From a reader: more on the Russian state's mobile ambitions

I drive a bit of traffic to this blog by putting up links to some of the posts in relevant interest groups' news sections on LinkedIn. The only downside of this is that some comments/responses/questions which would add value for readers of DevelopingTelecomsWatch are only visible via these particular groups. By and large, this is not a huge problem for me. This week, however, one reader left such a well-written and insightful comment via LinkedIn, that I wanted to post it once again here for slightly wider consumption.

On Thursday, I picked up on press buzz about the Russian state telecoms investment vehicle Svyazinvest looking to get a lot more active in the sector, particularly in the mobile space. I reflected on the suggestion that this would be done via some kind of link up with one of the country's 'big three' cellcos and wondered which one it might be.

In response, Kiev-based Tim McQuillin leveraged a much better understanding of the Russian market than my own to weigh in with a more thorough analysis than anything I was able to come up with quickly. Over to you, Tim:
I'm not surprised that the Russian government is now turning its sights towards more control over its telecom industry, as it has done with its energy sector and most recently doing with its banking industry. I think a "merger" with a mobile operator would be a euphemism, and will be more like a nationalization.

The economic crisis is creating an opportunity to consolidate its position by taking advantage of the weakened oligarchs who own these businesses. Yevtushenkov (Sistema/MTS) has lost an estimated 90% of his wealth and worth barely $1 billion. Fridman (Alfa/Vimpelcom) has reportedly lost about 70% but is still worth around $7 billion and also is involved with the energy sector.

As MTS and Vimpelcom are both the most attractive mobile targets, the Kremlin would probably be satisfied with either. Therefore, as usual, the oligarch who isn't "playing nice" with Mr. Putin will be the likely loser. In this case, Yevtushenkov and his affiliations seems to fit this bill closer than Fridman, who has generally supported Putin and his party.

So with Yevtushenkov's weakened financial position, his relative distance from Putin, the "merger" with Sistema/MTS seems more likely. Additionally, to merge with Vimpelcom, the State would either need the agreement of Telenor's Vimpelcom board members for the deal or just railroad them. While it has shown it's willing and able to do that to foreign investors, Telenor has proved very tenacious over the years in its battles against Alfa and that it cannot be bullied or pushed out easily. But, if they've tired of the fight, this might be a good chance to sell out and move on. So there is my hedge. :-)

From a reader: more on the Russian state's mobile ambitions

Russian state telecoms company to go mobile - but how?

A cursory reading of telecoms sector news items emanating from Russia this month makes it clear that a big shake-up of the country's mobile sector may be on the cards. It is less clear what form this will take.

Whatever happens, a reorganisation and a change of priorities for Svyazinvest, the mainly state-owned telecoms holding company, look set to be the drivers for this shake-up.

The change of priorities is a shift from playing mostly in the fixed-line space towards being much more aggressive in the mobile business than is currently the case.

Svyazinvest's key assets are controlling stakes in seven large regional telecoms operators and Rostelecom, the national domestic long-distance and international operator - the Russian Federation does not have a single fixed-line incumbent operator along the lines of those typical of many European, Asian and Latin American countries.

Some of the seven regional operators are quite active players in the mobile space. For example, Uralsvyazinform (the dominant telco in the Urals region) had nearly 5.8 million subscribers on its GSM network by March 2009, according to WCIS. Siberia's Sibirtelecom has slightly fewer subscribers on its own network.

These figures, however, are dwarfed by those of Russia's big three cellcos - MTS, Vimpelcom and MegaFon, which have nearly 159 million subs between them, a collective market share of about 82%.

According to Maria Kiselyova of Reuters, writing this week, the Russian Government wishes to play a bigger role in the telecoms sector "and in the high-yielding mobile business in particular." With this in mind, writes Kiselyova, Svyazinvest has plans "to become the country's fourth-largest mobile phone operator by consolidating its mobile assets and partnering with private regional providers." Citing an article in business daily Vedomosti, she says that Svyazinvest is reportedly discussing partnership a scheme with regional providers, including Tele2.

Tele2 Russia Chairman Yuri Dombrovsky is reported to have said that his company and Svyazinvest could create a joint venture to build a third or fourth-generation mobile network in Russia and that Tele2 would be interested in using Svyazinvest mobile networks in regions where it has no presence, while Svyazinvest would use Tele2's networks in other regions in return.

Other reports this week, however, suggest that Svyazinvest might also opt for a quite different route towards more active participation in the Russian mobile market. A TelecomPaper article, for example, contends that the company "is seeking to close a merger deal with one of the top three mobile operators in Russia," and cites Communications Minister Igor Shchyogolev as saying that this "would be the optimal path for the development of Svyazinvest's mobile business."

