Russia

Telecommunications in the 1990s

Since the breakup of the Soviet Union, Russia has been engaged in the reorganization and modernization of its communications systems. In this process, control over communications has been decentralized and in large part privatized. In domestic telephone and related communications, control devolved to regional and local enterprises, which were then reorganized into joint-stock companies. Long-distance and international service operations were grouped together into a new organization, Russian Telecommunications (Rostelekom), which itself became a joint-stock company. The federal government has retained control over the national satellite system, telecommunications research and development, and education systems through the Ministry of Communications. Despite ownership changes, in 1995 only about 14 percent of Russia's 24.4 million telephones were located outside urban areas, the waiting list for telephone installation included more than 10 million names, and only 34,100 pay telephones were available for long-distance calls.

By mid-1994 the Russian telephone communications system had been privatized through the voucher program. Employees of the reorganized companies received about 25 percent of company stock, the government retained some shares, and the remainder were sold at public auction. Telecommunications stocks reportedly have been among the most coveted items on the fledgling Russian stock market. Domestic and foreign investors have been especially attracted to stocks in major regional telephone enterprises such as the Moscow and St. Petersburg telephone systems and Rostelekom. But the state has not relinquished its remaining telecommunications shares, showing reluctance to cede full control to the private sector.

Development of the telecommunications infrastructure depends heavily on foreign funding and joint ventures. The Ministry of Communications expected foreign investment in telecommunications to increase by 24 percent in 1996 over 1995, matching domestic investment of US$520 million. In the mid-1990s, state subsidies continue to fall. According to Western experts, that investment level is far below the amount needed over a prolonged period to modernize Russian lines or even to upgrade existing equipment. However, Russia faces stiff competition for foreign capital because Western and Japanese companies already have made substantial commitments to telecommunications modernization and privatization projects in a number of other countries.

Russia's goals for 1996 were the laying of 1,815 kilometers of cable and the installation of 9,500 kilometers of wireless lines, 5,000 long-distance exchanges, and 1.5 million new private telephone lines in urban and rural areas. The latter addition would bring the national total to 26 million lines.

The regulatory framework for telecommunications in Russia remains weak, but it is maturing. The Law on Communications, enacted in 1995, is the chief statute, but the lines of regulatory authority have not been clearly defined. The Ministry of Communications is the chief regulatory agency for "civilian" communications, but military and national security authorities control their own communications networks outside the purview of the Law on Communications.

As Russia's telecommunications systems develop, the regulatory issues facing the Ministry of Communications include frequency assignments, standardization of equipment, levels of competition, and establishment of optimal user rates. The military and internal security agencies traditionally have had priority use of most wireless frequencies, but the newer and expanding commercial and individual users require more access to frequencies. Standardization is needed so that older equipment can operate with the new models on expanded systems. A uniform policy is needed for regulation of telecommunications competition, which varied in the early post-Soviet years. And the Ministry of Communications has not yet established telephone rates that are affordable to the users but provide enough profit for the company to operate and expand.

The government has promoted competition in some sectors. An example is the licensing of a number of companies to provide specialized, dedicated service networks. For cellular telephone lines, the government has encouraged competition in densely populated areas, such as Moscow and St. Petersburg, while developing single provider systems for small areas where demand is limited. For long-distance service, in the mid-1990s Rostelekom competed with local telephone companies for revenues in the potentially lucrative area of interzonal communications. In addition, Rostelekom is facing competition from newer companies that are able to provide long-distance service through their own cables and via satellite. Under these conditions, the shape and size of the Russian telephone system is changing rapidly and responding to the demands of the market.

Experts estimate that Russia must expand its telephone networks from around 24 million telephones to between 75 million and 80 million and provide the modern switching equipment with which they can operate. They further expect that Russia will require an investment of US$150 billion to bring its telephone system up to modern standards. Russia has imported Western equipment in the modernization effort, but this strategy has proved very costly. The Russian equipment industry is trying to revive itself and develop indigenous technology to fulfill its needs.

Foreign investors could be an important source of capital and technology in the Russian telecommunications sector, but in the mid-1990s Russian laws and regulations limited foreign participation to the supply of equipment and services that would not hurt domestic producers. The Law on Communications gives preference to domestically produced equipment, with the major exception of cellular phone production, where officials have welcomed foreign participation. Domestic telephone services are the domain of Russian companies, but foreign companies have established a presence in domestic and international long-distance service.

Russian radio and television are undergoing similar changes (see The Broadcast Media, ch. 7). The programming facilities and transmission operations are separate, as they were in the Soviet system when the central government controlled all of these facilities. After the breakup of the Soviet Union, Russian radio and television programming operations were decentralized at the regional and local levels.

In the mid-1990s, three major countrywide state-owned programming companies provide most programming for the country. They are Russian Public Television (Obshchestvennoye rossiyskoye televideniye--ORT), Russian State Television, and St. Petersburg Television, which primarily serves the St. Petersburg metropolitan area. In 1995 Russian State Television was partially privatized when 49 percent of its shares were sold to private companies, but the company remains under state control.

The privatization process moved large blocks of shares into the hands of banks and powerful entrepreneurs, who formed communications and newspaper empires and used close connections in the Government to lobby for the release of additional state shares in the broadcasting enterprises. In 1996 the two most powerful broadcast entrepreneurs were former banker Vladimir Gusinskiy, head of the Media-Most holding company including the Independent Television (Nezavisimoye televideniye--NTV) network and several prominent periodicals, and Boris Berezovskiy, an automobile entrepreneur whose organization, Logovaz, now controls ORT as well as banking, oil, aviation, and print media enterprises.

Privately owned and operated, independent programming companies are playing a growing role in Russian radio and television programming. As of 1995, some 800 companies were in existence. In 1996 the largest private television channels are TV-6, which reaches sixty cities in Russia and elsewhere with a potential audience of 600 million viewers, and NTV, which serves European Russia and has a potential audience of 100 million viewers. Both companies were founded in 1993.

Transmission facilities are state-owned, and programmers must pay fees to the transmission companies to have their material broadcast. The fee establishment mechanism remains an issue in Russian telecommunications policy. Control over transmission gives the government powerful leverage over the content of broadcasts. In 1996 independent companies were considering cable and direct satellite television services to get into the state-dominated market as transmission providers. In 1992 some 48.5 million radios and 54.9 million televisions were in use.

Because the Law on Communications does not address the question of airtime allocation, policy makers also must grapple with that issue. Subsidies for radio and television broadcasters, including state-owned operations, have been reduced drastically in the first half of the 1990s, meaning that programmers must rely on advertising revenues.