Russia's biggest telco has nothing positive to say about 5G technology during an investor presentation in London.

Iain Morris, International Editor

March 21, 2017

5 Min Read
Russia's MTS: There Is No 5G Business Case

Russia's MTS has given a scathing assessment of the emerging 5G mobile standard during an investor presentation in London, decrying the lack of technology progress and the absence of any clear 5G business case.

Vasyl Latsanych, the chief marketing officer of Russia's biggest telco, delivered a stinging appraisal of 5G in almost every respect when asked by analysts how the eventual arrival of the technology would affect the operator's spending plans.

"There is no finalized technology, no network equipment available, no frequency allocation in any of our countries, and it is not in our plans for 2017 or 2018," he said. "There are no terminals -- and they don't seem to be coming -- and there is no business case behind it."

The criticisms came despite growing interest in 5G in other parts of the world. With the 3GPP specifications body recently approving plans to accelerate the development of a 5G new radio standard, several operators are aiming for an initial launch of standardized 5G in 2019. US telco giant AT&T Inc. (NYSE: T) has even said it will introduce the technology toward the end of next year. (See 3GPP Approves Plans to Fast Track 5G NR and AT&T Expects Mobile 5G Services in 'Late 2018'.)

Nevertheless, a number of industry observers have now expressed doubts about the business case for 5G technology. Critics argue that improvements to 4G networks will support service demands in the medium term and that 5G rollout will take many years due to the investments required. (See The Growing Pains of 5G.)

Analysts attending the Mobile TeleSystems OJSC (MTS) (NYSE: MBT) investor presentation noted that next-generation technologies usually entail plenty of costs for network operators without generating additional revenues.

Despite expressing severe misgivings about 5G, MTS recently announced plans to connect more of its base stations in the Moscow region to high-speed GPON technology in preparation for the transition to 5G.

Last month, the operator said it would increase the number of GPON-connected base stations from 25% to between 40% and 45% of the total over the 2017 through 2020 period. (See Eurobites: Russia's MTS Plots Fiber Upgrade for 5G.)

But in a conversation with Light Reading on the sidelines of the investor presentation, Latsanych downplayed the significance of the move and said that spending on network rollout had reached its zenith over the 2011 to 2015 period.

Earlier today, MTS became the latest in a string of operators to announce plans for capital expenditure cutbacks this year. After investing about 83.6 billion rubles ($1.45 billion) in capex last year, the operator aims to spend about RUB80 billion ($1.39 billion) in 2017. (See China Telecom to Cut Capex by 8% in 2017, Altice to Slash 2017 Capex Despite US FTTH Plan, French Rivalry and CenturyLink's Capex Axe to Fall on Infinera, Ciena – Analyst.)

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Quizzed by Light Reading, Latsanych said it was too early to comment on the capex implications of 5G, but several other telcos have recently flagged concern that deployment costs could be astronomical if 5G networks are based largely on the use of very high frequency bands, which transmit signals over much shorter distances than lower-range spectrum and therefore need more site equipment. (See DT CTO: Costs Must Fall or 5G 'Won't Work'.)

Telcos besides MTS have also tried to position 5G as a connectivity technology that will have a major role to play in the much-hyped "Internet of Things," but Latsanych seems unconvinced.

"That self-driving cars will need 5G is not proven scientifically," he said. "5G is still just about attracting attention at MWC in Barcelona."

For all the negativity, Latsanych acknowledged that MTS is ready to partner with other operators and vendors on 5G research and development, and that it is planning to pilot 5G technology in some parts of its network. He thinks a standardized version of the technology is likely to materialize in the 2020 timeframe.

As well as announcing capex cuts, MTS today revealed that its revenues in 2016 were 2.1% higher than in 2015, at RUB435.7 billion ($7.56 billion), despite an array of macroeconomic and competitive challenges.

The Russian operator, which also provides telecom services in several eastern European and CIS markets, saw adjusted operating income before depreciation and amortization (OIBDA) fall by 4.4%, to RUB169.3 billion ($2.94 billion), due to foreign exchange effects and retail expenses.

Executives provided an uncertain outlook for 2017, saying that both revenues and OIBDA could grow by as much as 2% or fall by the same amount depending on economic conditions this year.

Capital expenditure fell by a sharp 13.1% in 2016, to the figure of RUB83.6 billion ($1.45 billion), and seems unlikely to rise over the next few years given Latsanych's comments about the advanced state of the operator's 4G and fiber rollout.

Among other things, MTS is also shuttering retail stores with the aim of bolstering margins. Intense retail competition has forced the operator to expand its footprint to about 6,200 stores over the last few years, but the current plan is to close about 500 of those outlets this year.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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