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Russian leading cell operators team up to lay LTE, to cut expenses

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MOSCOW, Dec 29 (PRIME) -- Russia’s leading mobile operators MTS and VimpelCom have agreed to jointly construct and expand Long Term Evolution (LTE) networks in 36 out of 85 regions of the country. Analysts said the operators are teaming up to improve their competitive edge, cut costs and cushion the blow of economic troubles in the country.

MTS and VimpelCom, working under the Beeline brand, signed the agreement for seven years, during which they will provide each other with base stations, sites and infrastructure. The partners will be able to build complementary parts of the network for individual coverage as well.

According to the document, MTS will ensure the construction of mutually used networks of mobile Internet in 19 regions by 2017, and VimpelCom will build base stations in 17 regions.

“By uniting efforts, MTS and VimpelCom create a unique precedent for Russia on a joint use of active network infrastructure. We receive an opportunity to lay LTE networks in areas, which were earlier seen as unattractive for individual work, and ensure excellent coverage thanks to a wide choice of sites for base stations,” MTS’ President Andrei Dubovskov said.

He said that the project became feasible owning to legal initiatives put forward by the communications ministry. Prime Minister Dmitry Medvedev signed a ruling in early December, which authorizes the registration of radio electronic equipment or high frequency devices for two or more operators.

Deputy Communications Minister Dmitry Alkhazov said in late December that the ministry will prepare suggestions in cooperation with operators in January-March 2015 to allow the use of frequency bands by two operators.

The official said that the joint use of infrastructure will help operators cut costs of deploying and exploiting connection networks. The initiative is also aimed at expanding connection services to remote areas of the country.

According to VimpelCom’s General Director Mikhail Slobodin, the joint launch of LTE networks will reduce capital expenditures of the both operators by 25-30% and operating expenses by up to 50%.

Viktor Markov, senior analyst at Zerich Capital Management, said that the government wants telecommunications companies to provide the country with connection and the Internet to the largest possible extent, in particular in the conditions of the diversification of the domestic economy and the immense territory of the country. “The Russian economy is facing difficulties, that is why joint activities of operators will reduce the volume of investments and terms of putting projects in operation,” he said.

Finam analyst Timur Nigmatullin said that the joint use of LTE networks by MTS and VimpelCom originates from their intention to offset the competitive advantage of MegaFon, which enjoys an additional 4G frequency band and infrastructure gained through an acquisition of Scartel.

“The joint use is looking timely, considering the fall of the ruble against the dual-currency basket and risks of increasing capital expenditures when laying own infrastructure actively,” he said.

MegaFon, in its turn, is ready to consider Radio Access Network sharing (RAN Sharing), a way for multiple mobile telephone network operators to share radio access network infrastructure.

“MegaFon covers 100% of Russia with mobile connection services and provides LTE services in 68 regions, where half of the country’s population lives. A joint use of parts of network might be of more interest from the point of view of entering remote underpopulated areas, where the construction of our own network does not pay back,” MegaFon’s spokeswoman Tatyana Zvereva told Russian Connection.

“The downside of such a joint use of networks includes risks linked to the loss of market share when terminating these interrelations. I believe that the operators will develop this cooperation primarily in regions where payback of LTE networks is unclear due to a low effective demand. At that I don’t think that MegaFon will follow their suit thanks to its mentioned competitive advantage,” Finam’s Nigmatullin said.

The development of LTE networks contributes to the informatization of the country’s population. “According to our estimates, more than half of data transfer users will employ LTE services by 2019, and LTE-supporting smartphones are today one of the fastest growing categories of smartphones; their sales in Russia doubled over this year,” Slobodin from VimpelCom said.

Under the current conditions, the indicators of business efficiency and speed of services provision are of top priority for operators. “Information technologies are rapidly evolving, and operators should quickly react to users’ priorities. The advantage of joint work for operators is presented by decreased costs of network exploitation, as well as by a better quality and a wider range of services,” Markov at Zerich said.

“In case of a fruitful cooperation between MTS and VimpelCom, the suit could be followed by other operators. A lot will depend on health of the Russian economy and development of the legal base in the telecommunications industry.”

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