Russia's MTS Still in No Hurry on 5G

While operators worldwide are in a Dad's Army-like panic about trailing in 5G, the Russians are concealing any excitement about the next-generation mobile technology. MTS, the country's biggest operator, is not even that bothered about reports the 3.5GHz spectrum band -- a popular 5G choice in other countries -- has been reserved for the military and not telecom.

In a blow to Ericsson and Nokia, MTS has signed a 5G "cooperation agreement" with China's Huawei and said in its latest earnings report it would start "mapping out and deploying" 5G technology. But it seems to be in no rush to launch services or provide them at scale.

Quizzed about spectrum uncertainty during the earnings call, CEO Alexey Kornya said, according to a Seeking Alpha transcript: "We just don't feel that there is right now a demand … so there is no strong need on building up aggressively 5G." Even if there were more clarity about the spectrum situation he would not start pumping funds into a major 5G deployment, he insisted.

The operator is budgeting for 90 billion Russian rubles ($1.4 billion) in overall capital expenditure this year, up from RUB86.5 billion ($1.3 billion) in 2018. Funds have been earmarked for a variety of projects, including 4G upgrades in Russia and Ukraine and investment in digital services. 5G gets a mention, too, with MTS likely to introduce its first commercial services at the end of this year.

But the next-generation mobile technology is unlikely to be the main reason for the increase, judging by Kornya's remarks. And new Russian legislation is forcing MTS to spend money elsewhere. Under the so-called Yarovaya Law, adopted last year, telcos are required to store all voice calls and text messages starting on July 1, 2018 as well as all data communications starting on October 1, 2018. That means investment in additional storage capabilities, says MTS. And it puts the overall cost at about RUB50 billion ($760 million).

If revenues this year grow by the midpoint of the projected 4-6% increase, capital expenditure should equal about 18% of sales. That figure tallies with capital intensity levels at European operators that have already started offering 5G services and means MTS could not reasonably be accused of shirking its investment responsibilities.