Russia's telecommunications roads get wider, more expensive

In the last days of 2000 the government approved "in principle" of a draft concept for developing the market of telecommunications services, extending till the year 2010. What are the likely implications of that decision?

Under the approved project further efforts in the telecommunications market must be geared to meet the growing demand for communications services. According to the Ministry of Communications, 54,000 communities in Russia have not a single telephone. Communications networks development has been and still is the job of traditional operators. Bills paid by retail subscribers cover a mere 77 percent of local telephone communications costs.

According to the most conservative estimates, the development of the national telephone infrastructure will require an investment of $33 billion over a period of ten years. The number of ordinary telephones will grow from 31.2 million in 2000 to 47.7 million in 2010, and of mobile telephones, from 2.9 million to 22.2 million. The army of Internet users by 2010 will go up from 2.5 million to 26.1 million.

For communications operators to be effective control will be established of the fair access of one operator to the other operator's network. No operator will be allowed to refuse access to its infrastructure to another operator. And tariffs for all market participants should be the same.

Having examined the concept the Ministry of Communication, the Ministry of Economic Development and Trade and the Anti-Monopoly Policies Ministry ordered finalizing the document within a two-month deadline and present it in one package with a plan for implementation measures to the Cabinet of Ministers. In the meantime, the Russian communications market is booming. Investments in 2000 exceeded by far those witnessed by pre-crisis 1997. National industrial operators are in the growth phase.

For the past few years the telecommunications divisions of several giants (such as the Ministry of Railways, Gazprom and others companies) have stormed the domestic market, but none has gained full access to this day. The possibility remains, though, that these companies next year may gain the status of a full-fledged operator. However, before they can count on the right to provide communications services in the domestic market, the operators of corporate telecommunications networks must settle their debts to the government, Communications Minister Leonid Reiman told Vek. He believes that these operators may settle their liabilities by transferring part of their shares to the State Property Ministry.

The Communications Ministry has conducted negotiations with the Defense Ministry on using certain frequencies for civilian purposes. Reiman said four percent of the radio frequencies were used by civil services, 20 percent, jointly by military and civil services, and the others were exempt from conversion. The Communications Ministry does not dismiss the possibility of operators' financial participation in the conversion of frequency ranges to civilian uses altogether. The issue of licenses to use vacant frequencies through contests may prove a means to raise funds for the mobile communication sector. The government has approved of issuing contested licenses for frequency ranges above 1800 MHz, and for third generation cellular systems.

Of the main methods the government uses to control the telecommunications market, alongside technological policies and perfection of service provision principles, one should point to the control of tariffs, minimization of cross subsidies, optimization of tariffs structure by consumer and regional sectors, transition as of 2002 to limit pricing-based tariffs, and the introduction of a system of universal services. The effective control and operation of the industry should provide support for domestic producers and safeguard national interests during the restructuring of companies, including Svyazinvest.

Svyazinvest is in the process of enlargement and reorganization. Instead of the 89 regional operators it is creating a new structure uniting seven to fifteen communications operators. This measure is expected to make the company easier to control and increase its shareholder value. The General Director of OAO Nizhegorodsvyazinform Vladimir Lyulin and Managing Director of the investment bank Group Gamma Timur Khusainov in December signed a contract on the provision of information and consulting services within the framework of the unification of eleven regional communications operators in the Volga river area.

Nizhegorodsyavinform will be the base company in the Volga area, taking over ten other regional communications operators - OAO Kirovelektrosvyaz, OAO Martelkom of the Republic of Mari El,

OAO Svyazinform of the Republic of Mordovia, OAO Elektrosvyaz of the Orenburg Region, OAO Svyazinform of the Penza Region, OAO Svyazinform of the Samara Region, Saratovelektrosvyaz, Telecommunications Networks of the Udmurt Republic, Elektrosvyaz of the Ulyanovsk Region, and Svyazinform of the Chuvash Republic. The unification process is due to be completed by the beginning of 2003.

The number of trunk communication lines over the past two years grew noticeably. Rostelecom and Transtelecom have been discussing the possibilities of Asia-Europe traffic. Companies in the West have turned an attentive ear to this news. Some are drawing plans for doing business in Russia. The main conclusion is that the economy's drift from material production to information technologies implies the growing role of telecommunications. Those companies which fail to reorganize their policies and development priorities in time, will fail in market competition. A shift of the emphasis from the transmission of voice to the transmission of data is the mainstream trend in the telecommunications business.

Market economy development will give Russia convenient and high quality telecommunications roads. However, only those companies that have opted for new development models will make a rapid headway.