If this is the more likely option, I wonder which of the big three cellcos would be involved. A clue might be extracted from a look at the ownership structure of Szyavinvest itself. The Russian Federal Property agency owns 75% minus 1 share. The next largest shareholder, with 17.31% plus one share is Comstar-UTS, whose main shareholder is Sistema - owner of a 52.8% stake in market-leading cellco MTS. I personally find the intricacies of Russian corporate structures to be fairly bewildering at times. Is it naive of me, then, to wonder if an tie-up with MTS is, due to this overlap of interests, more likely for Svyazinvest than an arrangement or merger with either Vimpelcom or MegaFon?

Whether it will be with MTS, another of the 'big three' or with Tele2, various reports do seem to settle around one fairly consistent idea - that Svyazinvest will not remain content with a relatively minor role in Russia's mobile industry. Having organised and hosted a number of telecoms sector conferences in Moscow, I retain an interest in this story and will try to follow it as closely as I can.

Russian state telecoms company to go mobile - but how?

Where will MNP go live in 2009? How should MNOs respond?

With Mobile Number Portability now about to hit the Indian market, the country's technology media are following the debate about how much impact this is likely to have.

Jatinder Singh, writing for Voice & Data magazine, notes that MNP has been a long time coming:

"After years of discussions and apprehensions by major telecom operators, MNP or mobile number portability, is finally going to make inroads into the Indian telecom market. [The] TRAI has approved the pan-India implementation of MNP, and [the] DoT has framed the timeline of its implementation; it is expected to hit the market by year-end."

Singh notes that MNP will be phased in piecemeal, region by region, starting with Delhi, Mumbai, Kolkatta and Chennai, with nearly 18% of the total cellular subscriber base given the option to change service providers while retaining their current mobile numbers. Singh also expresses the opinion that MNP may force operators to improve quality of service in order to avoid losing customers to rival MNOs.

So, how seriously are India's operators taking MNP in terms of threats and opportunities it might create? A range of views are reported in Jatinder Singh's article:

Kuldeep Goyal, Chairman and MD of BSNL, which currently occupies 4th place in terms of mobile market share with 11.95% of subs according to WCIS, seems upbeat about MNP, saying "It would certainly offer opportunities in the Indian telecom market. We are positive with our market share and would be eyeing more customers once things are in place."

From market-leading Bharti Airtel, Dr Jai Menon (Director, Customer Service and IT) notes that MNP has had varying levels of impact in markets worldwide. "We are ready and believe that it allows more and more customers to come to our network and enjoy the services," says Dr Menon. Also speaking for Bharti Airtel, Deputy CEO Sanjay Kapoor told the Business Standard earlier this month, that MNP "is more relevant in countries where you have long-term contracts", going on to explain that because "India is a prepaid market... number portability won’t be a game-changing opportunity for anybody." For Kapoor, the vast, price-sensitive prepaid segment is already so inclined to regular churn with "the exit and entry cost on prepaid connections... so low", that he does not believe MNP "really adds to value."

It is, perhaps, tempting to assume that a newer market entrant would be welcoming MNP much more enthusiastically, mindful of an improved opportunity to grab customers from established rivals.

Raymond Yu of telecoms think tank Ovum, writing earlier this month, however, contends that all MNOs are vulnerable to MNP-driven churn. He cites the cases of Greece and Lithuania, where the largest operators actually managed to increase their market shares immediately following the introduction of MNP. Yu also recalls the case of Hong Kong, where although all MNOs experience a large number of ports, "this is not unique to the customers of the market leaders."

In India, considerations of this kind may account for the apparently quite muted repsonse of new kid on the block Sistema Shyam Teleservices. The Voice & Data article quotes Vseovolod Rozanov, the company's CEO, as saying "it is more of an opportunity than a threat. However, looking at the experiences of global markets, the influence on change in the market share is not very dramatic." This is not to suggest, however, that Rozanov is completely disinterested in MNP. In a recent Economic Times article he is quoted as saying "number portability will... drive growth for us." The Sistema-backed operation, which has now harmonised its brand with that of the giant Russian cellco which is part of the same group, has, according to WCIS, yet to break the 1% mark in terms of market share.

The Bharti Airtel CEO's comments about market conditions in India somewhat diminishing the relevance of MNP are echoed, to a degree, by remarks made by the head of the telecoms regulatory agency in Uganda. In this case, however, market size rather than the behaviour of prepaid users is being put forward as the argument against imminent deployment of MNP.

