Andrei Dubovskov: The fibre will connect femtocells so that MTS
can install 3G and 4G without laying a new network
Andrei Dubovskov is just eight months into his new role as CEO of the Russian telecoms group MTS and he is about to start his biggest challenge: installing fibre to millions of homes across Moscow. Yet MTS is best known as a mobile operator, so what’s going on? A transition to a fully integrated fixed and mobile operation — that’s what.
Dubovskov became president and CEO in March 2011, just as the company — working with its major shareholder, the Sistema group — took control of Moscow’s fixed-line operator MGTS, which was also part of Sistema. Now Dubovskov is phasing the group’s huge capital investment in fibre to the home as its spending on its 3G mobile network is nearly complete.
Ironically, MGTS played a key part in setting up MTS in 1993, working then in association with Deutsche Telekom and Siemens. Over the years both MTS and MGTS have become part of the Sistema industrial group, whose interests include eastern European vendor Sitronics but extend to investments such as Intourist, the former Soviet government travel agency.
Telecoms is key to Sistema: Dubovskov’s predecessor as CEO of MTS, Mikhail Shamolin, is now CEO of the whole group. Shamolin was a member of the Global Telecoms Business 40 under 40 in 2010.
Sistema also has a joint venture with an Indian group, Shyam, to run a mobile operator in Indi, using the MTS brand: for an interview with Vsevolod Rozanov, the CEO of MTS India, see links at the bottom of this article.
Back to Russia: “MGTS is a very profitable business,” says Dubovskov, putting the ebitda at about 65%, with “very high” revenue per user. The company has digitised its network “but we need to achieve better than that, and the next step is new services”, he adds. “That’s why we are starting the GPON project.”
The FTTH investment “will cover the whole city, including the new territory around Moscow” that will be included after the federal government of Russia expands the city borders.
MGTS already delivers four million fixed connections to the five million residences — mainly apartments — in Moscow and the neighbourhood. The FTTH investment started in the middle of 2011 but will accelerate in 2012.
“The 3G rollout will all be finished next year,” says Dubovskov. “That’s how we will sustain the capex in fibre. The 3G investment will finish at the end of summer 2012.” Capital investment will be intensive for MGTS, he says: about 22-24% of the company’s sales.
Next step after ADSL
His colleague Vasyl Latsanych, who has been chief marketing officer for even less time than Dubovskov has been CEO — since only September 2011 — adds: “We already deliver two to three megabits using ADSL. This is good for simple internet connections, but we need to take the next step.”
The first stage was fibre to the premises, with each apartment block in Moscow having its own fibre connection, and then copper taking over on the last few metres. That’s good for 10-20 megabits per household “and that was good enough but we see the next evolution to GPON networks delivering 100 megabits”, says Latsanych.
Fibre to each apartment using GPON — gigabit passive optical network — technology is, as the name implies, future-proof. “Once you lay the fibre you can upgrade the network to one gigabit, or 10 gigabits, or whatever you’re ready to pay for,” says Latsanych. The fibre remains unchanged, with changes needed only to the equipment at each end — in the operator’s switch and in the homes of those customer. “You can upgrade without relaying the network,” he adds.
Dubovskov confirms that the MGTS plan is for fibre into every apartment — and that gives the MTS group another reason for the investment. “We want to put femtocells everywhere we need,” he says. An extensive fibre network throughout the buildings of Moscow means that “we can install 3G and 4G and whatever other G without laying a new network”.
Until now — as with many 3G investments worldwide — “the bottleneck has been the transport network”, he says. “Once we’ve built the FTTH network the backhaul will already be there, so we can put the radio equipment anywhere we need.”
That plan will give the MTS group a future-proof infrastructure. “We can increase our base stations, whether they’re 3G or 4G, without any digging or cable laying. That’s good for such as densely populated area as Moscow is.” In addition, “we already have the ducts — we just have to pull the fibre”.
And that’s why MTS is opting for FTTH rather than the more modest FTTB — fibre to the building — “which can’t deliver a signal into 30-storey buildings”, he says. “Fibre optics don’t have that issue.”
The network will take two to five years to build, says Dubovskov. How much is the group planning to spend? “A lot,” he smiles. “It depends on pricing from all our vendors and that can change very quickly.” But later in the interview he puts the budget at $1 billion.
