Previously, Ovum has argued that the challenges of slowing revenue growth and the investment required to roll out new networks means that the existing mobile industry structure may no longer be optimal. We raised the idea of a wholesale model, where a network is built primarily to offer wholesale capacity to existing market players. Last week, Yota, a Russian WiMAX-turned-LTE player, announced a wholesale network deal that will make it the key LTE network provider in Russia.

 

US carrier LightSquared also recently announced a wholesale model for a nationwide wireless broadband network in the country. While these are both extremely ambitious plans, if they succeed, the future of the mobile industry will be considerably different from what it is today.

 

 

Yota is 25% owned by Russian Technologies, a Russian state entity, and it has struck a deal with the four main Russian mobile operators that will make it the key LTE network provider in the Russian telecoms market. By 2014, Yota will build an LTE network that extends to 180 cities and offers coverage to approximately 70 million people. Crucially, the four largest mobile operators in Russia – MTS, VimpelCom, Megafon, and Rostelecom – have agreed to use Yota’s future LTE network. These four operators will have the option to buy up to a 20% stake in Yota after 2014 and, together with Russian Technologies which will reduce its stake, all of these entities could own equal shares in the company after 2014.

 

At a time when the existing Russian operators are rolling out 3G services, the Yota deal will increase Russia’s mobile infrastructure development much faster than most countries can ever hope to achieve. Therefore, it is no surprise that Russian Technologies said it is backing the deal to “ensure an efficient and collaborative approach to rolling out 4G services in the country.” Given the Russian government’s indirect stake in Yota, this deal shifts the trajectory of the market, with Yota and the Russian government taking center stage.

 

The deal has both advantages and disadvantages for the four Russian operators. On the one hand, it will remove them from the LTE network investment cycle, which would have cost each operator an estimated $5 billion (€3.5 billion) to $7 billion. However, it could potentially undermine the role and influence that the operators have in the Russian market. The deal will also help to settle the debate over how LTE spectrum is awarded in Russia, where the future of the 2.3GHz band is still uncertain.