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Russian LTE Market Analysis and Forecast

May 2013

Analytical Report (full version)

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Analytical Report (full version)

Russian LTE Market Analysis and Forecast
Russian LTE Market Analysis and Forecast
May 2013

Russian LTE Market Analysis and Forecast

May 2013

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According to GSA as of March 2013 there were 175 commercial LTE networks in 70 countries worldwide. It is expected that the number will increase to 248 networks in 87 countries by the end of 2013.

 

First commercial LTE network in Russia was launched in the beginning of 2012. By March 2013 ‘Skartel’ company network (‘Yota’ trademark) covered not only Moscow and Saint Petersburg but also 93 cities in 27 Russian Federation members. Moreover MTS and Megafon launched their own networks in despaired spectrum (TDD-LTE). Commercial LTE networks are concentrated mainly in European part of Russia and cover only few cities of Siberia and the Far East.

Results of 2012 show that the number of LTE subscribers in Russia reached by various estimates 850 thousand or less than 1% of the global of 100 million; Russia is one of the top five countries by the number of subscribers. At the same time use of 4G in Russia constitutes only 0.4% of the total number of active SIM-cards. The market today is virtually monopolized by ‘Skarlet’ and ‘Megafon’ companies that serve 98% of LTE subscribers in Russia.

 

In February 2012 Megafon and Skarlet signed an agreement on joint infrastructure use for development of LTE networks. In practice mobile operator acts as a virtual operator (MVNO) using Yota Netowrks, which in turn uses existing ‘Megafon’ infrastructure. Cooperation of two companies resulted in establishment of joint company Garsdale in July 2012.

 

In August 2012 Yota announced a public offer as a part of the open tender. Each operator was proposed MVNO model of cooperation with federal or regional coverage. Operators considered the terms of the offer as unacceptable. Federal Antimonopoly Service (FAS) stated that ‘Skarlet’ is obliged to provide non-discriminatory access to its networks to the operators based on the MVNO model. At the same time FAS did not interfere in establishment of holding by ‘Megafon’ and ‘Skarlet’ in June 2012. In March 2013 FAS brought an action against ‘Skarlet’. FAS considered that by its actions the operator breach the federal law ‘On Defense of Competition’.

 

The only operator except ‘Megafon’ which managed to sign MVNO agreement wth ‘Skarlet’ is MTS. However two companies reached an agreement regarding one city only – Kazan.

Conditions proposed by ‘Skarlet’ under MVNO agreements are not accepted by any of the operators. They are forced to consider building up their own LTE networks, however the process will take more time. Inability of operators to reach an agreement with ‘Skarlet’ to work as virtual operators limits competition and detains LTE market development.

Key constraints of LTE market development in Russia include:

 

       Limited competition (including inability of operators to agree the terms with ‘Skarlet’ Ltd under
           MVNO-project) and as a result high LTE rates;
       A limited range of mobile devices (smartphones, tablets) supporting LTE, high prices;
       Absence of voice over LTE (VoLTE) mechanism and, as a result, inability to use available for sale
           smartphones that support LTE in ‘Russian’ frequency coverage;
       Problems with LTE frequency coverage (in the presence of frequency deficit – absence of
           technical neutrality mechanism, need for conversion, distribution of frequencies through tenders
           and not through auctions, litigations, etc.).


Despite of relatively quick and successful launch of 4G in Russia there are certain obstacles in development of this technology in the country – limited competition and as a result high rates, limited range of customer devices, conversion complications and frequency deficit.

Customer devices

According to GSA as of March 2013 97 manufactures presented 821 LTE customer devices.

 

Main customer devices in Russia at the moment of report preparation (March 2013) were USB modems and Wi-Fi routers; only one tablet model was presented. Despite presence of more than a dozen of smartphones supporting ‘Russian’ frequency LTE, 4G support by Russian networks was never realized due to unsolved problems with voice over LTE. It is expected to be solved with 2013.

 

Frequency conversion and perspectives of use of other bands

Conversion will more likely be carried out based on regional rather than national principles. At the same time low band frequency conversion of presents severe difficulties. According to J’son & Partners Consulting if clearing of 800 MHz spectrum is not done during the next 3-5 years or no effective mechanisms of joint use of radio frequencies by commercial and government users are found Russia will fall behind world LTE network launch rates.

 

Giving the lack of frequencies perspectives of the use of other bands – GSM bands of 900/1800 MHz; 3,5 GHz and others are uncertain. J'son & Partners Consulting estimates the probability of adoption of technological neutrality in GSM bands within the next three years, as low. And the use of high frequencies in the mass market, especially 3.5 GHz is inefficient from the economic point of view (mostly due to high costs).

 

According to J'son & Partners Consulting, the most appropriate band to ensure a broad LTE network coverage (especially in areas with low density of population) is 450 MHz band. However, these frequencies are not assigned yet to LTE by a 3GPP consortium, and perspectives of such solution are uncertain (mainly due to the lobbying of vendors interest for whom any solutions that ensure low CAPEX are not beneficial).

