Page 40 - Trends in Telecommunication Reform 2016

networks) and old active equipment . For fund the GPON roll-out, which MGTS estimated
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example, eBezeq, a fixed and mobile operator to cost about USD 2 billion or about USD 360 per
in Israel, generated cumulative profits of ILS home passed. The sale effectively would cover the
214 million (USD 60.8 million) between 2009 and costs of passing about 12.7 per cent of the total
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2013 by de-commissioning its copper network. 4.4 million homes to be covered .
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Another operator exploring this approach is MGTS,
a fixed-line operator in Russia. MGTS noted that it could generate even more
revenue from exchange sales, and it expected to

Case study: MGTS, Russia divest further assets. The first tranche of exchange
sales was relatively profitable for MGTS, reflecting
the high value of property in the Moscow region,
This case study illustrates how MGTS, the fixed-
line incumbent in the Moscow region, is funding Russia’s richest area. The operator also intended
its fibre network roll-out by decommissioning its to generate revenue from selling copper and was
legacy network. MGTS is aggressively rolling out working on removal of its copper lines – a project
a gigabit optical passive network (GPON), fibre- slated to begin in earnest in 2016.
to-the-home (FTTH) network. MGTS’ existing
telephone network consisted of 4.994 million MGTS made good progress in transferring
lines at the end of 2012, and MGTS passed customers to its GPON network. At the end of
2.6 million homes with FTTH at the end of 2013. 2012, 20 per cent of homes passed with FTTH
The company’s ultimate objective was to pass were subscribing to a GPON voice service, a figure
4.4 million homes with FTTH by 2015 . that increased to 30.4 per cent at the end of 2013.
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This transition allowed the company to improve
its average revenue per user (ARPU); at the end of
In 2013, the operator agreed to sell its 49 per cent
stake of CJSC Business Nedvizhimost, the owner 2013, customers migrating to GPON had a 55 per
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of telephone exchanges in Moscow, to Russian cent higher ARPU than previously .
investment company Sistema, retaining a portfolio
of buildings in Moscow with a total capacity of
about 1 million square metres. The value of the
transactions was RUB 6.3 billion (USD 194 million),
and the proceeds were to be reinvested to help

Box 1.7: Key lessons: MGTS
• MGTS commited to a GPON FTTH deployment strategy funded through divestment of key
telecom assets, helping to improve the company's competitive position for the medium
to long term.

• MGTS demonstrated that investment in fibre can generate higher ARPUs through offering
higher-layer services such as IPTV and video on demand.

• De-commissioning the copper network can also result in losing voice-only customers
who do not want to migrate to the new network. MGTS acknowledged that it would lose
voice-only customers, but the company bet that its ARPU gains would outweigh those
losses.

• The regulator allowed MGTS to de-commission its copper network and divest the
assets. The implementation of this approach may depend on whether there is local loop
unbundling (LLU) or just bitstream services.

• There is no LLU in Russia, so the process of de-commissioning an older copper network
may be much faster and easier to achieve in such countries, where the local loop
infrastructure is not shared with other operators.

22 Trends in Telecommunication Reform 2016