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Stepping out on Russia’s stage

MTS and VimpelCom will build LTE networks in Russia

The biggest country in the world is making room for WiMAX as Russian operators strive to address the country’s broadband deficit.

The WiMAX opportunity in each country tends to be assessed according to whether that country’s economy and telecoms market are developed or developing. In mature markets, the ‘mobile personal broadband’ concept is prominent. In emerging markets, the ‘fixed line replacement’ model predominates.

“Russia has both developing and developed markets,” argues Sergey Portnoy, WiMAX Forum regional director for Russia and CIS. Russia’s 141 million-strong population inhabits an enormous variety of geographical, economic, social (and telecoms) environments.

Consequently, “some operators are trying to develop the access side of WiMAX, some to develop mobile WiMAX,” says Portnoy, adding that the market is very crowded with fixed, mobile and Greenfield operators all “interested in WiMAX”.

Konstantin Ankilov, senior consultant with IKS Consulting, identifies four types of companies considering WiMAX: Niche operators in areas where DSL/fibre is absent; ‘Market invaders’ using WiMAX as the fastest get-to-market strategy; Wireline operators using WiMAX as a complement; Mobile operators contemplating WiMAX.

Broadband deficit

Most of the interest is in fixed WiMAX, generated by the pent-up demand for broadband access. While Russian internet access is soaring, Russian broadband penetration is in single digits. There is a paucity of infrastructure, particularly outside Moscow and St. Petersburg.

The Russian population is highly educated and computer literate, and mobile phone penetration has rocketed. Meanwhile GDP per capita has risen from $4000 in 1999 to $12,000 in 2006, and the enterprise sector is flourishing.

“WiMAX has a real opportunity to capitalise on the market’s readiness to accept wireless solutions, as well as Russian people’s demand for knowledge based services,” says Lee Sparkman, president of Enforta, Russia’s leading WiMAX service provider.

Consequently between 300 and 400 companies are registered as broadband wireless access (BWA) providers in Russia. Most are small, local operations, many are simply spectrum speculators waiting for a bigger fish, a handful offer WiMAX-based services.

Overwhelmingly, they serve enterprise customers, providing primarily data, VPN and voice services. The corporate market represents about 80 per cent of the BWA market. These are Ankilov’s niche operators.

“You may say it is a niche market but in Russia the corporate broadband market is 10 per cent wireless. This niche is pretty large,” says Ankilov. “For example, in Moscow (considered a saturated telecoms market) business centre growth rate is 15 per cent per year. All those offices need communications.”

In Moscow there would be fierce competition for that business from DSL and fibre network providers, but if they can move fast enough WiMAX players can provide solutions; temporary solution perhaps, but solutions nonetheless. And in smaller regional cities, the competition might not be so fierce and the wireless solutions might be more permanent.

Market invader: Enforta

Enforta has taken that attitude, moving rapidly since its formation in 2003 to both build and acquire BWA networks in Moscow, St. Petersburg and 31 other cities across Russia.

Enforta plans to be operational in 65 cities by the end of the year, rolling out networks, predominantly in 5.2GHz spectrum, using outdoor CPE equipment provided by Alvarion and Airspan.

“We see good uptake almost immediately we go into a city,” says Sparkman. “Enterprise customers want high-quality speed and we can typically get them 2Mbps+ uplink and downlink with very low latency, low jitter which lets them do net access, VoIP and video conferencing, and VPNs, a big service for us.”

Enforta has about 15000 enterprise clients on a collection of service plans that range from $40 a month to $400- $500 a month. “Russian ARPUs for enterprise customers are pretty much in line with Europe,” notes Sparkman.

Critically, this similarity does not exist in the consumer market, which represents only 15 per cent of Enforta’s subscribers. “Consumer broadband is novel, even in Moscow ARPUs are down to $20-25,” reports Sparkman. “Consumer ARPUs in Russia are half those in West.”

Backed by one of Russia largest venture funds and the Sumitomo Corporation, Enforta has financial muscle and is not afraid to use it to acquire new territories, buying its way to spectrum rights and infrastructure in Moscow, St. Petersburg, Rostov and the Urals.

“Enforta is the leader of this market, in data transmission and VPNs and also telephony,” says Ankilov, who believes Enforta is using WiMAX to aggressively blanket markets with coverage, get established with customers, and possibly migrate later to full DSL/fibre offerings.

Market invader: Synterra

Another hugely ambitious player is Synterra, which plans to build ‘mini’ 802.16e WiMAX networks in 1000 cities and towns in Russia where it has 2.5-2.7GHz spectrum rights, and then wholesale the networks to partners offering services under their own brands (becoming WiMAX virtual network operators (WVNO)).

Synterra hopes that a network of local operators will bring traffic onto its national backbone, and help it to meet targets such as its current $116m contract to supply broadband access to 53,000 Russian schools.

