In Russia, LTE Licenses Command No Fee

(Jul 16 2012) 4G , LTE , Spectrum

1. Russia has awarded four new LTE licenses this week but has not banked any money as a result. That would be an alien concept to many countries, which view spectrum as a very valuable commodity that should generate income for the national purse.

   Well, yes, of course it is valuable and yes, it should contribute to any country's economy. And so it will in Russia, which, I think, has got the model right.

   The four licenses have been awarded to the country's three main mobile operators -- Mobile TeleSystems OJSC (MTS) (NYSE: MBT), MegaFon and VimpelCom Ltd. (NYSE: VIP) -- plus state-owned carrier Rostelecom . Each have been awarded spectrum in the 800MHz band and will later get capacity in the 700MHz, 2.5GHz and 2.6GHz bands.

   The licenses do not command a fee. Instead, the Russian government wants to encourage speedy network rollout and service launch as it believes the introduction of 4G mobile broadband services will help stimulate the economy. So it wants the operators to deploy their capital in their networks and service development and not in paying for the licenses.

   As a result, the license conditions are that state that the four operators must launch their LTE FDD services by June 1, 2013 and have achieved full national coverage (offering services in each town or city with more than 50,000 inhabitants) by the end of 2019.

   Each operator must invest at least 15 billion Russian rubles (US$459 million) each year in their LTE networks until national coverage is achieved. That means up to $12.9 billion will be invested in LTE networks in Russia during the next seven years or so.

   Surely that's a better approach than crippling the operators with upfront fees? I recall U.K. operators shelling out billions for their 3G licenses just over 10 years ago and subsequently being so financially crippled that it took years for the 3G market to get up and running. So the government filled its boots and the communications services market suffered. That seems like a backward approach.

   Now, I don't know how the Russian regulator came to choose the new license-holders and reject those that came away without any LTE spectrum: Tele2 AB (Nasdaq: TLTO) (through two subsidiaries), fixed line operator TransTeleCom Co. CJSC (TTK) and newcomer Summa Telecom were the unlucky participants.

   But what is to be applauded is that the license-holders can now focus their efforts on meeting the license obligations and investing in their networks. Within a few years the country should have a competitive mobile broadband market that provides consumers and businesses with choice, provides the operators with a quicker return on their investments and, if all goes well, a steady flow of revenues to the government coffers from a stimulated economy.

   If only that was a popular model ...

   By: Ray Le Maistre, International Managing Editor, Light Reading

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