A recent Cellular News story quotes Patrick Masambu, Executive Director of the Uganda Communications Commission, as saying that "at this stage, number portability is not something we see as a remedy in this market." Mr Masambu feels that the Ugandan market needs to grow further before the costs could be justified. He added, however though that once the country has passed the 10 million subscriber mark, then MNP could be viable. I find it a little curious that Mr Masambu chooses 10 million subs as the trigger for more actively considering MNP. If you read his comments without knowing the size of the Ugandan mobile market, you might imagine that the country has rather fewer than the 10 million subscriptions. According to WCIS, however, the country had 9.95 subs as of March this year. Hmmm...

In neighbouring Kenya, the deployment of MNP may also be some way off, if a recent article from the country's Standard newspaper is to be believed. The Standard's Robert Ndingwa notes that the Communications Commission of Kenya (CCK) has just three months to go before its September 2009 deadline to implement its version of number portability but states that the regulator is yet make a decision on whether to licence local number portability operators, "leaving consumers at the mercy of dominant mobile service providers." Ndingwa alleges that the CCK "prefers, instead, to hide behind its so-called principle of technology neutrality in the new market structure it introduced."

With some operators and regulators apparently lukewarm about the need for and effects of MNP, it might be worth asking whether views of this kind might mask a degree of fear about number portability. If so, Ovum's Raymond Yu dvises operators in particular not to be too worried, suggesting that each MNO must decide whether to view MNP as a threat or an opportunity and then devise an effective strategy in response.

Yu argues that "essentially, there are two ways to react to the introduction of MNP: either promote it or keep it under covers." In most cases, challenging operators would take the aggressive stance, says Yu, "whereas dominant operators are initially more reluctant to push MNP."

Yu notes that popular strategies for promoting MNP include making it a normal part of the sales process and using marketing to increase consumer awareness and perception of the facility to retain their numbers when switching providers. Strategies to defend against MNP include, according to Yu, simply not advertising it, implementing strong win-back strategies in line with porting requests and employing stronger loyalty and retention initiatives.

Let's see which of these options are chosen by MNOs in India - and in Uganda and Kenya, should MNP become a reality any time soon. According to Raymond Yu, other markets to watch for MNP deployments this year include Ecudaor, the Dominican Republic, Peru and Thailand.

Where will MNP go live in 2009? How should MNOs respond?

Views from MWC: WiMAX to gain traction in emerging markets?

I recently discussed here the relative merits of and prospects for 3.5G mobile and WiMAX networks in India. A number of news items emanating from this week's Mobile World Congress prompt me to widen the discussion out to the question of how much traction WiMAX backers can expect the technology to gain in emerging markets worldwide.

The first of these items comes courtesy of the telecoms.com, whose correspondent caught up with Wei Yuan, Senior Director of Global Marketing for ZTE in Barcelona. "We anticipate a boom in WiMAX take-up for fixed applications in emerging markets this year," says Wei Yuan, who believes that Russia, the CIS, the Middle East and Africa hold out the best prospects for WiMAX growth for the Chinese telecommunications equipment and network solutions firm.

In terms of serving mobile operators, Wei Yuan believes the '4G' market share will be 80/20 in LTE's favour, but feels that the WiMAX opportunity is still a sizeable one, especially in light of recent announcements by Alcatel-Lucent and troubled Nortel that they are no longer focusing on WiMAX mobility. The article adds weight to this last point, noting that ZTE's WiMAX momentum is highlighted by In-Stat, a market research firm whose recent report states that out of the 94 new WiMAX 16e commercial networks deployed last year, ZTE had 15 of them or 16% of all the networks established worldwide. This apparently sets the Chinese company among the top two WiMAX equipment vendors in 2008. According to the telecoms.com article, the report goes on to say that with ZTE's industry-proven WiMAX terminal solutions and a significant number of commercial WiMAX networks the company is planning to install in the years to come, "there is a high probability that the company can assume the number one spot as WiMAX equipment vendor worldwide."

Just before the Congress, Sean Maloney, Chief Sales and Marketing Officer of Intel provided an update on recent WiMAX developments, a summary of which you can read at WiMAX.com. "WiMAX is a global story," said Maloney. "The technology is real, here today and has a 2-3 year advantage over other competing technologies."

What stood out for me was Maloney insisting that big deployments in the most highly developed markets are only part of the WiMAX picture. "Too much focus has been placed on developments in the US and Clearwire," said Maloney. "This is a global story; to understand how it is doing you must take a global perspective. From the very beginning, we wanted to have a global, ultra-fast, low-cost wireless internet solution that would help bridge the digital divide and last mile."

