Russia Preps for 3G

The huge boom in Russia’s cellular industry has led carriers to plow investment into regional W-CDMA (Wideband Code Division Multiple Access) network trials, with analysts touting the country as a potential hotbed of 3G activity.

By the end of April 2004 wireless penetration in Russia had reached 30.8 percent, taking the total to 44.7 million subscribers, according to analysts at Moscow-based J'son & Partners.

With GSM (Global System for Mobile communications) technology dominating 95 percent of the market’s current cellular services, Russia is expected to adopt the European W-CDMA standard as its 3G technology of choice.

The W-CDMA air interface is part of the Universal Mobile Telecommunications Standard (UMTS). Used with existing GSM core networks, the theory goes, W-CDMA-compliant handsets and base stations can increase wireless data transfer rates to a potential maximum of 2 Mbit/s.

In its latest report, J'Son & Partners states that Russian carriers have conducted extensive trials of W-CDMA networks over the past three years.

Mobile TeleSystems OJSC (MTS) (NYSE: MBT), the country’s largest carrier (16.1 million subscribers), has trialed kit from NEC Corp. (Nasdaq: NIPNY; Tokyo: 6701), Siemens AG (NYSE: SI; Frankfurt: SIE) and Huawei Technologies Co. Ltd. Number two, JSC Vimpel-Communications (VimpelCom) (NYSE: VIP) (13.9 million) has tested equipment from Alcatel SA (NYSE: ALA; Paris: CGEP:PA). (See Alcatel Trials Russian 3G.) Third-place MegaFon (8.1 million subscribers) is testing kit from LM Ericsson (Nasdaq: ERICY), NEC, Nokia Corp. (NYSE: NOK), and Siemens.

J’Son claims that 3G licenses are likely to be awarded in the fourth quarter of 2004 and the first quarter of 2005, with network deployment slated for the second or third quarter of 2005. Commercial 3G service launch “in major Russian cities” is expected in the first and second quarters of 2006.

“The Russian 3G market has a great potential to develop through a combination of positive circumstances,” notes the Cellular Market Watch report. “The government has a key role... by limiting the influence of market inhibitors and ensuring success through a timely and intelligent development of 3G.”

The attraction of Russia’s cellular industry has already led a number of Europe’s Tier 1 carriers to take significant stakes in the market’s three main players. T-Mobile International AG has a 25 percent stake in MTS, and Telenor ASA (Nasdaq: TELN), which is keen to build a growing presence in the region, holds a 29 percent stake in VimpelCom. Scandinavian powerhouse TeliaSonera AB (Nasdaq: TLSN), which is also amassing mobile assets in Northern and Eastern Europe, owns 43.8 percent of MegaFon.

Vodafone Group plc (NYSE: VOD) is also rumored to be making a move on the market following its failed bid to take over AT&T Wireless Services Inc. (NYSE: AWE). (See Vodafone May Go Russian.)

“Strategically, Russia is a very important market for carriers,” adds IDC senior analyst Paolo Pescatore. “There is the potential for huge growth, and many global carriers will be gauging the opportunity for 3G. The fact that licenses are set for award in the next twelve months is another reason why Vodafone may be eyeing up the market.”

— J'stin Springham, Senior Editor, Europe, Unstrung