Russia LTE plan hits another hurdle

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Russia LTE plan hits another hurdle

Carriers balk at $1bn valuation for their wholesale partner Yota, threatening timescale for shared 4G services

By CAROLINE GABRIEL

Published: 31 August, 2011

READ MORE: Russia | MVNO | LTE

Russia's plan to kick off its LTE era with a single network, run by Yota and shared by the big four carriers, was elegant in its simplicity - but perhaps it was too much to hope that the country would achieve 4G so smoothly, given its history of spectrum disputes and bureaucratic delays during 3G. The carriers are already arguing over plans to redistribute spectrum, and there are antitrust probes into whether the plan hurts smaller rivals. Now another hurdle faces the Yota plan - centering on the 4G start-up's valuation of itself at $1bn.

The valuation could prevent the LTE project from going ahead, according to Russian news service Vedomosti. The aim is for Yota, whose original networks were WiMAX-based, to build an LTE network which would then support services sold by the big three cellcos -

each have the right to acquire a 20% stake in Yota once the network is completed in 2014.

But the price of those stakes is proving a major obstacle to final go-ahead, and furious negotiations are said to be taking place between the operators and Yota's owner Scartel. Opposition to the $1bn valuation is being led by Vimpelcom's always controversial holding company Alfa Group, which has extensive telecoms activities across Russia and former Soviet states.

However, Scartel is in a strong position. It is the only body in Russia which will have suitable spectrum for a national LTE build-out for some years to come - other options for the main cellco rely on the military vacating certain frequencies, and others being reallocated, and that process is only just underway. Yet demand for new mobile capacity is urgent. Russia's mobile penetration is huge, reaching over 200% in the biggest cities and averaging 154% at the end of July, according to local analysts AC&M. The total SIM card base is 224.26m, with MTS in the lead with 31.6% market share, though its rivals are narrowing the gap. MegaFon, which is the leader in St Petersburg, has 26% of the Russian connections base, and Vimpelcom has almost 25%.