Maloney flagged up some of the more notable deployments, including Scartel and Comstar launching services in Russia with up to 10Mbs performance. For Intel, Moscow and St. Petersburg have leapfrogged 3G services to 4G. In the case of the Russian capital, I wonder how damaging this will be for the country's three leading mobile operators MTS, Vimplecom and MegaFon, which have all rolled out 3G services in major cities except Moscow. There have been long delays with the the Russian military freeing up UMTS frequencies and I have discussed here in previous posts the argument that this frustrating 3G launch delay in the country's most lucrative market has created a window of opportunity for the likes of Scartel and Comstar. In the case of the latter, however, it is worth mentioning that the Comstar-UTS group, a leading provider of integrated telecommunication solutions in Moscow and other cities, is controlled by Sistema, which is also the parent company of mobile market leader MTS.

Scartel, says the WiMAX.com article, plans services in over 40 Russian cities and launched the world's first GSM/WiMAX phone with HTC. This has not remained the sole GSM/WiMAX device on the market for very long. WiMAX.com reported on Tuesday this week that Quantum Telecom had unveiled at the Mobile World Congress in its first Ultra Low Cost GSM-WiMAX handset. I assume this is aimed primarily at emerging markets.

Other emerging markets and middle income countries which have seen WiMAX deployments include:

• Pakistan, where Wateen Telecom has launched the largest WiMAX network in the world covering 26 cities with plans to grow to over 70 cities; mobile operator Mobilink also launched WiMAX services in August 2008.
• Venezuela, where MobileMax has deployed WiMAX in Caracas in June 2008 with up to 20K users
• Brazil, where Embratel, part of Telmex, is operating a WiMAX network covering over 20 cities

It will be interesting to see which emerging markets are home to further WiMAX deployments. I know less about developments in Africa and SE Asia, but Intel and ZTE certainly seem to be vocal, powerful backers of WiMAX as a useful option for service providers in developing countries.

Views from MWC: WiMAX to gain traction in emerging markets?

GSM vs. CDMA: the battle goes on?

One of the most rewarding aspects of being part of Informa Telecoms & Media's Com World Series team was having the opportunity to learn about regions which I had not previously studied or visited. Previously, while creating and hosting telecoms sector conferences for other companies, my travels had taken me to North America, Central & Eastern Europe and to Russia. My Com World Series brief took me further afield. In addition to already familiar territory, regions I covered in the Informa role included the Middle East , India/South Asia and Latin America.

In the last of these regions, my visits began at what felt like the relatively advanced stages of a protracted cellular network standard battle between the GSM and CDMA camps. A key partner in the delivery of the GSM Americas/Americas Com events in which I was involved was 3G Americas, an association founded in 2002, with a mission to unite "mobile operators and manufacturers in the Americas to provide a single voice to represent the GSM family of wireless technologies – GSM, GPRS, EDGE, and UMTS/HSDPA."

The 3G Americas President, Chris Pearson and the association's Latin America Director Erasmo Rojas led an Executive Briefing session at each of the Americas Com conferences delivered under my watch. They did a great job of rounding up CxO-level participants from key South American MNOs. I don't think they would mind me saying that on both occassions Chris's opening presentation really banged the drum for the GSM family in terms of describing advantages over rival standards.

I cannot be sure to what extent 3G Americas has been instrumental to the Western Hemisphere's migration away from CDMA technology in favour of the GSM flavour, but that migration has been significant. The graphic below, taken from the 3G Americas website (and drawn from Informa Telecoms & Media WCIS figures), shows how GSM has prevailed in the opening years of this new century:

It is worth pointing out that the non-GSM subscriptions are now, for the most part, in North America. In the USA and Canada, it is estimated that there currently exist around 153 million CDMA connections. GSM subscriptions across these two markets number around 104 million and W-CDMA lines have just reached the 20 million mark.

Looking further south, Informa Telecoms & Media estimated that in the 'Americas' region (all markets in the Western Hemisphere except the USA and Canada), there were almost 400 million GSM subscriptions and just 40.6 million CDMA subscriptions by the end of December 2008. Of these CDMA lines, the two most significant chunks were the 11.7 million connections in Brazil and the 15.8 million in Venezuela. In the case of Brazil, a single operator, Vivo, accounts for all the CDMA subscriptions.

