Analysis and forecast of the market

Analysis and forecast of the market

Company J’son & Partners Consulting presents to your attention the results of the study «Analysis and Forecast of the LTE market in Russia.»

According to GSA in May 2013, in the world there are 175 commercial LTE networks in 70 countries. It is predicted that by the end of 2013 in 87 countries will be deployed 248 such

Commercial LTE-network in Russia:

Estimates J son & Partners Consulting, at the end of 2012 the number of LTE subscribers in Russia has exceeded 850 thousand., Or less than 1% of the world total (100 million). This penetration of 4G in Russia amounted to no more than 0.4% of the number of active SIM-cards of mobile communication. Market virtually monopolized by companies «Skartel» (brand Yota) and «MegaFon», which account for 99% of LTE subscribers in Russia.

The first commercial LTE network in Russia was launched in early 2012. By March 2013 a network of «Skartel», except for Moscow and St. Petersburg, has covered 93 cities in 27 regions of Russia. In addition, their own networks in unpaired spectrum (TDD-LTE) launched MTS and «Megaphone» in Moscow. Basically, commercial LTE network is concentrated in the cities of the European part of Russia, and only a few cities are covered in Siberia and the Far East.

In February 2012, «MegaFon» has concluded an agreement with «Skartel» sharing infrastructure for the development of networks of LTE. In fact, mobile phone operator acts as a virtual operator (MVNO) on the network Yota Networks, which in turn uses the existing infrastructure of «Megaphone». Cooperation between the two companies is carried out in the framework set up in July 2012, a joint venture Garsdale.

In August 2012 Yota announced a public offer as part of a public tender in which each of the operators to offer MVNO model for cooperation with federal coverage or covering several regions. Operators have called unacceptable conditions of the offer. The Federal Antimonopoly Service (FAS) noted «Skartel» to be bound by the operators of non-discriminatory access to its network on the model of MVNO. Thus, FAS did not prevent the creation of the holding between the «MegaFon» and «Skartel» in June 2012. In March 2013, FAS initiated a case against «Skartel.» The actions of the operator Antimonopoly Service has seen signs of violation of the Federal Law «On Protection of Competition».

The only operator, with the exception of «Megaphone», who managed to conclude an agreement with MVNO- «Skartel» is MTS. However, arrangements have been made between the companies in one city of Kazan. March 1, 2013 deadline MVNO- agreement between the two companies expired, however MTS continues to provide services to Yota network in the mode of development of commercial operation. The negotiation process on the parameters of a new contract continues.

Conditions that offers «Skartel» within the MVNO-agreements are not satisfied with a single operator. They are forced to rely on building their own networks LTE, but the process will take longer. The inability of the operators to agree to «Skartel» to work as virtual operators retards the development of the LTE market in conditions of limited competition.

Key constraints of LTE market in Russia: limited competition (including due to the inability of operators to agree on the conditions under the MVNO-project with «Skartel») and, as a consequence, high tariffs for LTE; a limited number of mobile devices (smartphones, tablets) with a support of LTE, high prices; the absence of a mechanism of voice network LTE (VoLTE) and, consequently, the inability to use LTE networks available to the sale of smartphones to support LTE in the «Russian» frequency bands; problems associated with the frequency spectrum for LTE in the shortage of frequencies (absence of a mechanism of technical neutrality, the need for conversion, frequency distribution of competitions, rather than auctions, litigation, etc.).

Subscriber Units

According to the GSA at the end of March 2013, there were an estimated 821 ustroystv1 subscriber model with support for LTE from 97 manufacturers. A large part of the products (474 ​​models) were announced last year. The main trend in the segment was to support LTE equipment in one device different modes of LTE (FDD and TDD) and various frequency ranges.

In Russia, the main subscriber units at the time of writing (March 2013) were USB-modems and Wi-Fi-routers. It was presented only one model LTE- tablet and several smartphones with support for the «Russian» frequency LTE. However, in the second half of 2013 we can expect a significant increase in the lineup LTE-smartphones and tablets available in Russia. Such vendors like Nokia, 2mE, Yota Devices, Samsung, Huawei and Lenovo, promise new line of devices with support for LTE.