ZTE has won the first contract for MTS’s fibre project, he says, “but only for the first stage. For 2013 it is an open question. It’s a question of price. We are not going to choose only one vendor for three years. We can change our suppliers for the next year.”
MTS seems to recognise that vendors will be competing strongly for a role to fibre the homes in one of Europe’s biggest cities. “Our suppliers will want to be selling the story to Western operators,” says Latsanych. “European operators want to change to FTTH, as FTTB is being seen as old fashioned, as yesterday’s technology.”
Dubovskov adds: “We are jumping from the existing ADSL, and the right answer is FTTH. That’s why the Chinese vendors want to show [MTS as] the Russian example. It’s a super-big city with old infrastructure. If you can do it in Moscow, you can do it anywhere.”
No local loop unbundling
He points out that MGTS is not a monopoly fixed provider in Moscow. “It’s a very competitive situation.” There are other broadband suppliers, though MGTS is not under any regulatory obligation — as its opposite numbers are in western Europe — to offer last mile connections to its competitors. “We are the number one player but is it a tough competition.” But, he confirms, “there is no [local loop] unbundling in Russia”. That makes Russia a good market to be in if you own the asset.
The “first thousands of connections” should be installed “at the beginning of 2012”, says Latsanych, who joined MTS in the Ukraine branch 10 years ago after several years with Coca-Cola.
It’s a challenging marketing process that MTS-controlled MGTS will face. “We will be going to every household and we will have to pull a fibre cable into every household, and we will have to re-sign our agreements with the customer.”
Though, he indicates, “re-sign” is probably not the right term there. In some cases there are no original agreements to form the basis of renegotiation as many of the installations date back to “the old Soviet-era MGTS” when “we were there forever”.
But MTS will be offering IPTV and video on demand, “a different level of service, a totally different level of service quality”.
And for MTS the fixed network offers a level of information on its customers never thought of when MTS was a mobile-only operator, mainly relying on pay-as-you-go customers. “It’s a key difference between mobile and fixed,” says Dubovskov, who joined MTS — also starting in Ukraine — four years ago after working for Tele2 and Millicom.
“In the fixed network you have good information about your customers” — especially customers that have been with the company for a long time. That means that MTS may be ready to subsidise customers in order to bring them on to the fibre network, because the company can have a good level of confidence in its information.
Dubovskov is firm that the fibre project is Moscow-only at the moment. “We’re spending $1 billion and we need to be careful about other regions,” he notes.
But he’s confident about the basic appeal of fibre, especially with the increasing popularity of high-definition television. “There is an increasing interest in better picture quality. Once a customer has a new TV, the loyalty is high. This makes Russia a more appealing media market.”
The MTS group already has its own content service, Omlet, and the company is about to launch a Samsung TV set with the Omlet service built-in.
At the same time the company will be investing in set-top boxes “and the whole infrastructure that has to be built” in order to deliver services over the new fibre network. Which companies will supply them? “We are looking at the top players in the market.”
Meanwhile Dubovskov gives a cautious view about MTS’s move from 3G to 4G. The industry needs “a lot of patience”, he suggests. The company is still working to create 3G coverage across Russia: “We are spending a lot of money on UMTS. We need to spend money on the existing [3G] network and we need to make good returns from this investment.”
So what of this plan for all the Russian operators to use Yota to build a common 4G network? Dubovskov is reserved: “It will be bad news if we say we are going to spend money simultaneously on LTE and UMTS,” he says. LTE will come later. “Step by step. We need to establish a very good UMTS network for the next two to three years.” He does admit that “in parallel we will build LTE in the biggest cities”, but he takes care to point out that the priority is still 3G, taking the company’s HSPA+ network up to 20-40 megabits, “which is enough for all client services”.
He believes that MTS is on a firm path to growth in Russia. “My position is very clear. We need to create profitable growth, pay good dividends, and make capital expenditure for our three-I strategy — innovation, integration and internet.” GTB
Further reading from Global Telecoms Business:
MTS takes 94% of Moscow's MGTS 02 Dec 2011
India's broadband plans hit by lack of spectrum, says MTS's ... 10 Nov 2011
Russia's MTS 'plans to expand globally' 27 Oct 2011
Capex rise funds fibre network by Moscow telco 28 Jun 2011
MTS gets OK for acquisition of MGTS stake 26 Aug 2011