Battle of the 4G bandwidth in Russia

By bne IntelliNews July 30, 2010

Eugen Iladi in Brussels -

A battle is brewing over 4G licenses in Russia's fiercely competitive, but lucrative, telecommunications market as the country's big three private mobile operators square off against a little-known player that's clearly a front for vested interests in the government.

At stake are an as-yet undecided number of new Long Term Evolution technology licenses (LTE), better know as 4G licenses. The three mobile incumbents that dominate Russia's mobile market - Mobile TeleSystems (MTS), VimpelCom and MegaFon - are the obvious operators of choice for this new technology, as they already own the 3G licenses.

However, at the end of May, Defence Minister Anatoliy Serdyukov wrote to President Dmitry Medvedev calling for the 4G bandwidths to be awarded to little-known Osnova Telecom, which currently doesn't offer mobile phone services of any sort in Russia, reports Russian daily Vedomosti. The Russian State Radio Spectrum Committee and the Ministry of Telecommunications are in charge of allocating the bandwidth and licenses, and the incumbents fear the state agencies will follow the advice of the military, which nominally controls all the country's radio frequencies that are allocated to civilian use. The State Radio Spectrum Committee has postponed discussing the granting of 4G licenses three times since May and vowed to come up with a solution by the end of August.

As asset grabs go, this one is pretty blatant. Osnova was registered in June and lists Aykominvest as a majority shareholder, with the remaining 25.1% stake belonging to Voyentelekom, which is controlled by the Ministry of Defence. According to company records, Aykominvest is owned by Vitaly Yusufov, a 28-year-old former Gazprom executive-turned entrepreneur, who also happens to be the son of Igor Yusufov, an influential Kremlin insider who has a long history of service to Prime Minister Vladimir Putin dating back to his days in the St Petersburg administration. Yusufov-senior was deputy industry minister and headed the State Reserves Committee before becoming Russia's energy minister from 2001 to 2004. A Gazprom board director since 2003, he is close to President Medvedev, acting as his special envoy for international energy cooperation. In other words, Osnova's backers are about as well connected as it's possible to be in today's Russia.

Medvedev has so far said little on the 4G issue, but did instruct the Ministry of Defence to "take all essential measures jointly with the Ministry of Telecommunications according to the established procedures," Vedomosti reported. This was vague enough to give the big three the willies and they countered Defence Minister Serdyukov's letter with their own joint letter to the telecom minister, Igor Shchegolev, urging a "precise and transparent" solution to the allocation of 4G licenses. In July, the same companies followed up with a second letter to Putin saying in rather understated language that giving the 4G opportunity to what is little more than a start-up would cause, "negative consequences for the vast majority of the population of Russia, our companies and the state as a whole," Vedomosti reported.

Crossed lines

Indeed, handing Osnova the 4G bandwidth would make no sense at all. The big three have largely been responsible for building Russia's $40bn mobile phone market from scratch, which is expected to grow to $48.5bn by 2013, according to a Pyramid Research survey. Telephony is arguably the only sector in Russia that Putin managed to totally reform and is probably the most modern part of the economy, as well as being Europe's largest and fastest-growing telecom market. However, the start-up Osnova would need at least five years and over $5bn to build a 4G network from scratch, whereas the incumbents could do it in half the time and at a fraction of a cost by bolting the new technology onto their existing GSM and 3G networks.

The trouble is that the telecom ministry doesn't exactly have a good track record when it comes to handing out licenses; MegaFon was partly set up and backed by former telecom minister, Leonid Reimam, and was also the beneficiary of a frequency allocation at the expense of the other two in 2004 in what came to be known as the "frequency scandal."

The whole affair boils down to another test case for Medvedev. The president continuously espouses the need to modernise Russia and stamp out corruption, but when push comes to shove the nice words run up against the vested interests. If Osnova is awarded a 4G license, then the president's entire campaign will be shown up as empty rhetoric.

And it is already starting to look bad for the big three operators. In what some have taken as an early-warning signal of a coming showdown, the Russian Federal Anti-Monopoly Service (FAS) started investigating MTS, VimpelCom and MegaFon in March over alleged violations of anti-monopoly legislation by applying artificially high prices for roaming services.

The FSA did not indicate a date by which it would consider or conclude the case, but if roaming tariffs are determined to be in violation of current legislation, the parties could face hefty fines. The mobile operators argue there was no violation of the anti-monopoly legislation.

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.