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27 August 2019

With 3.5 GHz off the table, Russia’s MNOs are forced up into mmWave

Russia’s mobile operators have something in common with their US equivalents – unlike most MNOs round the world, they will have limited access to midband spectrum, and the C-band around 3.5 GHz, which is considered ideal for first-wave 5G deployments. This is pushing them to deploy in millimeter wave spectrum, earlier than any business plan would deem ideal, since there are still challenges in terms of device availability, network optimization and equipment cost.

But to deliver the promised 5G data rates, capacity is required, so both Russian and US operators have been forced to move up the spectrum at an early stage.

The C-band provides high capacity, without the high engineering and propagation challenges of millimeter wave; most MNOs will use 5G for capacity in the first phase of roll-out, retaining 4G for coverage, which neutralizes the impact of 3.5 GHz’s range limitations.

In the USA, most of the 3.5 GHz band is used for federal applications or satellite, though some shared access is being allowed through the CBRS scheme (but that will provide only small amounts of licensed spectrum capacity for 5G use; the more eye-catching aspect of that approach is the general access, unlicensed layer, which for now will be confined to 4G). So AT&T and Verizon have deployed their first (fixed) 5G networks in mmWave spectrum at 28 GHz and 39 GHz; T-Mobile is building a combination of coverage in its 600 MHz band and mmWave capacity hotspots; only Sprint (which may soon greatly improve TMO’s business case) has plentiful midband airwaves, in 2.5 GHz, which it will repurpose for 5G.

In Russia, the government has pulled back from plans to open up 3.5 GHz for 5G and is reserving it for its military users, and so MNOs are starting to deploy in mmWave spectrum, initially in capital Moscow.

According to the Moscow Times, following a decision by president Vladimir Putin to keep the 3.4-3.8 GHz spectrum back for military purposes, the Communications Ministry is proposing to make the 4.4-4.99 GHz band available as a midband option for 5G instead. However, this would have a very limited global ecosystem for devices or equipment, pushing up the costs for operators.

For now, mmWave is being used to bring high speed 5G to selected citizens. Tele2 got in first, working with Ericsson to deploy 5G Non-Standalone in the 28 GHz band, to cover a zone of high data usage in Tverskaya Street, which links Red Square and Sadovoe Ring.

Meanwhile, the Department for Information Technologies of Moscow is working with Qualcomm and multiple vendors on mmWave 5G trials in Moscow, which are supporting tests for four of the five MNOs (Beeline, part of the Veon group; Megafon; MTS; and Tele2 – the fifth player is state-owned fixed-line provider Rostelecom). Full commercial launches will take place some time next year in the capital and other cities.

The decision not to use 3.5 GHz for 5G is a blow to the economics of the Russian MNOs, but – along with the US position – also weakens the case for 3.5 GHz to be a truly global 5G band, with all the ecosystem scale that implies. The proposal to use 4.4-4.99 GHz instead would align Russia with two other large countries considering this option, China and Japan. If they decide to use these airwaves for 5G, that would help create a strong base of devices and chips, and encourage regulators elsewhere to consider the band too.

It would also tighten the increasingly close ties between Russia and China when it comes to telecoms, US trade tensions and overall trade (Russia exports more goods to China than any other country outside the European Union). Russia has refused to join the US campaign to limit Huawei’s access to 5G contracts and the Chinese vendor has been selected by MTS for its first 5G deals.

However, Russia’s overall impact on the global 5G picture is very limited, and despite years of effort to build up a homegrown hi-tech business, it has largely failed to do this. Its operators’ 2020 launches look set to be very small-scale and largely designed to support a few high value zones in Moscow and to please the Putin administration in its bid for global recognition.

The CEO of MTS, Alexey Kornya, told his firm’s most recent quarterly earnings call that, even when spectrum is available, he will not race to switch on 5G. “We just don’t feel that there is right now a demand … so there is no strong need on building up aggressively 5G,” he said.

The second largest MNO, Megafon, did not mention 5G in its own earnings call, except in passing to mention a test video call it had completed; while Veon/Beeline did not mention 5G at all. Vasyl Latsanych, CEO of Veon Russia, moved across from being CMO of MTS last year – in his previous role he told investors that “there is no business case behind 5G”, and it is not clear his view has changed now.

The financial case for deploying 5G will be made worse by the need to use uncommon bands such as 4.4-4.99 GHz (for which there is currently no equipment on the market), and by new Russian government requirements to store all communications, which will entail investment in millions of dollars’ worth of storage capacity (MTS says it will have to spend $760m, half its annual capex budget, in this).

The government claims the selection of 4.4-4.99 GHz as a key 5G band would be used as a lever to create a homegrown supplier base, which could then achieve international sales once other economies, especially China, adopted the band too. This dream of building telecoms infrastructure based on domestic technology at home, and using that to support new business abroad, has been part of Russian industrial policy for almost a decade, but has had very little impact except to encourage policies, such as the new spectrum rules, that limit the MNOs’ ability to source cost-competitive equipment or to achieve a ‘normal’ cost base for new networks.

“We are making developments in the field of 5G and are interested in partnerships with foreign manufacturers, such as from India and China,” said Victor Kladov, Rostec’s director for international cooperation and regional policy, in a statement last month.

Established in 2007, Rostec was reported, last autumn, to be in talks with Russian MNOs Rostelecom and MegaFon to form a 5G consortium, which would use homegrown equipment to reduce the cost of deployment. This was seen as part of a push by the  Trade Ministry to make Rostec’s business more viable, while reducing the cost of 5G roll-out for MNOs, by mandating a consortium approach to building equipment, and a shared network.

As with many such Russian partnership ideas, no results have yet been forthcoming, but the idea is not unlike those being explored, whether by state or private organizations, in many countries. This idea is to create a common platform, largely using homegrown equipment sourced through Rostec, which will support multiple operators’ 5G services. This would reduce cost, especially for the first phase of deployment when 5G networks would not be fully loaded, and would also address the shortage of spectrum which Russian MNOs claim will delay at-scale 5G.

However, there may be opposition from some authorities. At the start of 4G, the Russian government was very keen on sharing, setting up former WiMAX provider Yota as a neutral host operator whose network would support all four MNOs (Megafon, Veon, MTS and former wireline incumbent Rostelecom. There is now a fifth national MNO, Tele2). However, this fell apart amid lack of enthusiasm from the operators, and in-fighting over how costs and capacity would be allocated. In the end, Megafon acquired Yota.

Late last year, Alexander Gorbatko, deputy head of the Department of Information Technologies of Moscow, told reporters that, while “creating communication networks on the basis of a single infrastructure operator will allow all market players to reduce costs… the unified platform carries the risks of lack of competition and, as a result, high prices for residents and consumers, lack of operator flexibility and monotonous services”.

Megafon CEO Sergey Soldatenkov has been in favor of sharing, saying in December 2017: “In the current market conditions, the most logical and cost-efficient option for deployment of the new standard is cooperation between several players. We are already working together successfully with Rostelecom as part of the working group on information infrastructure under the government program for digital economy and we see huge potential for further cooperation.”

MTS might take some persuading, however. Responding to the new deal between its two rivals, a spokesperson said: “We always look for ways to be more efficient in our investment plans. Given the high level of cooperation on the market already, however, we don’t see the need to create additional groups or entities.” However, MTS does have an infrastructure sharing initiative called LTE Union with Megafon, Veon and Tele2 and says it is sharing “everything from towers to spectrum”.