When I looked up these figures today, I was a little surprised that Vivo, a joint Telefónica-Portugal Telecom operation, still has so many subscribers on its CDMA network. The last time I was looking closely at developments at Vivo, which was back in about May 2008, I was under the impression the company planned to shift all of its CDMA mobile subscribers to its newer GSM network. That process is certainly happening - but at nothing like the speed I imagined.

In Venezuela, the vast majority of the CDMA connections are owned by renationalised Movilnet, which has an estimated 11.3 million subscribers - vs. the 4.5 million CDMA connections of rival Movistar. Unlike Movilnet, the Telefónica-backed Venezuelan MNO has been steadily shifting users to a GSM network since March 2006. However, the state-owned cellco is also, finally, making the move to GSM. In December last year, Global Mobile Daily reported that billing vendor Amdocs has deployed a billing solution to support Movilnet's new GSM network.

We can therefore expect continuing developments in Latin America to impact upon the next version of the above graphic. Look out for further erosion in the non-GSM networks' share of Western Hemisphere mobile subscriptions.

One might infer from all of this that CDMA is a technology in quick decline towards an inevitable demise. However, recent news items from India lead me to believe that the GSM-CDMA battle is very much a live one in that country.

Earlier this week, I spotted that Sistema Shyam TeleServices is potentially looking at more acquisitions in order to gain better access to the Indian market. The company, a joint venture between majority shareholder Sistema of Russia and India's Shyam Group, was among operators to get new licences in early 2008. The nascent cellco is aiming to offer CDMA-based mobile services across the country before the middle of 2010. A Business Line/Hindu Group article dated Jan 30th quotes Vsevolod Rozanov, President and CEO, Sistema Shyam TeleServices, who says "We are open to any opportunities for acquiring a mobile services company in India to speed up our roll out plans. However, there are not too many CDMA operators in the country who are looking to sell their business." Asked specifically about well-established CDMA MNO Reliance Communications, Rozanov said, "Yes we can look at Reliance’s business if they are willing to sell. However, I do not think that is the case." According to the article Reliance was, at some unspecified recent time "considering a merger deal with South Africa-based telecom player MTN."

When the full gravity of the global economic downturn started to become clear to us all last year, I sensed that one casualty might be the international expansion plans of Russia's leading telecoms groups. In that context, Sistema's apparent willingness to spend money on growing its Indian CDMA operation suggests to me not only confidence in the Indian market but also a belief that the CDMA standard is up to the task of supporting attractive, well-priced and future-proof services.

Another sign that CDMA is to be taken seriously in India is the recent, strongly worded response of the COAI (Cellular Operators' Association of India) to reported plans on the part of one operator to make EV-DO data cards available on the market. The COAI is a club of GSM operators, a group that must surely be frustrated by the ongoing delays in the licensing of spectrum for 3G and WiMAX services. Telecoms.com reported today that having already put the spectrum auctions off until this year, because of the government's failure to clear the relevant radio spectrum in all operating regions ('circles' in the local jargon), new delays are anticipated in the wake of proposals to double the base price of the licences.

India's GSM players, then, are clearly concerned about being outpaced by CDMA operators. An article in yesterday's Economic Times says that COAI Director General T.V. Ramachandran has written to the country's telecoms Minister to seek assurances that no private player should be allowed to launch EV-DO service without 3G being made available to all players. The article states that according to the COAI, the launch of EV-DO services would be unfair to the GSM operators as "CDMA operators have ample spectrum to offer both 2G as well as 3G services and this can result in [giving] unfair anti-competitive advantage to CDMA and tilt the playing field to the disadvantage of the private GSM operators".

I daresay Mr Ramachandran and his colleagues will make a strong and persuasive case. During my stint running the Com World Series Indian event I had the pleasure of meeting the COAI Director General several times. One memory stands out. In 2007 I was asked to have lunch with Mr Ramachandran and his guests from various Indian government agencies at the conference. One of the guests, on agreeing with a point made by the COAI head, gave me a useful piece of advice about keeping tabs on telco sector developments in India. "If you want to know," said my neighbour at the lunch table, "watch T.V." I will indeed keep an eye out for more on this story. I am interested to see if the COAI can indeed prevail in their argument that EV-DO gives CDMA operators an unfair advantage over GSM operators struggling with further delays to their own 3G plans.

All of this makes me look back and smile at a very simplistic remark made to me years ago by one of my first bosses at a telecoms sector conference company. It was one of his tasks to set me on the path of cutting through the then-forbidding tangle of telco jargon. "CDMA is dead," he told me. "You only need to worry about GSM". I don't think that can have been true then given that it's abundantly clear that it's not correct even now.

GSM vs. CDMA: the battle goes on?