Sochi’s Broadband Overkill

Sochi's Broadband Overkill

By Ilya Khrennikov and Christopher Spillane February 13, 2014

Reproduced from BloombergBusinessweek

Rather than trying to take out snippets

London’s successful 2012 Olympics fell short in one event: broadband coverage. The city’s shift to top-end 4G wasn’t done in time for the summer games, and visitors had to settle for slower 3G service. That made it tough to stream video, send and receive large files, or just plain use smartphones. For this year’s Winter Olympics in Sochi, the Russians didn’t want a repeat performance.

State-controlled Rostelecom (RTKM:RU) and billionaire Alisher Usmanov’s operator MegaFon (MFON:RM) have spent more than $500 million on building costs and Olympic committee fees to place enormous arrays of towers and equipment in a small corner of the coastal resort city. Moscow-based MegaFon installed more than 900 towers and antennas in the 0.8 square miles where most Olympic competitions are taking place, says Tigran Pogosyan, head of the company’s Sochi project. That’s the highest density of mobile equipment in the world, according to chipmaker Qualcomm (QCOM), which is advising MegaFon. The bandwidth is enough to handle about 1.2 million users; Sochi’s population is 400,000, and about 1 million tickets have been sold across all the events. Attendees at the main Olympic venues have mobile data speeds about 10 times faster than the average Russian has.

Rostelecom says the $230 million it spent on Sochi will also help it provide services such as TV signal delivery for state agencies and nearby villages. MegaFon Chief Executive Officer Ivan Tavrin, whose company spent about $300 million to reinforce its network, says “it is both a social and a commercial investment. It’s a big contribution to the brand to be involved.” MegaFon gets exclusive rights to sell regional 4G services until 2016. Neither company would discuss its likely return on the investment in such a relatively small market. “This capacity will turn excessive after the games,” says Sergey Libin, an analyst at Raiffeisenbank in Moscow. “Operators may have overspent on the Olympics for image purposes.”

A typical stadium relies on one cell tower, maybe two; each of the six arenas in Sochi’s Olympic Park complex has dozens. The 40,000-seat Fisht Olympic Stadium, used for the opening ceremonies, has 30. To camouflage the small army of towers and antennas, MegaFon disguised some as palm trees and park benches. The company claims data speeds of up to 35 megabits a second for the area. Verizon Wireless (VZ), the largest U.S. wireless carrier, advertises speeds of 5 to 12 megabits for its 4G service.

The tower-building frenzy was part of Russian President Vladimir Putin’s attempt to permanently remake Sochi as a world-class tourist destination. Construction companies such as Russian Railways and Basic Element have suggested that the government pressured them to take on projects that were likely unprofitable. Deputy Prime Minister Dmitry Kozak, the country’s top Olympics official, says the investor companies volunteered. Mikhail Alexeev, a partner at consultancy Advanced Communications & Media in Moscow, says financial considerations weren’t the principal motivator. “It’s not an issue whether the investment made into it will ever pay back,” he says. “It just needed to be done for Russia.”

So what’s the upshot for Olympics attendees? Apps developed by the carriers let mobile users watch broadcasts of the competitions, meaning someone at an Alpine event can live-stream a hockey game while waiting. Olympics sponsor Samsung Electronics (005930:KS) is trying to take advantage of the extra bandwidth by giving athletes free Galaxy Note 3 tablets, pitching them as tools to video-chat with family and friends back home. Already, some say the investment isn’t paying off. Ben Troy, who is in charge of technology for the Australian Olympic team, says he switched to older 3G connections after finding Sochi’s 4G service unreliable.

The bottom line: Rostelecom and MegaFon spent more than $500 million on the Olympics to plant hundreds of towers and antennas.

Khrennikov is a reporter for Bloomberg News in Moscow.

Spillane is a reporter for Bloomberg News in Johannesburg.

Eric Winton

Director, New Millennium Business

Comments are closed