penetration is currently only about 15% because of high prices and a complicated distribution structure. Alexander Vengranovich, an analyst at Russia’s Otkritie Bank, says WTO membership will enable phonemakers to sell directly in the country, reducing reliance on regional distributors and resellers, which will also curb the black market. ‘All smartphone manufacturers work through their subdealers in Russia; Apple and Samsung do not sell directly to the market here,’ Vengranovich explained. ‘A lot of handsets imported into Russia are also done so illegally, but if these manufacturers begin to work directly in the Russian market, that will decrease the price of smartphones, which will stimulate sales and increase usage of mobile broadband services. Apple is already planning to open up retail outlets to sell directly into Russia.’