During his daily commute into central Moscow from the suburbs, Andrei Muchnik browses the Web. Or tries to. “When I am typing a message in Gmail or using Facebook (FB), connection often gets lost and I have to do it again,” the 35-year-old office worker says. “Sometimes I have to restart the phone to be able to use Instagram. I don’t even try downloading video.”
Millions of smartphone and tablet customers such as Muchnik are clamoring for faster service in Russia, where mobile data traffic has tripled in the past year and may increase tenfold by the end of 2015, according to Irina Agarkova, a spokeswoman for Mobile TeleSystems (MBT), the country’s largest mobile phone company. Russia’s wireless infrastructure lags that of the U.S. and Europe: Mobile TeleSystems and rivals MegaFon (MFON:RU), VimpelCom (VIP), and Rostelecom (ROSYY) are just beginning to develop so-called fourth-generation networks to comply with the terms of licenses they were granted by the government last year. To get those licenses, the carriers committed to spend 420 billion rubles ($12.9 billion) on faster 4G networks by 2019. As much as half of that could go to equipment makers, according to LTE Union, a nonprofit association of Russian wireless providers.
That’s made Russia, a nation of 143 million people, the next major battleground for global suppliers of base stations, antennas, and other network gear. Competitors for that business include Sweden’s Ericsson (ERIC), the global leader in wireless network equipment, and Finland’s Nokia Siemens Networks. France’s Alcatel-Lucent (ALU) has set up a research and development laboratory in Moscow to develop faster network fiber optics with state-owned electronics company Rostec. “The geographic scope, population size, economic demand, and growth all indicate the size of the contracts coming out of Russia could be outstanding, and everyone will want a piece,” says Daryl Schoolar, an analyst at market researcher Ovum.
On July 3, Nokia Siemens announced an order from Mobile TeleSystems for 4G equipment in Moscow and central Russia valued at around $200 million. MTS selected Ericsson to develop 4G in southern Russia, the Volga region, much of Siberia, and the Urals, but hasn’t yet awarded contracts for northwestern and far eastern Russia. “It’s important for us to win these 4G deals because it sets the footprint for years to come,” says Robert Puskaric, head of Northern Europe and Central Asia for Ericsson.
In July, Ericsson engineers were already working at an office building near the Kremlin, adding speed-tripling 4G antennas and a transmitter to a VimpelCom base station. The work was part of a Moscow-area contract with Ericsson that VimpelCom, which is controlled by billionaire Mikhail Fridman, announced in May. VimpelCom chose Nokia Siemens to develop its networks in four other regions and gave China’s Huawei and ZTE contracts for one region each. (No deal values were announced.) “Russia is a big, modern country and a promising market to work in,” says Kristina Tikhonova, head of Nokia Siemens’s eastern operations. “Our ambition is to become the No. 1 preferred vendor for Russian operators.”
Still, carriers are proceeding cautiously with their investments to avoid overspending, says Sergey Libin, an analyst in the Russian unit of Austria’s Raiffeisenbank. Average monthly phone bills in Russia are a fraction of what they are in the U.S., so large network investments can hurt profit margins. So far, Russian operators have selected the same suppliers they used for older, third-generation equipment to upgrade their networks to 4G, Libin says. Ericsson’s Puskaric says almost one-third of Russians lack even 3G coverage. “Russia has a lot of potential when it comes to mobile broadband,” he says. “There is still so much to do.”