Pyramid Points - Creating 300,000 LTE Muscovites Overnight
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Creating 300,000 LTE Muscovites Overnight

February 21, 2012

Today, WiMAX operator Scartel (trading under the Yota brand) released the date of the planned launch of LTE services in Moscow, the region of the operator’s largest subscriber base. The operator announced that it will cease its WiMAX operation in the Russian capital on April 14 and migrate all WiMAX subscribers to LTE services the next day.

In order to keep its customer base, the operator decided to supply its active WiMAX customers with LTE devices. All subscribers that use WiMAX modems or notebooks with built-in modems, regardless of the price range, may apply for a free LTE “Yota modem” that does not require the installation on any OS.  For those subscribers that now use a router or a HTC 4G handset, the operator will supply them with a router and a modem. 

Exhibit: Yota’s LTE dongle and router hardware

Source: Yota

The operator declared that around 1.6m Yota WiMAX devices were sold over the life of its WiMAX service, and it estimates that will need to supply LTE devices to around 300,000 subscribers in Moscow. This means that in the next few months, we expect the operator will invest around $20m to $25m in consumer devices (assuming the cost of the “Yota modem” device to the operator is 70% to 80% of its retail price of Rb2900 [$101]). Including the expected cost to provide LTE devices, the operator announced that it has so far spent $60m on LTE deployment in Moscow.

Yota already lost anywhere between 5% and 15% of its subscriber base when it increased its prices last year, introducing higher pricing levels for higher speeds. Now the operator plans to maintain its current service price levels at a range from Rb400 ($14) to Rb1400 ($49) a month when it migrates its subscribers from WiMAX to LTE. While we do not expect any immediate price-driven increase in operator revenue, we do believe that the strategy will allow Yota to distinguish itself from its competitors in the rich Muscovite market and potentially recover its losses from last year’s pricing adjustments.

It would be hard to believe that Yota would be able to engineer a spectacular transformation beyond the benefits of subscriber base stabilization and slightly-above-market average subscriber and revenue growth. The operator’s current coverage is limited to about 30% of Moscow, and its plans to increase its base stations by 50% in 2012 would still leave it behind the big three’s (Vimplecom, MegaFon and MTS) coverage. Yota will also be heavily challenged by MegaFon’s and MTS’s service over their newly acquired 900MHz spectrum. This spectrum positions these operators well in highly dense areas with heavy walled buildings.

--- Badii Kechiche, Manager, EMEA

— Olena Kaplan, Analyst

Related resources:

MVNO Strategies Beyond the Traditional Ethnic and Discount Models
Telecom Insider published February 2012
This report analyzes successful MVNOs in developed markets and will attempt to draw lessons for emerging markets. We will look at different breeds of MVNO, starting with so-called ethnic MVNOs, and we will take a look at the market potential of such services. Then we will analyze fixed operators’ strategies to become fully fledged multiplay operators through MVNO strategies, and finally we will describe the emerging and exciting trend of data-only MVNOs.

LTE Devices and Applications: Next-generation mobile networks driven by video services

Thematic Report published January 2012
Long Term Evolution (LTE) is a next-generation cellular network technology, sometimes referred to as 4G. As described in this report, LTE is the technology of choice for most mobile operators, and with strong momentum, we expect it to be the long-term, next-generation network technology of choice. LTE has already overtaken WiMAX subscriptions in 2011, and the range of LTE devices has increased elevenfold in the past year. The largest LTE device segment will be PCs through 2014, as operators initially focus on mobile broadband access for PCs. But after 2014, the PC segment will be replaced by smartphones, with operators announcing more and more LTE models.


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