Russia: Network Access

Information Infrastructure (Stage 3)

Developing countries face many hurdles as they adopt technology. Lack of access to data and voice communications is a common problem since most nations have poorly developed (or lack thereof) telecommunication infrastructures. A lot of this is due to poverty, political unrest, or their governments making poor decisions. Russia has had many set backs but is moving ahead as it has been undergoing a modernization and reorganization of its communications systems since the collapse of the Soviet Union. With its unique geographical situation, Russia has been dubbed the largest switching center linking all continents2.3. The majority of Russia’s communications have been decentralized and privatized. Joint-stock companies have been created from regional and local enterprises that control domestic telephone and related communications2.1. Rostelecom (Russian Telecommunications) a joint-stock company and the largest communications company in Russia2.3, was created through the grouping of long-distance and international service operations. Through a decision made by the Russian Ministry of Communications (Communication and Informatics Ministry), Rostelecom was given centralized control of the primary backbone network, the international and long-distance secondary telephone network and the public document communication network within the territory of Russia2.3. The federal government through the Ministry of Communications controls the national satellite system, telecommunications research and development, and education systems2.1.
By 1994, through the voucher program, the Russian telephone communications system had been privatized. Stocks for the companies were split between employees of the reorganized companies, the government, and buyers at public auctions. The government still holds its shares showing reluctance to give full control of the telecommunications industry to the private sector.
The development of Russia’s telecommunications infrastructure depends greatly on joint ventures and foreign funding. The modernization of this infrastructure has taken much longer than the Ministry of Communications expected. It was expected that foreign investment in telecommunications would increase by 24% from 1996 to 1999, matching the domestic investment of US$520 million2.1. This was not fulfilled as many Western and Japanese companies had made financial commitments to several similar modernization and privatization projects in other countries. In 1996 the Russian government planned on laying 1,815 kilometers of cable, 9,500 kilometers of wireless lines, 5,000 long-distance exchanges, and 1.5 million new private telephone lines in urban and rural areas (bringing the national total to 26 million private phone lines) 2.1.
Russia is connected internationally by three undersea fiber-optic cables. Digital switches in several cities provide more than 50,000 lines for international calls and satellite earth stations provide access to Intelsat, Intersputnik, Eutelsat, Inmarsat, and Orbita systems2.5.
Mobile telephone usage has been growing rapidly in Russia. Between 2001 and 2002, cellular phone usage grew from 7.8 million users to 9.2 million users2.8, which places Russia second only to the Czech Republic for mobile phone usage in Eastern Europe. Moscow has almost reached its “near-saturation” limit of 30%, while the rest of county has a wireless penetration of 5.4%. In 2000 the Ministry of Communications decided to make GSM the only cellular standard in Russia. As a result GSM currently dominates the market with a 82% market share (as of 2002), and many other cellular providers are looking to convert their networks to the digital standard. Many cellular providers are also beginning to provide other services such as Wireless Application Protocol (WAP) and General Packet Radio Service (GPRS), with the only barriers in growth being low consumer purchasing power.

A Brief History of Rostelecom2.3:
Rostelecom has only been in existence for a little over 10 years. In January of 1994 the Russian Ministry of Communications granted a license to Rostelecom for the rendering of interurban and international electric communication services within the entire territory of Russia. This gave Rostelecom the status of a national long-distance and international telecommunications operator, and centralized control of Russia’s primary backbone network. Russia’s primary backbone network was originally constructed to link Western Europe with Japan. By the 1990’s Russia’s telecommunications infrastructure was far behind the modern level of most the world’s communications with 100% of its backbone being analog. Sovtelecom was created on June 26th, 1990 in an attempt to develop and operate the interurban and international lines of communication within the USSR. After the USSR’s collapse in 1991, Sovtelecom was reorganized into an International Joint-Stock Company named Intertelecom. On September 23rd, 2003 Intertelecom became Rostelecom.

Internet Availability (Stage 3)

In 1995 only about 14% of Russia’s 24.4 million telephones were located outside urban areas, with a telephone installation waiting list of more than 10 million people. There were only 34,100 pay phones available for long distance phone calls2.1. This number has grown significantly with the Russian government’s push to develop their telecommunications infrastructure. By 2002, 35.5 million main line telephones were reported in use2.5. In 2000, around 300 ISPs were reported active and many more companies were holding licenses to provide Internet access services. Currently, Golden Telecom, Sistema Telecom and Equant control over 40% of the Internet access market, with Rostelecom making up another 20% of the market by selling wholesale capacity to ISPs2.8. It should be expected that there will many mergers and acquisitions in the coming years as the market continues to expand and become more competitive.
Broadband is still in its infancy in Russia. A study conducted by Brunswick UBS Warburg stated that around 15,000 customers are subscribed to ADSL, cable television, and asymmetric satellite services2.8. Corporations typically comprise most of the broadband subscribers so the actual number of users may be much higher. Installation costs are the main barrier to further market penetration for broadband, but this should be one of the most significant technology drivers in Russia over the next decade. Due to Russia’s unevenly developed telecommunications infrastructure, wireless voice and data communications have very good opportunities for developing rapidly giving many users outside urban areas access which they may not otherwise receive.
A poll conducted by the Moscow based Masmi Research Group on July 30th, 2004 reported steady growth of Internet usage in Russia. This was the sixth semi annual poll (Online Monitor) the research group has run on the Russian-language Internet or “Runet”2.2. The results reported a population of 10.5 million internet users. The poll also identified several shifts in user habits such as 49% of Internet users having completed an online shopping transaction in the past month, 52% of responders saying their company has a website (14% saying their company uses a corporate portal), 16% saying their company advertises on the Internet, instant messaging use by users increasing by 8.4%2.2. There was a reported Internet usage growth of 93.5% between 2000-2004, with total Internet usage penetrating around 4.1% of the population2.6.
The web hosting market has also been growing rapidly since 2001. Between March and September 2001, the number of domains served by web hosting companies grew by 17% to reach 83,300. The Ministry of Communications estimates that between US$4.6 million and US$9.2 million may have been spent on web hosting in 20012.8.

