As predicted in 4G Digest’s January 12th edition, 2011 is going to be an important year for LTE in Russia. Although at that time we were not able to predict which operator would be the first to deploy the technology in the country, things have become much clearer just two months later. The origin of this dramatic change is in Yota’s announcement last week of a US$2 billion plan to build an LTE network covering more than 70 million Russians in 180 cities by 2014. 

Given the difficult relationship Yota has had with Roskomnadzor, the Russian spectrum regulator, during the last few months, the operator’s intentions would not have had much relevance if they were not accompanied by a partnership agreement with four telecoms giants in Russia – the Big Three (Vimpelcom, MegaFon and MTS) plus long-distance state-owned Rostelecom. These operators will be granted MVNO operations on Yota’s LTE deployment and will be offered the opportunity to acquire up to a 20% stake in Yota.

Based on the list of companies participating in the agreement, we can assume it is closely related to the 4G research group created under the auspices of Roskomnadzor by the 3+1 operators in January this year. The initial focus of the group was to study the refarming of 710 - 860 MHz spectrum to shift its usage from military applications to civil LTE. Since the Ministry of Communications wants future LTE licensees to pay for the new military equipment operating in alternative spectrum bands, only national operators are welcome to the group. That is why Swedish group Tele2 was not included, despite having expressed interest in joining. The Ministry’s recommendation to Tele2 was to achieve sharing agreements with national operators, but Yota’s announcement clarifies that Tele2 will not even have such a chance for the moment.

The Russian government’s legitimate desire to boost its national industry with carefully tailored LTE deployment affects not only operators, but also equipment manufacturers. One year ago the first signs were envisaged when Rostelecom won 2.3 GHz permits under the premises of using Russian-manufactured equipment. In September, CEO of Russian Technologies (Rostekhnologii) State Corporation (owner of 25% stake in Yota), Sergei Chemezov, introduced to President Medvedev a new dual-screened 4G smartphone that would be produced initially in Taiwan and eventually in Russia. Companies potentially benefiting from this policy include equipment manufacturer Sitronics, which also owns microwave vendor Intracom Telecom and Infinet Wireless.

The spectrum situation is perhaps the least clear issue relating to the aforementioned deal. On one side we have Yota, whose 2.5 GHz spectrum permits where reduced by Roskomnadzor after considering them unfairly allocated. Although its permits are TDD, Yota has always made clear it is focusing on FDD LTE. Besides the network sharing agreement with Yota, Rostelecom also owns permits in the 2.3 GHz band. Osnova Telekom, partially owned by the Ministry of Defense, is conducting LTE trials to determine whether both civil and military networks can simultaneously operate in the 2.3 GHz band. Provided that the 710-860 MHz band is already being considered for transfer to civilian applications (although not officially included in Yota’s plans) and a unified national LTE infrastructure is enforced, it seems that the 2.3 GHz band will in fact be reserved for military applications.

Building a single wholesale infrastructure seems a good strategy for developing countries to efficiently reduce the digital divide, since it reduces coverage overlaps among operators and concentrates investment in expanding coverage and adding capacity only where needed. Besides the Russian case, in September 2010 the Kenyan government already published its plans to allow for a single national LTE operator that would offer wholesale services to the 19 operators willing to offer mobile broadband services. This model spurs service and user experience differentiation among operators, thus avoiding the risk envisioned by operators in developed countries of becoming dumb pipes. It will be interesting to see how well both unified wholesale and multiple-infrastructure alternatives cope with the increasing data demand in the coming years.

MARAVEDIS is a leading analyst firm focusing on disruptive technologies including smart networks using 4G, LTE, WiMAX

Author: Esteban Monturus, Market Analyst - Europe & Backhaul