Government backing helps Russian start-up jump to 4G

When mobile telecommunications provider 3 launched its third-generation network in the UK in 2003, the market reacted indifferently. At the time, demand for the mobile Internet services that 3G allows was limited. Gradually, though, as devices have improved and the mobile web matured, it has grown more successful. In 2010, 3 overtook T-Mobile as the country’s fourth-largest mobile telco.

That proves that mobile network infrastructure upgrades offer an opportunity for new companies to enter established markets. In Russia, a little-known start-up is exploiting the advent of fourth-generation networking services to do just that.

Yota is a new company with no pedigree in the telecommunications space, but it claims to be the world’s first commercial 4G network providing download speeds of up to 100Mb for mobile devices. It offers services in a handful of major Russian cities, as well as some choice foreign locations, and says that in the three years since its launch it has attracted 700,000 subscribers.

Yegor Ivanov, director of business development, puts Yota’s rapid emergence down to its foresight. “All of the existing incumbent GSM operators were very much focused on gaining 3G licences and deploying those networks,” he recalls, but Yota focused its resources on the next generation of mobile networking protocol: first WiMAX and more recently Long Term Evolution (LTE).

Of course, setting up a cutting-edge mobile telecommunications network from scratch requires some serious backing. “We were lucky enough to find brave and wealthy investors,” Ivanov says. “They knew about and understood the strength of this relatively new technology, WiMAX, when nobody else in Russia was really aware of it.”

And it was not just financial clout that has helped Yota along the way. In its early days, the company attracted the attention of a powerful Russian government organisation. Russian Technologies is a state agency set up by then president Vladimir Putin to promote the development and export of technical innovation in the former Soviet republic.

Russian Technologies agreed to shield Yota from “market behaviour and other [telecoms] players” in exchange for a 25% stake in the company, says Ivanov. “It’s not a finance vehicle, it’s more lobbying and support on a local level.”

Friends in high places

Its ties with the government appear to have already borne fruit. Earlier this year, The Economist magazine reported that rival operators felt that Yota had been allocated an unfair share of the country’s wireless spectrum. Ivanov confirms that Russian telcos had complained to the government, but that Yota had since received assurance from the authorities that the issue is “resolved”.

Yota’s early success has not been without its setbacks though. It originally opted to support the WiMAX wireless standard exclusively in all of its deployments. Since then, however, hardware providers have increasingly aligned with rival standard Long Term Evolution (LTE). “When we started this business we relied very much on a strong commitment from Intel to support WiMAX technology,” Ivanov recalls. After working with the technology for two years, early in 2010 Yota switched allegiance to LTE.

Its latest deployment, in the Tatarstan region’s capital, Kazan, is the first to use LTE. The company is now in the process of re-engineering its WiMAX sites to use LTE, which in some cases may prove difficult. “In St Petersburg, we have additional spectrum, and so we can run LTE and WiMAX simultaneously,” Ivanov points out. “But in Moscow, the situation is a bit different, as all the spectrum we have is used by WiMAX. So to launch LTE we will have to decrease the capacity of the WiMAX network considerably.”

Now the company is expanding abroad. So far it has deployed networks in Nicaragua and Peru. “There is huge demand and low [broadband] penetration in Latin America,” Ivanov says. Government connections have helped here, too: “Russia has very strong relationships on a government level with Latin America.”

Ivanov explains that Yota’s long- term strategy will be to target developing markets, with densely populated cities that are poorly served by wired connections. In these territories, governments eager for foreign investment will often sell spectrum capacity for an extremely low price. “When we entered Nicaragua, we got the frequencies almost for free,” Ivanov remarks.

Despite its assistance, Yota’s ascension from obscure start-up to a mobile Internet provider that competes with the region’s largest operators still surprises Ivanov. “It’s a very strange thing – we have just five markets in Russia with 700,000 subscribers. Compare this with the entire country, with coverage from several operators to over 200 million subscribers,” he observes. “But we are already considered in the same premier league as them.”