Russian LTE deployments are picking up steam despite many challenges

By Michael Carroll

Despite low LTE penetration, Russian mobile operators are starting to close the gap with their Western European counterparts in terms of LTE deployments, even though the government has never held an auction for next-generation frequencies.

Allocations of LTE spectrum have, instead, been handled via a series of bidding rounds that have seen the country's four largest mobile operators--MTS, VimpelCom, Rostelecom (Tele2) and MegaFon--each win spectrum in the 720-750 MHz, 761-791 MHz and 2500-2690 MHz frequencies, according to information from the Federal Service for Supervision in the Sphere of Telecom, Information Technologies and Mass Communications (Roskomnadzor).

A Roskomnadzor spokesman told FierceWireless:Europe that at least 10 LTE service licenses have been issued in Russia to date, all via bidding rounds held in 2010 and 2012. The country is currently gearing up to hold its first LTE spectrum auction, the spokesman said, explaining that the sale will cover the 2570-2620 MHz frequency range and is set to take place in the second or third quarter of 2015.

The Russian government recently relaxed rules covering the 1800 MHz frequency band to allow operators to refarm existing 2G spectrum for LTE services. The Roskomnadzor spokesman explained the process actually entailed making the frequency range technology neutral--technically freeing operators up to refarm the spectrum for more than just LTE--and that further such "technology neutrality decisions are now expected for some other frequency bands currently used by radio electronic facilities of other standards."

That opening of additional frequencies is expected to spur growth in the number of LTE licenses issued, the spokesman added.

While operators are keen to roll out LTE networks as quickly as possible to meet growing demand for mobile data services, today Russia lags behind Western Europe in terms of LTE penetration.

Ovum analyst Alla Shabelnikova estimated LTE penetration in Russia at 3 per cent of all mobile connections, while the Global mobile Suppliers Association (GSA) placed the figure at 5 per cent of all mobile connections at the end of the first quarter of 2015. That compares to a typical penetration rate of 13 per cent in Europe, the GSA said.

Whichever figure is the most accurate, both show there is huge potential for LTE adoption in Russia.

LTE deployment challenges
However, operators face several challenges in boosting LTE adoption, not the least of which is the large number of prepaid users in Russia and the fact that most of them remain connected to 2G networks.

According to the GSA, around 64 per cent of Russia's 246 million mobile connections were 2G at end of March, while 3G users accounted for 31 per cent. The GSA also said that 82 per cent of connections were prepaid users, with the remainder postpaid subscribers.

Source: Global mobile Suppliers Association

 

 

 

 

 

 

 

 

 

 

While LTE adoption in Russia is currently small compared to European markets, the GSA noted that the technology is the fastest growing in Russia in terms of subscriber uptake. LTE users accounted for 5.6 million of Russia's total mobile connections at end of 2014, which the GSA said is 84 per cent higher than during the second quarter of 2014. Indeed, operators added a combined 300,000 LTE subscribers during the fourth quarter, the GSA revealed.

Shabelnikova said the country is currently around two years behind Western Europe in terms of LTE deployments, but noted that is a positive. "Compared to 3G story, when Russia was four years behind, with LTE they managed to cut the gap to two years," she said, noting that is in terms of technology adoption.

Reducing the gap to Western European operators is no mean feat for Russian operators, Shabelnikova said. "Considering the size of the country and ARPU, two out of three major Russian operators managed to cover more than half of [the] population within a little more than two years since the first LTE network deployment in 2012," she explained.

Network equipment vendors have taken to steps to help operators address the geographical challenge.

Dmitry Maselsky, Ericsson's country manager in Russia, noted that the country has "a lot of remote areas, various--sometimes quite harsh--weather conditions," all of which take their toll on both the equipment itself, and the way it is installed.

Nokia Networks' Lidia Varukina, radio technology manager at the company's Europe Technology Team agreed, but noted that "generally, the Finnish company has inherently adapted equipment to the cold climate," joking about the company's experience in a domestic market that borders northern Russia.

"There is little difference in winter temperatures in the Polar regions of Russia and Finland. So the Nokia base stations are winter-proofed," Varukina explained, adding that the harsh weather limits the time allowed during the year for construction work.

Both equipment vendors noted that smartphone penetration is currently low in Russia relative to Western Europe. According to Ovum's Shabelnikova, smartphone penetration is now is around 45 per cent, compared to 30 per cent in 2013.

Varukina explained that Russian operators do not subsidise mobile phones, making subscribers--particularly those outside major cities--more likely to hold onto their existing handsets longer.

She noted that the "situation varies from region to region. In big cities, people can afford and buy brand new mobiles, operators have built excellent LTE networks, and [the] LTE market is excellent there," Varukina said.

Ericsson's Maselsky agreed that smartphone penetration currently lags Western Europe, but noted that the figure is growing rapidly and, in turn, fuelling deployments of mobile broadband networks.

