Yota has announced that it will extend its operations to Belarus, Nicaragua and
Peru.  I talked to Yegor Ivanov, Director of Business Development, about
how Yota plans to manage this expansion.

Just as they did in Russia, Yota does not feel constrained to follow established
industry rules.  I think I found out why.  Most people at Yota do not
come from the telecoms industry and this seems to be working to their advantage. 
They believe they can change the way the game is played, and have tried to do so
in Russia already with remarkable success. 

In the new markets, Yota is not partnering with a local operator, the most
commonly followed path for international expansion.  Yota has a controlling
stake in the local greenfield operators, established partnerships with
non-operator players, and are trying to duplicate the Russian model where it
makes sense.  In Belarus they have complete ownership of the operator. 
In Nicaragua, Yota’s retains 75% of the ownership, in Peru 88%. 

Yota believes that it is easier to work with a local partner that is not an
operator (i.e., less potential for conflict) and with strengths that Yota can
more effectively leverage.  In Nicaragua, Yota is working with a
distribution player that has a good understanding of the specific domestic
market.  In Peru, Yota has worked with a partner to get the desired
spectrum allocation. 

Yota will use the same RAN vendor, Samsung, in all the new markets to keep a
tight time-to-market schedule.  Yota got the spectrum in Nicaragua in
September and they plan to be live in Managua by the end of the year.  They
have a few Russian engineers on the ground to ensure that all they learned in
the Russian deployment will be used in the new environment.  In both
Belarus and Nicaragua, Yota has access to 60 MHz of spectrum in the 2.5 GHz
band, the same band they use in Russia.  For the backhaul, they mostly rely
on fiber, with wireless backhaul were fiber is not available.  In Managua,
they believe fiber is available to connect the planned 20 base stations. 

At the same time, the competitive environment may different, so Yota’s marketing
approach is not necessarily the same as that used in Russia.  In Belarus,
Yota will mostly duplicate the Russian approach, leverage the same media content
partnerships, and offer comparable plans. 

In Nicaragua, however, a different approach is needed.  There, as it is the
case in many Latin American countries, voice may be just as important as data in
getting market share.  Voice calls, especially international ones, are
typically very expensive.  An operator that offers low cost call is well
placed to attract customers.  So Yota will be shifting the focus from media
content, which has a key role in their Russian service proposition, to VoIP. 
VoIP will be offered from service launch, while it is still not part of the
service plan in Russia (the WiMAX connection can be used for VoIP of course, but
Yota does not yet offer its own VoIP service, as far as I know). 

It will be interesting to see how this approach works in different markets. 
Life can be difficult for greenfield operators without an established local
presence in the industry, but this may also make it easier to introduce
innovation and competition as they do not have legacy ties. 

Monica Paolini is the founder and president of Senza Fili Consulting and can
be contacted at
monica.paolini@senzafiliconsulting.com.    Senza Fili Consulting (
www.senzafiliconsulting.com)
provides advisory support on wireless data technologies and services financial
modeling, market research, business plan support, business development, RFPs,
due diligence, and white paper preparation.    Independent advice, a strong
quantitative approach, and an international perspective are the hallmarks of our
work.

So what’s special about Yota? They are one of the many WiMAX operators in
Russia, but they are the ones with the strongest focus on mobility.  They
have 2.5 GHz spectrum and $470 millions funding.  Since their launch in
June 2008, they have signed up 76,000 customers and claim to sign up 1,300 new
subscribers a day (suggesting that demand has started to pick up lately).

Of their 850 employees, 200 develop software, because Yota sees itself as a
content and application provider as well.  The service offered includes
voice and a subscription to video and music content, and it has been all tightly
integrated since the very beginning.  They are working with major content
providers, like EMI, Sony, Universal, and Warner.  All the services they
offer are on based on unlimited use to make the service simple and attractive to
subscribers.  With the all-you-can-eat plan at $16/month, it will be
challenging for Yota to offer all this and become profitable, but they may be
able to generate the volumes needed.  It is a big gamble though.

Yota has been the first operator to launch a WiMAX and cellular phone.  The
proposition they offer to their subscribers is very simple: they can choose the
cellular operator they want and they are in charge of managing their contract
with the operator as they wish.  In most cases, this probably means that
the subscribers simply move their existing SIM card from their old handset to
the new one.  The phone works like a regular cell phone where there is no
WiMAX coverage.  In WiMAX areas, subscribers can receive calls to their
cellular number and their VoIP line, and can decide whether to place a call
through the VoIP or cellular line.  This leaves maximum freedom to the
subscribers and removes the need for Yota to establish a partnership with one or
more cellular operators.  As a result, the WiMAX phone was introduced in
the market right away, since lengthy negotiation with cellular providers could
be skipped.  More importantly, this approach provides subscribers with a
device that combines good coverage (in cellular-only areas) with good throughput
and lower cost services where WiMAX is available.

The phone is quite expensive at over $1,000, but not much more expensive than
other smartphones, but that does not stop subscribers from buying it.  In
February, the company said that 20% of their subscribers had a phone. 
That’s quite a high percentage given the cost of the phone and the fact that the
core WiMAX services typically appeal to the laptop users.

More devices have been announced, including a mass-market phone and a
middle-range Android phone.  It will be interesting to follow the evolution
of their service.

Along with its subscriber numbers, Yota disclosed some interesting data on their
subscribers’ usage profiles.  Within three months, the operator has noticed
a rapid shift towards mobility.  Subscribers quickly discover on their own
the value of mobility and gradually expand the area where they use the service. 
This is not a surprising trend, but it is remarkable how fast the process is-a
month or two.  Clearwire has observed the same phenomenon in Portland and
within a comparable timeframe.

The scary part comes with the traffic generated by subscribers.  Excluding
idle and abusive users, the average traffic generated by a Yota subscriber is
10.3 GB per month.  This is 20% over Russian DSL subscribers and 100% than
2G/3G data users.  Yota subscribers are early adopters who are well versed
in all sorts of traffic-intensive applications and are typically heavy users of
video applications.  The increased availability (compared to DSL) and speed
(compared to 3G) of the connection contribute to explain the higher traffic
levels for WiMAX.  But this does not change the fact that that traffic
levels are growing very fast and that WiMAX operators are likely to be the first
to see the full extent of the increase in traffic because they have more
capacity per subscriber in their networks.

The trend towards high traffic levels is confirmed by other operators as well,
even though the numbers I have seen are not this extreme.  While these
usage levels confirm that subscribers value the service, they spell trouble for
the operator.  No matter how spectrally efficient technologies like WiMAX,
HSPA and LTE are, all wireless operators are bound by limited spectrum (and
funding) resources.  Eventually operators will have to start face
congestion issues.  High traffic levels will push operators to operate
differently.  They will have to use more sophisticated techniques to manage
traffic over their networks and they will have to plan their network with an
architecture that relies more on pico and femtocells that increase the overall
network capacity.  The days when the brute-force approach of just adding
more macro cells where needed was sufficient to keep subscribers happy are
forever gone.

Monica Paolini is the founder and president of Senza Fili Consulting and can
be contacted at
monica.paolini@senzafiliconsulting.com.  Senza Fili Consulting (
www.senzafiliconsulting.com)
provides advisory support on wireless data technologies and services financial
modeling, market research, business plan support, business development, RFPs,
due diligence, and white paper preparation.  Independent advice, a strong
quantitative approach, and an international perspective are the hallmarks of our
work.