 

Perspectives of LTE development in Russia and key players’ strategies

Perspectives of LTE development in Russia will be largely determined by compliance with license requirements for coverage by ‘big four’ operators, minimum investments in infrastructure (at least $15 billion by the end of 2019) as well as conversion rates (frequencies ‘clearance’). In addition, permit to use GSM bands (first of all 1800 MHz) for this technology may also become LTE market driver in Russia, and in the long term – 3,5 GHz band. In the best case scenario this will lead to an increase in the number of players, increased competition, presentation of new customer devices and as a result to an increase in the LTE subscriber base.

Massive network construction in Russia will not start till 2015, after finalization of conversion and clearance of frequencies during transition from analog to digital television (‘digital dividend’).

According to J’son & Partners Consulting forecasts by the end of 2020 the subscriber base may reach in the best case scenario 23 mln users, in the conservative scenario – 14 mln users and in the base scenario – 20 mln users.

 

 

In the midterm key players of the LTE market will be the biggest mobile operators as well as new participants.

 

The main contenders for the development of LTE in Russia, in addition to the ‘big four’, which won frequencies at the tender in 2012, their current status as well as probability of commercial networks launch during 2013-2014 are presented in the table below.

 

 

       ¹ The Chechen Republic
       ² in 39 regions of Russian Federation

In the long term (more than 5 years) parallel to the LTE networks deployment there is a high probability of local connection of LTE-Advanced subnets on the territories of high traffic concentration (business and trade centers, stadiums, etc.).

In this case the main determining factor will be availability of consumer devices that support this technology.

In general we can say that:

 

      1. 4G Internet will be the main growth driver for mobile operators in the mid- and long
          term;
      2. companies that did not manage to get LTE-licenses will suffer margin decrease and
          customer churn in the mid- and long term;
      3. there is a market leader that can use ‘market skimming’ policy (‘MegaFon’/Yota).

 

Content of the full report “Russian LTE Market Analysis and Forecast”

 

Report content

Executive Summary
1. Commercial LTE network in Russia
       1.1. Launch of networks in Russia
       1.2. MVNO providers of LTE networks
              1.2.1. Terms of cooperation of ‘Skarlet’ and ‘Megafon’
              1.2.2. Cooperation agreements between ‘Skarlet’ and other mobile operators
       1.3. Subscribers database and ARPU
       1.4. Customer devices
              1.4.1. USB modems
              1.4.2. Tablets
              1.4.3. Wi-Fi routers
              1.4.4. Smartphones
       1.5. Prognosis of LTE development in Russia during 2013-2020
2. LTE-frequencies and tender results
       2.1. Frequency bands
              2.1.1. LTE 2600 FDD, Band 7 (2500-2530 MHz / 2620-2650 MHz)
              2.1.2. LTE 2600 TDD, Band 38 (2595-2620 MHz)
              2.1.3. LTE 2300 TDD, Band 40 (2300-2400 MHz)
              2.1.1. LTE 1900 TDD, Band 33 (1900-1920 MHz)
       2.2. Tender winners
       2.3. License requirements
       2.4. Radio frequency spectrum conversion
       2.5. Perspectives of frequency band use for LTE
              2.5.1. GSM-bands of 1800 MHz and 900 MHz
              2.5.2. 3,5 GHz
              2.5.3. Other bands
3. Key players and pretenders for LTE development in Russia
       3.1. Skarlet (Yota)
       3.2. MegaFon
       3.3. MTS
       3.4. VimpelCom
       3.5. Rostelecom
       3.6. Tele2
       3.7. Antares
       3.8. Osnova Telecom
       3.9. Other companies
              3.9.1. Vainah telecom
              3.9.2. Transtelecom
              3.9.3. Enforta
              3.9.4. SMARTS
              3.9.5. Summa telecom
4. Launch of LTE Advanced in Russia
Conclusion

Appendix. Commercial LTE networks in the world

 

List of pictures

Picture 1. Subscribers base (thousands) and market share of LTE providers in Russia, 2012
Picture 2. Map: commercial LTE networks in Russia
Picture 3. Announcement of LTE customer devices in the world, 2011-2013
Picture 4. LTE devices by types
Picture 5. World supplies of LTE customer devices, 2009-2020
Picture 6. Sole tablet supporting LTE in Russia
Picture 7. Subscribers base of LTE networks: forecast up to 2020
Picture 8. ARPU of LTE subscribers in Russia: forecast up to 2020
Picture 9. Structure of 4G services consumption, 2012-2020
Picture 10. Sale forecast of LTE customer devices in Russia, mln, 2012-2015
Picture 11. 3G/4G frequency spectrum allocation between operators

 

List of tables

Table 1. Commercial LTE networks in Russia
Table 2. Number of LTE FDD and LTE TDD devices supporting various frequencies
Table 3. USB-modems supporting LTE in Russia
Table 4. Wi-Fi routers supporting LTE in Russia
Table 5. Smartphones supporting LTE in Russia
Table 6. Various forecasts of number of LTE connections in the world
Table 7. Three scenarios of LTE networks development in Russia up to 2020
Table 8. LTE networks band in Russia
Table 9. Commitments of ‘big four’ companies on LTE networks deployment dynamics in Russia, number of Russian Federation members*
Table 10. Plan of LTE FDD network deployment by OJSC ‘MTS’ in Russia for 2013
Table 11. Potential player on 4G/LTE market in Russia (except for ‘big four’ companies)
Table 12. Main trial results of LTE-Advanced and plans of operators for implementation of the technology

 

 

This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.