He explained that the rollout of 3G and LTE in Russia is moving at the same speed as deployments in Europe, albeit a few years later than European counterparts. "3G penetration in 2015 in Russia is expected to be around 70 per cent and will by 2018 have the same level of penetration as GSM now," he said. At that time, LTE rollouts "will almost reach the level of HSPA today," he added.

Research by Ericsson's ConsumerLab showed that an average Russian household has 3.3 devices connected to the Internet, and that 71 per cent of households have fixed and mobile broadband connections. Maselsky said that by the end of 2014, 199 commercial LTE networks had been launched in 79 Russian regions--almost every region in the country.

LTE Deployments by Russian Operator 

Operator

Mode

Luanch Date

MegaFon/Yota

FDD/TDD

Jan. 15, 2012

MTS

FDD/TDD

Sept. 1, 2012

VimpelCom 

FDD

May 27, 2013

Rostelecom

FDD

June 3, 2013

Vainakh Telecom

TDD

Sept. 3, 2013

Tattelecom

FDD

June 27, 2014

MOTIV

FDD

Nov. 6, 2014

Tele2 Russia

FDD

Dec. 17, 2014

Source: Global mobile Suppliers Association  
Note: Rostelecom and Tele2 Russia have merged into T2 RTK, using Tele2 as the brand.

Maselsky said the gap between Russian LTE deployments compared Western and Northern Europe is a positive for the country's mobile network operators. "Obviously there is a lot of room for growth in relative data usage and this opens quite exciting perspectives to operators busy with strengthening of LTE deployments," he said, adding that all of the factors above "are all reasons to believe that the mobile data boom is still very much ahead."

Ruble's value weighs on operators
Geography and a lack of smartphone subsidies are two clear challenges for mobile operators in terms of offering service on any generation of mobile technology.

However, in recent months operators in the market have also been battling against a devaluation of the Russian ruble, due in part to international sanctions placed on Russia over the ongoing conflict in Ukraine.

Shabelnikova explained that, while not directly targeted by the sanctions, Russian mobile operators are nevertheless affected by the falling ruble. "Russian operators get their revenues in rubles, and even MTS and VimpelCom, who have exposure to other markets, still generate most of their revenues in Russia," she said.

"The devaluation of the ruble works as an inhibitor to further network upgrades, since all Russian operators purchase network components from international vendors," she added.

While Shabelnikova said she does not expect the tough financial situation to stymie LTE network rollouts, she noted that operators may cut their level of investment.

Nikolai Minashin, investor relations manager at MTS, explained that despite the challenges, Russian mobile operators will continue to press ahead with LTE deployments because the technology provides an instant ARPU boost compared to previous technologies.

"We do see significant increase in usage when we launch LTE in a specific region. The usage on LTE smartphones increases up to three times, and we see also significant uplift in ARPU; 30 per cent at this stage," he explained.

Regulations change to spur investment 
Russia's telecoms regulations are another challenge that the country is starting to overcome. The Roskomnadzor spokesman explained that radio frequency shortages and a complicated procedure covering the request for, and issue of, licences are beginning to be overcome. Shortages are being addressed through fresh frequency allocations and refarming legislation, while the licensing procedure has been simplified by cutting the number of licenses operators require and moving the whole process of request and issuance online.

"Registration procedures for radio electronic equipment have been greatly simplified. From August 2014 on, all the major operators have been transferred to online registration," the Roskomnadzor spokesman said, adding that "Roskomnadzor is now prepared to accept 100 per cent applications online."

The agency also recently began monitoring mobile voice and data quality and calling on operators to make improvements where necessary. "Also, there used to be a lot of mobile communications fraud and SMS spam issues. But thanks to new legislative rules and measures implemented by the regulator, those problems have been generally addressed," the spokesman said.

Minashin said the regulatory environment in Russia was "one of the most benign" in the world, but agreed that country is tightening up the rules and simplifying the licensing process.

Nokia's Varukina explained that Russia inherited a complex spectrum situation from allocations conducted before the 1990s. She said the country chose a difficult path when implementing international cellular standards "in compliance with the European frequency allocations."

Some spectrum bands "were converted from the military use to civil applications and the process is still ongoing," she noted.

A key recent amendment to Russian telecoms rules will allow mobile operators to share networks and infrastructure. Minashin said MTS forged such a deal with rival VimpelCom in December 2014, and that it is important that operators are free to make similar arrangements in order to meet the coverage obligations of their LTE licenses.

The deal with VimpelCom covers 36 regions and is a "pioneering type of agreement for the Russian market" because it covers frequency sharing in addition to infrastructure, Minashin said.

The Roskomnadzor spokesman said that Russia's regulator is also discussing allowing operators to also share spectrum in the future--a move he said will help operators to address a "contradiction between the desire to provide modern communications services throughout the huge country and the need to keep business operations profitable and the tariffs low."

MTS' Minashin noted that Russia's government has made infrastructure improvements a strategic priority, and noted that the relaxation of rules covering shared infrastructure and spectrum "showcases that the Russian regulator is very much pro-investment, and they do encourage operators to invest in networks."

Russian LTE deployments are picking up steam despite many challenges
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