Russia's MegaFon, Rostelecom Plot 5G Networks JV

Two of Russia's biggest operators say they could form a joint infrastructure venture to reduce the cost of building a 5G network.

Iain Morris, International Editor

November 29, 2017

5 Min Read
Russia's MegaFon, Rostelecom Plot 5G Networks JV

Two of Russia's biggest operators, MegaFon and Rostelecom, are joining forces in an attempt to overcome the huge cost challenge of building a 5G network in the Russian market.

As a first step, the operators are setting up a working group that will explore "options" for the rollout of 5G technology using spectrum in the 3.4-3.6GHz and 26GHz frequency bands.

Ultimately, however, the partnership could lead to the establishment of a formal joint venture that would build 5G networks and then act as a "single infrastructure operator," according to MegaFon's statement.

That raises the possibility of the company's 5G networks being made available on a wholesale basis to Russia's other mobile operators, the largest of which are Mobile TeleSystems OJSC (MTS) (NYSE: MBT) and VEON.

An official statement from MegaFon CEO Sergey Soldatenkov suggests that MegaFon and Rostelecom are interested in broadening the arrangement to include other players.

"In the current market conditions, the most logical and cost-efficient option for deployment of the new standard is cooperation between several players," said Soldatenkov. "We are already working together successfully with Rostelecom as part of the working group on information infrastructure under the government program for digital economy and we see huge potential for further cooperation."

MegaFon currently operates Russia's second-biggest mobile network by customer numbers -- more than 76 million customers and a near 29% market share, according to Ovum's World Cellular Information Service (subscription required) -- behind market leader MTS (about 78 million subscribers) but ahead of VEON (almost 59 million customers). Its majority owner, USM Holdings, is an investment vehicle controlled by Alisher Usmanov, one of Russia's wealthiest men.

The 5G plan announced today would unite MegaFon with Rostelecom, a state-backed operator that has historically provided long-distance networks in the country. Some of that infrastructure could support the rollout of 5G technology, which will require access to high-speed fixed lines for the "backhaul" connections to core network systems, among other things.

Rostelecom also appears to own some radio spectrum that could be used with 5G services.

As telcos struggle to increase their service revenues, interest has grown worldwide in the use of partnerships or shared infrastructure to reduce 5G rollout costs. Service providers in parts of western Europe, including the UK, already operate joint infrastructure ventures. The US, meanwhile, has seen the rise of so-called "towercos" like Crown Castle International Corp. (NYSE: CCI) and American Tower Corp. (NYSE: AMT), which lease capacity on towers to operators including AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and T-Mobile US Inc. . (See Europe's Backhaul Black Hole Looms Above 5G and Crown Castle Eyes Edge Computing in 2018.)

Given the challenge of building networks across a market as vast as Russia, infrastructure sharing has already made some headway in the country. MTS and VEON, for instance, have previously announced deals to jointly build and operate 4G networks. Service providers might now see 5G tie-ups as a way of preventing 5G deployment costs from spiraling.

Earlier this year, Timotheus Höttges, the CEO of German telecom incumbent Deutsche Telekom AG (NYSE: DT), told reporters at the Mobile World Congress trade show that blanketing Europe with 5G networks might cost anything between €300 billion ($355 billion, at today's exchange rate) and €500 billion ($592 billion). He was recently reported to have expressed interest in spinning off Deutsche Telekom's towers. (See DT Is Not Going Radio Gaga About 5G and DT Plots 5G Across Entire Footprint.)

Even so, MTS has already criticized the latest deal between MegaFon and Rostelecom as a superfluous activity. "We always look for ways to be more efficient in our investment plans. Given the high level of cooperation on the market already, however, we don't see the need to create additional groups or entities," a spokesperson for the company told Light Reading.

Partly through a infrastructure-development initiative called LTE Union, which now involves MTS, MegaFon, VEON and a fourth player, Tele2, MTS says it is already sharing "everything from towers to spectrum" with other companies in the Russian market.

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

Despite the announcement from MegaFon and Rostelecom, it could be many years before most Russians are able to make use of 5G services. Skeptical that 5G will fuel revenue growth for telcos, Swedish consulting group Northstream has estimated that operators will deploy the technology relatively slowly starting in 2019 or 2020, when the standard is ready, upgrading between 12% and 15% of their networks annually.

Swedish equipment vendor Ericsson AB (Nasdaq: ERIC) this week predicted that 5G would have 1 billion connections, about 11% of total mobile connections worldwide, by the end of 2023. (See Ericsson Hypes 5G After Telcos Slam 5G Hype.)

Russian telcos have also previously downplayed their interest in 5G. During an interview with Light Reading in March, Vasyl Latsanych, the former chief marketing officer of MTS, delivered a scathing assessment of the mobile market's next generation, saying there was still "no business case" behind it. He did, however, acknowledge that MTS was then conducting 5G trials and would be interested in teaming up with other operators on 5G research and development. (See Russia's MTS: There Is No 5G Business Case.)

After quitting MTS a few weeks later, Latsanych was this week confirmed as the new CEO of VEON's Russian business. (See Eurobites: Ex-MTS Man Resurfaces at Rival VEON.)

VEON similarly struck a downbeat tone when discussing 5G with Light Reading at this year's Mobile World Congress. Yogesh Malik, the company's chief technology officer, described much of the talk about 5G as "clear hype" and said that 4G networks remained underutilized in Russia. (See VimpelCom to Pioneer 'Multivendor' NFV; Downbeat on 5G.)

MegaFon did not respond to questions about its 5G partnership with Rostelecom.

— Iain Morris, 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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