Global Insight Perspective | |
Significance | The licences will be awarded on the basis of a number of criteria, including the experience of bidders in the country's mobile sector. |
Implications | Although the cost of the licences will be cheap, the outlay on infrastructure could run into billions of dollars. Mobile operators will therefore need to examine how profitable 3G roll-out is likely to be. |
Outlook | The country's big three mobile operators—MTS, VimpelCom, and Megafon—are likeliest to obtain the licences, although bids are also being invited from syndicates and foreign companies. |
Russia's Federal Communications Agency (Rossvyaz) has announced tenders for three 3G licences, according to press reports. The fees for the licences have been set at 2.64 million roubles (US$100,000), although a number of other criteria will be taken into account. These will include the number of licences already held by bidders, the number of 3G base stations planned for construction by the bidders, the amount of time the bidder is expected to take in rolling out its 3G network, and the timeframe presented by the bidder for the launch of 3G services. Successful bidders will be obliged to launch commercial 3G services within two years of receiving licences. Bids will be accepted from 16 January 2007 until 26 February 2007, and Rossvyaz's decision-making process will begin on 20 April 2007. One licence will be for frequencies in the 1,935-1,950 MHz and 2,125-2,140 MHz ranges; a second will be in the 1,950-1,965 MHz, 2,015-2,020 MHz, and 2,140-2,155 MHz ranges; and the third licence will be for frequencies in the 1,965-1,980 MHZ, 2,020-2,025 MHz, and 2,155-2,170 MHz ranges. Although these frequency ranges are currently being used by military and government bodies they will be freed once the 3G licences have been awarded.
Outlook and Implications
- Likely Participants: Russia's leading mobile operators by subscriber numbers—Mobile TeleSystems (MTS), VimpelCom, and Megafon—are each expected to bid for the licences. The experience, coverage, and existing subscriber bases of these three suggest that they are the likelier than minor operators to obtain the licences, although VimpelCom's lack of coverage in the Far-Eastern regions of the country may pose a problem (see Russia: 8 November 2006: VimpelCom Denied Far East Licence Again). The high penetration level of Russia's mobile market, currently thought to be around 100%, suggests that there is little room for further organic growth. The country's mobile operators have therefore been adjusting to this by easing the drive for subscriber growth and dedicating more resources to the provision of value-added services, which can boost revenue and ARPU levels. The prospect of acquiring 3G licences it therefore likely to appeal, as high-speed data-transfer capacities would enable the provision of more value-added services, including video telephony and mobile internet.
- Possible Problems: The big three mobile operators may take a moment to consider the potential pitfalls of 3G roll-outs. Although the licences themselves are cheap, the costs of network deployment are likely to mount to several billion dollars, and operators will have to calculate whether the likely financial outlay will be recouped in revenue generated by subscriber uptake. In the third quarter of 2006 MTS and VimpelCom each recorded ARPU of US$8.6, while Megafon's second-quarter ARPU was US$11.1. The country's only existing 3G licence holder, CDMA operator SkyLink, generates ARPU of US$58.5, but has a subscriber base of under 400,000. It is therefore questionable whether there is a high-end subscriber market, willing to increase its spending level for 3G services, which is sufficiently large to offset the operator's costs of 3G roll-out. This is particularly pertinent given that existing 2G and 2.5G technology is already being leveraged to provide a range of value-added services including music and internet access (see Russia: 23 October 2006: More Value-Added Schemes from MTS).
- Competition to the Big Three: Rossvyaz has announced that syndicates and foreign companies would be welcome to participate in the 3G licence tenders. However, only one member of a successful syndicate would be allowed a licence, while foreign companies would only be allowed to participate in the tenders through Russian subsidiaries. National fixed-line holding Svyazinvest has stated that none of its subsidiaries are currently considering participation in the tenders. However, CDMA operator SkyLink may offer competition to the big three by participating in the tender. Russia's IT and Telecoms minister Leonid Reiman has recently hinted that a fourth 3G licence may be made available in the country, depending on the availability of appropriate frequencies (see Russia: 19 December 2006: Minister Predicts Russia Will See Three 3G Licences in 2007).