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Russia - Market Intelligence Report
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Market Intelligence Reports provide an invaluable mix of vital market data and background information, including telecoms regulation. In general, Russia's telecommunications market may be described as being under rapid development, with the long-awaited consolidation in the state-owned operating utilities sector now well-advanced, providers of value-added and advanced communications services proliferating and profiting in the major population and business centres, and mobile operators and service providers extending their reach nationwide. According to the Russian Ministry of Information Technologies and Communications, the market for communications services was worth approximately US$12,600 million in 2003 (latest full-year data), having increased in value by 40% in just one year. The key to this growth, claimed the ministry, was increasing demand for and usage of data and mobile communications services. Nevertheless, the penetration of basic telephone lines is relatively low, at around 27 lines per 100 population in 2004; this disguises the fact that many rural areas and even small towns have little or no coverage by the national telecommunications system, whereas major cities such as Moscow and St Petersburg benefit from extensive and technologically well-advanced networks and therefore have a much higher penetration rate. A number of telecommunications operators characterise the Russian market as being "unsaturated" and have indicated their intention to continue investing heavily in networks and service provision for the foreseeable future. The vast majority of the state's telecommunications business is held by the Svyazinvest holding company, an entity that is 25%-owned by the privately-controlled Mustcom group and 75% by the Russian state. Svyazinvest itself owns more than 70 of Russia's fixed line local, regional, long-distance, and international operators and has spent much of the past two years consolidating the assets and operations of these companies into eight regional business units. Svyazinvest is working towards the goal of eventually becoming a publicly-listed company and this seems likely to happen in late-2005 or early in 2006, assuming that all departments within the government can agree on the size and timing on the sale, which has already been deferred several times. There are a number of alternative network operators and service providers, some of which are highly specialised. Generally, however, these alternative operators are confined to the provision of services within a limited territory or to a narrow market. Opportunities for expansion remain hindered by the prospects of low profitability, even in the medium to long terms, while a number of operators are fighting for the same markets and customers, those who are not competitive or adaptable enough will eventually be forced out of the market. Laws governing the telecommunications sector and the Russian business sector have been somewhat muddled and open to varying degrees of interpretation. Much work needed to be done in clarifying and enhancing legislation governing the sector and it was hoped that the new Communications Law, which took effect on January 1, 2004, had resolved these problems. If anything, however, the new law simply made the whole system much more confusing and a raft of supplementary regulations has had to be enacted to tie up loose ends and make the new laws compatible with the surviving legislation governing general business practices, natural resources, and monopolies. A certain degree of competition is permitted at the local and regional level. The domestic long-distance market, currently monopolised by Rostelecom, the long-distance arm of Svyazinvest, should be liberalised in mid-2005, although the international long-distance market seems unlikely to be opened before 2010. As Russia is negotiating to accede to membership of the World Trade Organization (WTO), a successful application may result in a fresh impetus to definitively revise the country's telecommunications laws and to actively pursue liberalisation within the sector.
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