The development of fifth generation (5G) mobile phone networks in Russia has stalled due to problems with equipment and uncertain financial conditions of local operators.

In Russia, a possible launch of 5G mobile networks was first discussed as long ago as in 2017. A year later, test zones were launched in Moscow. But so far, there has been little progress, and by early 2024, 5G activity basically came to a halt.

According to the industry journal ICT Moscow Telecom, while over 2022 and 2023, seven 5G tests were conducted in Russia, so far this year, there have been none. Moreover, of all tests run so far, the majority were related to closed corporate networks rather than public infrastructure.

In developing 5G networks, Russia is lagging behind many countries, as the number of 5G mobile subscribers in the world reached 1.7bn in the first quarter of 2024, according to Ericsson.

The main obstacle in the way of developing 5G networks in Russia is a shortage of base stations required to facilitate network operation. Plus, the 4.4-4.8 GHz frequency band, allocated for 5G by the government, requires significantly more base stations than it would be in case of allocation of the originally requested 3.4-3.8 GHz band used in most other countries.

Currently, there is no mass production of 5G base stations in Russia. Two companies, Yadro and Irtea - the latter is affiliated with major mobile phone operator Mobile TeleSystems (MTS) - are reportedly engaged in the development of such equipment. But it's not clear when they could actually start production on a mass scale.

Another factor hindering 5G development in Russia is the growing debt of mobile operators, including due to the revisions of the Central Bank of Russia's key rate. Rostelecom, which controls the mobile operator Tele2, is among those complaining about the financial burden.

Long history, little progress

Efforts to launch 5G mobile networks in Russia have been ongoing since 2017. However, the inauguration has faced multiple delays, with potential launch dates in 2020, 2022, and 2023 all being missed.

Back in 2017, Russia's state commission for radio frequencies allowed 5G testing for the frequency band of 3.4 GHz to 3.8 GHz. Separately, MegaFon was allowed to test using the 26 GHz frequency.

Initial tests were apparently run in a dozen Russian cities that hosted the football World Cup matches in 2018, but further tests required substantial investment, which the mobile phone operators could not afford separately.

To solve that problem, a 5G consortium was established in February 2019, but there was still no clarity on how to go ahead with a 5G launch. At the time, two options were considered: developing 5G in Russia as a consortium of several operators; and the creation of a state-run operator specifically for 5G.

A roadmap for the development of 5G networks in Russia, proposed by the Russian state-owned defence and tech conglomerate Rostec, was approved in November 2020.

It came with a price tag of approximately RUB208.15bn ($2.32bn), with RUB28.8bn ($321mn) expected from the state budget and the remainder from private investors. How much has actually been provided so far remains unknown.

"Tech sovereignty" as a major issue

Already years before the full-scale invasion of Ukraine in February 2022, Russia had been trying to lower its dependency on imported tech equipment, and, in line with that policy, 5G equipment used in Russia under the 2020 roadmap, was supposed to be Russian-made.

However, mobile phone operators seemed to largely ignore that stipulation, actively using imported 5G equipment for their 5G programmes. Specifically, in the autumn of 2020, MTS spent RUB7.5bn ($83.6mn) on 5G-ready equipment from China's Huawei. Earlier the same year, MegaFon said that it was planning to develop its 5G networks in partnership with Huawei, as well as Finland's Nokia and China's ZTE. Tele2 was collaborating with Sweden's Ericsson.

Western sanctions imposed on Russia following the invasion of Ukraine put a lid on collaboration with Nokia and Ericsson.

However, China, as a "friendly country," still remains an option. In June 2024, Kommersant reported that several 5G base stations had been recently imported to Russia for testing purposes. The manufacturer of the equipment was not revealed.

Now, the Russian government may apparently be facing a dilemma of either admitting that the 5G program could take years more to develop or scrap the stipulation about "technological sovereignty" and allow 5G base station equipment from "friendly countries," like China, to be used.

Rostec-affiliated equipment supplier goes bankrupt

Meanwhile, local companies involved in the Russian 5G scheme are apparently facing major difficulties. Earlier this summer, a company named Spektr, which is affiliated with Rostec, filed for bankruptcy.

Previously, Spektr was included in the Russian government's roadmap for the development of 5G mobile networks, under which the company received a subsidy of RUB4.4bn ($49mn). However, the company was forced to pay back RUB3.7bn ($41.4mn) of that subsidy in December 2023, according to a report published in the Russian business daily Kommersant. The same report quoted a Spektr representative as saying that the company had to reorient its business due to international sanctions slapped on Russia and is no longer planning to manufacture 5G equipment.

The company also attributes its financial problems to the termination of state financing of the 5G base station development project.

Meanwhile, Russian mobile phone operators that were expected to be the main consumers of equipment manufactured by Spektr, said the company had failed to supply base stations that could satisfy conditions for commercial use.

Rostelecom said it had not tested Spektr equipment or signed any contracts with the firm. MegaFon also stressed that it has "no commercial relations" with Spektr. Vimpelcom admitted that it had conducted a number of tests of 5G base stations supplied by Spektr, but the equipment was in early stages of development and could not be used for commercial operation as it didn't "meet a number of technical specifications."

Government incentives

The Russian government is apparently still keen on launching 5G networks in the country and has been mulling a set of incentives for mobile operators.

One idea is issuing "soft loans" to mobile phone operators to develop 5G networks primarily in the country's biggest cities with a population of over 1mn people and in regional capitals.

Another idea, recently floated by the country's ministry of communications and the ministry of digital development, is to extend a substantial discount on fees for using the frequency band to mobile phone operators.

At the recent Telecom of the Future-2024 forum, digital development minister Maksut Shadayev said that the discount could be as high as 90%.

Still, it is not clear how lower frequency band fees could solve the issue of lacking base station equipment.