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. Last Updated: 07/27/2016

3G Not Coming to Moscow Any Time Soon

VedomostiVisitors checking out 3G technology at a Moscow exhibition in May. Providers are scrambling to set up 3G networks.
Don't hold your breath in hopes that you will be able to join videoconferences or quickly browse the Internet with your cell phone any time soon.

Despite promises that the bells and whistles of third-generation technology will be available next year, the three leading mobile phone providers are mired in a web of technical and bureaucratic problems that threaten to delay their plans by at least a year. And even then, 3G networks may not be available in Moscow.

Chief among the problems are the need to clear radio frequencies for mobile phone use and a slow-moving government, which has yet to authorize 3G equipment for use in Russia.

But analysts said the big three operators -- MegaFon, Mobile TeleSystems and VimpelCom -- really had no excuse to miss a final deadline of 2009, which they committed to when they won state tenders for three 3G licenses in April.

"The bureaucracy is powerful, but nothing is impossible to overcome as long as you know how to go about it," said Nadezhda Golubeva, a telecommunications analyst with Aton Capital. "The main operators certainly know the rules of the game."

Russia is joining the 3G game later than much of the Western world. Japan was the first country to offer 3G services in 2001 and was followed by many European countries and the United States. A handful of developed countries, including Canada, still lack 3G networks.

In Russia, the first step toward setting up a 3G network is to claim radio frequencies won with the licenses in April. To do this, each mobile phone operator must clear a frequency -- an expensive and labor-intensive process that involves converting it from government to civilian use.

"Frequencies clearance is the major challenge," MTS spokeswoman Irina Osadchaya said.

Most frequencies remained in military hands after Soviet times, while about 5 percent are in civilian use, according to figures from the IT and Communications Ministry, which wants to increase the share in civilian use to 12 percent in time for the 3G rollout.

Clearing a frequency requires that the old and new owners work hand in hand to remove old equipment used on the frequency, install new equipment and fine-tune it. The new owner also needs to receive approval from a myriad of state-controlled organizations.

Only after the clearance process is completed can the state-run Main Radio Frequency Center officially sign off on a frequency for civilian use.

VimpelCom and MTS put the cost of a nationwide clearance of a single frequency at anywhere from several tens of millions of dollars to $200 million. The government seems to have anticipated this cost and has made concessions to offset the expenses, including its decision to issue licenses for a token fee of 2.6 million rubles ($100,000).

From start to finish, the whole process of clearing a frequency can take two to three years, said Alexander Krupnov, president of the Russian 3G Association. He said this was how long it took mobile phone providers to clear frequencies for second-generation technology.

A VimpelCom spokeswoman acknowledged that frequency clearance should not be an excuse for delaying 3G technology but said the time and expense of clearing frequencies in Moscow could delay implementation here. MegaFon concurred, saying it was considering building its first 3G networks in other large cities with populations of 1 million or more people.

"Nationwide licenses are useless in places like Moscow unless further agreements are reached with the institutions currently using the frequencies," MegaFon spokeswoman Marina Belasheva said. "We have received frequencies, but they are of no use."

MegaFon announced last week that it would invest $1 billion in 3G technology over the next three years and build 2,000 base stations around the country.

MTS also plans to spend $1 billion over three years as it looks to set up networks in Moscow, St. Petersburg and Novosibirsk in 2008 and in 43 other cities by 2009. VimpelCom has earmarked $350 million to deploy 3G networks in 39 regions by the end of 2008.

For those investment plans to go forward, the IT and Communications Ministry needs to certify 3G equipment. By law, each operator must conduct an in-house tender to select an equipment supplier. Both MTS and VimpelCom hoped to conduct these tenders before year-end, but they cannot until the ministry certifies equipment.

"No company can start building 3G networks until the IT and Communications Ministry issues certification on the equipment, hopefully by September," said VimpelCom's spokeswoman, Yelena Prokhorova.

Certification, however, could come even later than that, said Osadchaya, the MTS spokeswoman. She said she understood that regulators were still engaged in the cumbersome process of developing technical norms for 3G equipment.

IT and Communications Ministry officials were unavailable for immediate comment.

Another rarely discussed constraint to 3G networks is a clause in the 3G licenses that seriously restricts their deployment in Moscow, said Ivan Shmelyov, director of strategic planning at InfoSeti, a company offering WiMax, a rival technology to 3G. He said the clause imposed restrictions on 3G networks in an attempt to protect ministries and other federal authorities from the accidental jamming of their own radio frequencies.

WiMax itself could delay 3G deployment, Shmelyov said. The technology, which is being reviewed by the main mobile phone operators, was specifically created to provide high-speed Internet access, while 3G is essentially a voice technology modified to provide Internet access.

But analysts predicted that WiMax would instead act as a catalyst for faster 3G deployment.

"Russian operators are looking over their shoulders so as not to be overtaken by a new technology like WiMax. This will give them the incentive needed to roll out sooner," said Irina Astafyeva, a cellular team leader at J'son & Partners, a consulting company.

At the end of the day, the mobile phone operators are most concerned about profitability, an elusive figure since the potential demand for 3G services is difficult to gauge, and Western revenues have not been encouraging.

"The Western experience shows that 3G touched only a very narrow layer of society, and it is natural that Russian operators are being very cautious with making capital investments," said Konstantin Belov, a telecommunications analyst with UralSib.

Demand for 3G services will probably peak at 1 percent of each operator's client base in the first year of operation, said Yevgeny Golosnoi, an analyst with Troika Dialog.