Synterra proposes to build only in localities with populations of less than 100,000. “We are developing new markets and act as legislators in them. It is there that the wireless internet might become the most promising,” Vitali Slizen, Director General of Synterra, said in December. Synterra’s first 20 test 802.16e networks were due to be launched in Q1 2008.

However, Synterra’s first operational partner is not a local player in a regional city but Orange Business Services (Ekvant in Russia) in Moscow.

Orange will operate enterprise services over a pre-WiMAX network that Synterra launched in in mid-2005, and which covers 80 per cent of Moscow. This network has collected about 1750 clients, according to Ankilov, and has ARPUs comparable to most Russian BWA providers, between $150-$200 a month.

Meanwhile in St. Petersburg, where Synterra does not have spectrum rights, its subsidiary Peterstar will lease 3.5GHz airwaves from Start Telecom and itself act as a WVNO. The services will again be targeted at corporate customers

Synterra’s ‘mini’ network WVNO approach is much debated in Russia, says Ankilov, who is ambivalent. “There will be some companies interested as Synterra can provide access to long distance lines and business processes [but] I’m not sure this model will be successful, there are those who think it unworkable because of all the potential legal issues.”

Knowledge Gap

Enforta’s strategy of securing spectrum through acquisition and Synterra’s WVNO model are arguably responses to a market that presents a confused, opaque regulatory picture.

Some things are clear. There is a lack of available WiMAX spectrum in 2.5GHz and 3.5GHz bands.

“Most frequencies in those ranges are occupied by operators, government agencies, for microwave, satellite and broadband wireless. The Telecom Ministry is trying to free up spectrum for WiMAX operators but many other government institutions control frequencies,” says Konstantin Ankilov.

Lee Sparkman, however, anticipates movement on 2.5GHz in a matter of months. “There is a state spectrum planning meeting considering 2.5GHz permit applications made by about 300 applicants and we should soon hear about that,” he says.

In Russia all radio frequencies are licensed. Nationwide licences are rare. Spectrum is awarded not centrally but by regional or local authorities responding to applications made by individual operators, not public auctions or tenders.

“There are a lot of operators declaring they have spectrum.Some which have spectrum are not making it public.It is not easy to answer which operator has what spectrum,” says Sergey Portnoy. There are further complications, adds Sparkman.

“They may have a spectrum permit but not obtained specific spectrum assignments, given on a base station by base station basis,” he explains. “And there is another stage: getting an operating licence, and finally the authorities inspect your infrastructure.”

All of which suggests that until operators actually roll out networks and services, it will be difficult to assess the true picture.

From Fixed to Mobile?

A sure sign of a promising market is the energetic participation of Intel, and in Russia Intel has agreed with telecoms giant Comstar-UTS to jointly develop an 802.16e WiMAX network, initially in the Moscow region, to launch in late 2008.

Comstar is Moscow’s leading ADSL broadband service provider, providing voice, data, internet, and pay-TV, and its strategy envisages WiMAX as a complement and extension of its existing services, placing it into Ankilov’s third category of WiMAX players.

The new partners are targeting laptop users with Intel’s new Echo Peak WiMAX/wifi module. According to reports one in four broadband subscribers in Moscow use a laptop, and so nomadicity is clearly a vital element of Comstar’s plan.

“We think the combination of wire and wireless access is optimal,” Comstar Vice-President for Strategy Alexander Gorbunov said in December. “We count on a mass market and estimate that the average revenue per user will be $10-$20 per month”.

Whether the mass Russian market can afford laptops, is highly debatable, argues Sparkman, who is generally sceptical of the case for WiMAX mobility.

“It’s like providing the masses with Cadillacs when all they need is a Lada. In the future, yes, Russia will evolve from fixed to nomadic to mobile [but] in a country deprived of basic infrastructure why would you do that?” he asks.

Furthermore, at present no Russian spectrum licences allow WiMAX mobility, although that could well change, which perhaps explains the interest of Ankilov’s fourth category, the mobile operators.

“We are working with WiMAX as a technology [but] our subscribers cannot pay a lot and much will depend on how cheap this technology will be,” says Natalia Roudenko, Director of Technological Development at Russia’s number two mobile operator VimpelCom.

Numbers one and three, MobileTeleSystems and MegaFon, are also examining WiMAX, but in what context, whether for mobility services or as a fixed complement to cellular, or simply to see what the potential threat to 3G might be, is unclear.

Should the authorities allow mobility in the WiMAX frequencies the mobile players could become more active, particularly if some of the WiMAX start-ups sought to go mobile and threatened their nascent 3G services.

Despite having 3G licences, the big three have yet to roll out any networks. “I suspect they feel it is like providing Mercedes to a population that wants Ladas,” Sparkman quips. But it could be that they are also waiting to see what mobile WiMAX delivers before committing themselves.

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