Tuesday, 3 August 2010

Big three launch 4G protest

A damaging row broke out last week after Russia’s top three mobile communications operators protested that two small, unknown companies had been allocated key 4G mobile phone frequencies.
Chairmen of the three companies – MTS, Vimpelcom and Megafon – appealed to President Dmitry Medvedev, after previously complaining to the Communications Ministry and Prime Minister Vladimir Putin’s government.
The three firms said they were concerned that the frequencies will remain in the hands of the little-known firms, Osnova-Telecom and RusEnergoTelekom, which do not have the resources to develop them.The big three called for an open auction for 4G frequencies, and analysts said the Communications Ministry would probably have to agree to their demand.
“If not, the ministry will find itself in a vulnerable situation,” said Alexander Kazbegi, a telecoms analyst at Renaissance Capital.
The Communications Ministry is expected to make a ruling on the frequencies by the middle of August.
Telecom analysts said the fact that the big three rivals had appealed jointly to Medvedev showed they were worried.
“They probably thought that everything would go as usual, but it didn’t,” said Sergei Libin, an analyst at Metropol.

Meanwhile, some analysts said the conflict was premature – as the Russian market is not fully ready for 4G.
“There aren’t too many mobile Internet users in Russia now who care much whether they have a speed of 10 or 100 megabytes on their phones,” said Kazbegi, of Renaissance Capital.
Thus the conflict looks more like a politically-tinged fight over a potential future market, rather than a current commercial dispute, experts said.

Mikhail Kazak said market participants believe that Osnova-Telecom represents the interests of some top officers in the Defence Ministry, while Rusenergotelecom is close to senior officials in the Communications Ministry.
“All the parties in the conflict have significant administrative resources, and they are trying to actively use them,” said Kazak.
Kazak pointed to a meeting between Medvedev and Defence Minister Anatoly Serdyukov, saying Medvedev “promised support to the Osnova-Telecom project”.

Voyentelecom, a communications arm of the Defence Ministry which controls Osnova-Telecom, declined to comment on the issue. A source close to the company said the 4G frequencies were a matter of national security, and had to be protected.
Telecoms experts said the real issue, however, was one of economic efficiency – as the country’s big three mobile operators were all capable of upgrading their networks to 4G.
“The frequency problem is not [special] to Russia,” said Alexander Kazbegi. “In most countries to get a frequency quite often means to take it from someone else.”

Voyentelecom, a communications arm of the Defence Ministry which controls Osnova-Telecom, declined to comment on the issue. A source close to the company said the 4G frequencies were a matter of national security, and had to be protected.
Telecoms experts said the real issue, however, was one of economic efficiency – as the country’s big three mobile operators were all capable of upgrading their networks to 4G.
“The frequency problem is not [special] to Russia,” said Alexander Kazbegi. “In most countries to get a frequency quite often means to take it from someone else.”

While the military authorities in many countries have the rights to such frequencies, they often need private-sector technology and investment to develop them, Kazbegi said.
Nikolai Tamodin, CEO of Voyentelecom since January 2010, has said that his company has a strategy to develop the 4G networks together with a company called Icominvest.
Russian media reports have suggested that Icominvest could be linked to Vitaly Yusufov, the son of former Energy Minister Igor Yusufov.