In response to Russia's push for locally made IT and telco equipment in recent years, major global telecom companies are negotiating localisation projects with prospective Russian partners.

Finland's Nokia is reportedly involved in localisation negotiations with X Holding, while China's Huawei is in the process of similar talks with AFK Sistema. There have been reports about possible interest in localisation projects from Sweden's Ericsson и ZTE.

The main reason why global telecom giants are interested in localisation deal is the Russian government's regulations that as of 2023, telco operators will have to build networks using exclusively locally manufactured equipment.

Under a recent ruling, local mobile phone operators will see their licences for LTE frequencies extended only on the condition that they'll use locally manufactured equipment for their networks as of 2023.

However, the situation is still uncertain, as to make possible localisation schemes profitable for global vendors, Russian operators need to provide guarantees for purchasing a certain number of base stations. Simultaneously, Russia's Industry and Trade Ministry is yet to come up with clear-cut criteria for equipment to be considered Russia-manufactured.

Russian business daily Kommersant quoted unnamed industry sources as saying that X Holding, which includes nearly three dozen IT and telecom companies and is owned by tycoon Alisher Usmanov's USM Holdings, is in negotiations with Nokia over manufacture of the Finnish company's equipment in Russia. A possible deal could also include the transfer of Nokia's development licences to the Russian partner.

Meanwhile, a similar deal could be reached between Huawei and Vladimir Yevtushenkov's AFK Sistema.

Still, no deal of that scale could be concluded without approval of the Russian government, and delegations from Nokia, Huawei and Ericsson are expected to hold negotiations with the Ministry of Digital Development, Communications and Mass Media and with the Industry and Trade Ministry over the coming weeks.

A partnership between X Holding and Nokia looks quite feasible, as the Russian group already has a manufacturing base, a company called Yadro, which produces data storage systems and telco equipment. In addition, X Holding controls a top-3 mobile phone operator, MegaFon, which is set to ensure orders for equipment.

Similarly, possible collaboration between Huawei and AFK Sistema looks promising as Sistema controls electronics manufacturer Sitronics and mobile phone operator Mobile TeleSystems (MTS). Moreover, Sitronics already has a deal with Huawei on the production of server equipment.

In 2020, Russia's telco equipment market grew 21.1% to reach RUB1.15 trillion ($15.8bn), according to NeoAnalytics.

However, Russia-manufactured equipment accounts for only 7%. Local manufacturers currently operate only in a handful of segments, including commutators, routers and navigation equipment, while base stations for mobile phone networks are not manufactured in Russia at all.

Still, the Russian government's requirement that telco equipment should be manufactured locally is likely to push up domestic companies' share of the industry. NeoAnalytics predicts that by 2025, their share will have risen to 30%.

One local company that hopes to take a big chunk of the pie is state-controlled tech conglomerate Rostech, which recently founded a company, Spektr, which it hopes will become a major manufacturer of equipment for 4G, 5G and 6G networks.

The Russian government apparently doesn't object to local manufacture of equipment under major global vendors' licences.

Meanwhile, another prospective player in this sector could be China's ZTE, which is also considering the manufacture of telco equipment in Russia, but apparently without a local partner.

Kommersant quoted the company's vice-president for Russia, Tigran Pogosyan, as saying that if mobile phone operators commit to purchasing at least 20,000 base stations from each vendor, the localisation process will significantly accelerate.