Russian Mobile-Phone Rivals Team Up to Share 4G Expense
Russia’s three largest mobile-phone companies, OAO MegaFon, OAO Mobile TeleSystems and OAO VimpelCom, agreed to work together to develop a nationwide fourth-generation broadband network.
The three companies, plus long-distance operator OAO Rostelecom will share the wireless 4G network being built by Moscow-based Yota, Communications Minister Igor Shchegolev said today.
Yota, the telecommunications brand of Moscow-based Scartel LLC, currently provides 4G service in five Russian cities. The technology offers faster speeds for Internet use on computers and mobile phones than older so-called 3G networks. The company aims to have the service available initially to more than 70 million Russians in 180 cities by 2014.
“Building new networks is becoming more expensive, and customers are used to the price of these technologies decreasing,” Shchegolev told reporters in Moscow. “Now the network will be deployed faster, each company will save on investment and users will get the service much cheaper.”
Russian Prime Minister Vladimir Putin oversaw the signing of the agreement by the heads of the wireless companies today at Yota’s Moscow office.
$2 Billion Plan
“We believe the only way 4G can be offered at the right price is for operators to do it together,” Yota Chief Executive Officer Dennis Sverdlov said in a telephone interview. The group plans to invest $2 billion, backed by banks, in the project, he added.
The four companies have the right to buy 20 percent each of Yota in 2014, Shchegolev said. Russian Technologies Corp., a state holding company, owns 25 percent of Scartel, which also operates in Belarus, Nicaragua and Peru. Scartel’s majority owner, with about 75 percent of shares, is Telconet Capital LP, a private investment fund.
Negotiations in the next three months will determine how much each company would pay for stakes in Scartel, MTS Chief Executive Officer Mikhail Shamolin said.
Yota’s system currently works in five cities with speeds of up to 10 megabits per second. The company is switching its technology from WiMAX to the LTE standard, which is more widely available on smartphones. Its current suppliers are Huawei Technologies Co. and Samsung Electronics Co. and more may be added, Sverdlov said.
Russian Technologies and equipment maker OAO Sitronics may build LTE equipment for the network, said Vladimir Yevtushenkov, chairman of AFK Sistema. Sistema controls Sitronics as well as MTS, Russia’s largest mobile-phone company.
4G Requirements
4G is usually offered alongside existing lower-speed networks at a higher price. It requires consumers to buy new handsets and modems capable of exchanging data at the higher speeds.
The networks also typically require additional broadcast spectrum as older 3G and 2G networks continue operating when the 4G networks come on line. Yota has spectrum in all the regions where it will operate, and is the only operator to have a nationwide portfolio of licenses for 4G, Sverdlov said.
“We need to try this as there won’t be enough frequencies for all,” said Sistema’s Yevtushenkov.
Common Practice
Companies from Sprint Nextel Corp. in the U.S. to YTL Communication Sdn. in Malaysia are investing in nationwide 4G systems, hoping that customer revenue for the high-speed services will repay their spending. Sweden’s Tele2 AB and Norway’s Telenor ASA are building a shared 4G network in Sweden to save money, a practice that is becoming increasingly common among phone companies.
“One airport has a number of airlines and the model is the same here,” Sverdlov said. “We decided we’ll open our network to others because we believe competition isn’t in the infrastructure, competition is in how you serve your customers, what products you give them, what customer experience you create.”
The 4G network is a private initiative and could be used by other operators as well, he said.
Countries including Finland and Australia have state-backed plans for nationwide high-speed broadband service that doesn’t necessarily use mobile.
To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net; Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net
To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net; Vidya Root in Paris at vroot@bloomberg.net
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