However, the technology does not become mass LTE (penetration of not less than 10%) until smartphones become available at a cost. MTS, in particular, invited all major vendors strategic partnership for distribution of smart phones with support for 4G specifications Russian in Russia. MTS believes that the operators would be useful to cooperate and submit to the Government a proposal to reduce customs duties on the import of 40 smartphones and other LTE- equipment.

1 Includes variety of models with support for various frequency bands and the device sold under the brand names of operators (branded device).

Popularity LTE and subscriber devices supporting this technology will facilitate seamless connection between 3G- and 40 networks. In April 2013, «MegaFon» has launched technology to automatically switch between the standard 4G / 3G / 2G smartphones that allows you to use voice and data communications without additional configuration and rebooting devices According to J son & Partners Consulting, the average price of a smartphone in Russia declined from 1455 in 2009 to $ 328 in 2012. At the end of 2012 the share of sales of LTE-devices in Russia with respect to global sales amounted to just 0.6%, but by 2015 this figure will increase to 2%.

Frequency Conversion and perspectives of other ranges:

The conversion will likely be held at on the national and on a regional basis. At the same time the conversion of frequencies in the lower range is associated with great difficulties. According to J son & Partners Consulting, if clearing the 800 MHz spectrum will not be executed in the next three to five years, or are found effective mechanisms for joint use of radio commercial and government users of spectrum, Russia is seriously lag behind the global rate of implementation of networks LTE.

In the next two years, no conversion will not affect the implementation of the licensing requirements. But in 2015, the shortage of the frequency spectrum for LTE development can be a real challenge.

Given the lack of prospects for the use of other frequency bands (GSM-bands 900/1800 MHz, 3.5 GHz, and others.) Uncertain. J son & Partners Consulting estimates the probability of adoption of technological neutrality GSM- range in the next three years, as low. And the use of high frequencies in the mass market, especially 3.5 GHz, inefficient from the economic point of view (mostly due to the high costs).

According to J son & Partners Consulting, to ensure wide coverage network LTE (especially in areas with low population density), the most attractive range of 450 MHz. However, these frequencies are not yet marked by a consortium under the 3GPP LTE, and uncertain prospects for such a solution (mainly due to the lobbying of vendors that offer a profitable solution, providing a low CAPEX).

Prospects for the development of LTE Russia:

Prospects for the development of LTE Russia will largely be determined by observing the «Big Four» of licensing requirements for coverage and minimum investment in infrastructure (not less than 115 billion before the end of 2019), as well as the rate of conversion («clearing» frequency). In addition, certain driver LTE market in Russia may be to allow the regulator to use for this technology GSM- ranges (particularly 1800 MHz), and in the longer term, the range of 3.5 GHz. In the optimistic scenario, this will increase the number of players increased competition, the emergence of new consumer devices and ultimately to an increase in subscriber base LTE.

Large-scale construction of networks in Russia will not begin until 2015, after the procedure of conversion and the release of frequencies in the transition from analog to digital television («digital dividend»).

According to forecasts of J son & Partners Consulting, subscriber base of LTE by the end of 2020 could reach in an optimistic scenario, 23 million users in the conservative scenario, 14 million, 20 million in the base.

The main participants in the LTE market in the medium term will be the largest mobile operators, as well as new players.

In the long term (over five years) in parallel to the deployment of LTE networks is likely a local connection subnets LTE-Advanced in areas with a high concentration of traffic (business and shopping centers, stadiums, etc.). In this case, the determining factor will be the availability of the subscriber devices maintain under this technology.

In general it can be stated as follows:

1) Internet-4C will be the main growth driver for mobile operators in the medium and long term;

2) companies that are not able to get LTE-license will be in the medium and long term experience a decrease in margins and churn;

3) formed on the market leader, which under the force of the policy of «cherry-picking» («MegaFon» / Yota).

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