Nova workboard

a blog from young economists at Nova SBE

Attempts to demonopolize the market of 4G mobile communication

In general, cellular network is one of the fastest growing markets among communication services. To be precise, mobile network operators (MNO) notice attention not only of investors, but also of regulation agencies. In many countries (particularly in Russia) this market can be characterized by such feature as high extent of monopolization of mobile services. Therefore, the situation requires restrictions of competition policy and legislation.

Development of mobile network occurs gradually: in the beginning the first generation (1G) was created, then 2G and 3G followed. And now 4G (LTE) becomes a common practice all over the world. Clearly, every type of mobile communication requires sufficient amount of radio frequencies. In the majority of countries the process of distribution of radio frequencies among mobile network operators takes place through an auction, but in Russia this model does not work properly. Needless to say that frequency is one of the main resources of mobile operators.

According to data of the state commission on radio frequencies, in Russia only 3-4% of radio frequencies are assigned by private companies (in the rest of the world this portion implies 30-40%), 33% – by military agencies, and the rest is reserved for common use. In order to use frequencies, mobile operators must get an approval of the state commission on radio frequencies. If these specific frequencies are free, the commission must announce a competition.

Regarding 4G mobile communication, the process of distribution looked differently, in spite of the fact that development of the communication of new generation could occur on the basis of existent frequencies. At first, new frequencies were going to be distributed among new players of the market – “Osnova Telekom” and “RusTelekom”, but the big three of this field of business – precisely, Beeline, MTS and Megafon – have interfered. As a result, the state commission decided to give defined portion to “OsnovaTelekom” (25% of this company belongs to Ministry of Defense) and the rest, existing regional players, to competition.

Regional mobile network operators often cannot get access to the distribution of new frequencies – the results of competitions seem to be defined beforehand. In case of 4G, the big three even suggested not to allow the use of old frequencies in transition to new generation. It was a measure for protection of their interests. Nevertheless, this announcement triggered FAS (Federal Antimonopoly Service) to intervene; FAS stated that the situation, in which the state commission considers this suggestion of the big three, violates the Federal Law “On Competition”.

What will be done with the frequencies of Long Term Evolution (LTE)? The most possible outcome is that the protest of FAS will be overcome under the pressure of “OsnovaTelekom” and the big three – Megafon, MTS, Beeline, although certain minimum of radio frequencies may be conferred to regional operators all the same.

From the economic point of view it’s better to provide considerable amount of radio frequencies within the auction to major local players in the regions to raise the competition level in accordance with competition police. But it should be done carefully to avoid the situation when companies holding the frequencies can’t develop them and provide appropriate level of service. Another issue is that these local players should have no right to resell them to anyone, incl. big three, for several years, not giving them the opportunity to speculate.

From a personal perspective, competition is not a major objective to the economic authorities in relation to the telecom market in Russia as they also find social responsibility in 4G development and want to minimize risks sacrificing competition. As they estimate big three as the sufficient scheme for competition they provide radio frequencies either to them or to some state affiliated companies, which lobbied this frequencies distribution.  Though lobbying is relevant for the big three as well. So, the only party, which really suffers in this case, is market competition because these three companies are not enough for real competition.

 Tatiana Prokopenko

 

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