Internet Affordability (Stage 3).

Russia’s Ministry of Communications faces many regulatory issues as their telecommunications systems continue to develop. Issues such as frequency assignments, standardization of equipment, levels of competition, and establishment of optimal user rates are all major factors in Russia’s development. Internal security agencies and the military typically have had priority use of most wireless frequencies2.1. Standardization is important to ensure older equipment is capable of operating with the newer models of expanded systems. 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.
Out of the over 300 reported Internet Service Providers (ISPs) in Russia, over 100 were operating in the greater Moscow region with a population of 9,000,000, equaling around 2.4 ISPs per one million people. Outside of Moscow the number of ISPs is much smaller, with a penetration rate of 1.82 per 1,000,000 people2.2.
In 2002, approximately 6 million Internet users were reported in Russia2.5. As of July 30, 2004 Masmi’s Online Monitor reported the average expenditures on Internet usage by those who have access increasing. The average user spends US$24.20/month for Internet access and services. This had increased by US$2.40 since their survey conducted in autumn 20032.2. Once again, like many developing countries, the average Russian’s Internet usage and availability is affected by their geographic location. Major urban centers like Moscow have a far larger concentration of usage and availability than any rural area within Russia. The proper telephone infrastructure is not in place so these rural users either have no access or cannot afford access to the internet. For many Russians, the only access they have to the Internet may be through their jobs.

Network Speed and Quality (Stage 2.5)

Russia’s telephone network underwent major changes in the 1990s. There are now more than 1,000 companies licensed to offer communication services to citizens2.5. Having a system that was once 100% analog, access to digital lines has improved most noticeably in urban areas. Internet and e-mail services are also improving as Russia is making progress toward building the necessary telecommunications infrastructure for a market economy. Russia’s largest problem is that there still is limited service outside urban areas. There currently is a large demand for main line service in areas that are not densely populated.
There are cross-country digital trunk lines that span from Saint Petersburg to Khabarovsk, and from Moscow to Novorossiysk. 60 regional capitals have telephone systems with modern digital infrastructures2.5. Cellular telephone services (both analog and digital) are available in many areas as well. As mentioned earlier, telephone services are still outdated, inadequate, and low density in rural areas. Beginning in 2001, the Russian telecommunications industry began an aggressive campaign to generate revenue in an effort to digitize their networks. US$6.6 billion in revenues were generated in 2001 and an estimated US$800 million was spent of infrastructure development. Over 1,754 kilometers of cable and 657 kilometers of backbone fiber-optic network were laid2.8. The digitization of the public switch network increased from 31.2% to around 35% between 2000 and 20012.8.

Hardware and Software (Stage 3.5)

Russia’s software industry dates back to the 1950s when the Soviet government controlled the industry that dealt primarily with military or industrial applications. The Soviet economy at the time had a high demand for programmers and many mathematicians and physicists were retrained for software development. In the 1960s, Soviet software developers and computer scientists were world class. By the 1970s the Russian software industry hit a snag when adopting an official policy of creating unified lines of computers based on IBM 360 and PDP-11s2.7. The goal was to save money by copying Western hardware and then reaping the benefits, however this strategy never worked out. Some people referred to this as one of the “greatest victories of the cold war”2.7. This problem had affected Russia until they entered a market economy in the 1990s. The flood of personal computers replacing mainframes (1.4 million sold in 19972.7) caused a push for private companies to form and provide system integration and software development services for the new platforms. Many of the current leaders in the Russian software industry were a part of this wave of new companies. A major financial crisis in 1998 slowed the industry down severely; the national currency was devalued 5 times. It is not until recently that the Russian software industry had recovered to its levels in 1997.
Russia’s prospects in the computer industry look good as the country demonstrates some of the best growth rates in computer sales in the world. More importantly the market is unsaturated, as there is a reported 5 computers to every 100 people compared to 62 computers to every 100 people in the United States2.7.

Service and Support (Stage 2.5)

As mentioned earlier, Internet availability and usage in Russia varies drastically between urban and rural areas. This trend is the same with Service and Support. One huge reason outside of availability for most Russians is affordability. Many Russians in rural areas do not make close to the salaries of those who live in cities like Moscow or St. Petersburg, and as a result cannot afford the services or support that comes with them.
Russia’s telecommunications infrastructure is still very inconsistent in its quality and accessibility throughout the country. Major urban areas are very well served, however many large areas of the country have very poor access or none at all. In rural areas an estimated 54,000 small communities have no telephone access. As a country, Russia has an average of 22 phone lines per 100 people, leaving a waiting list for basic services of around 6 million names2.8. As a result many Russians must wait several months or even years for installation if it’s affordable. Problems in rural areas take much longer to fix compared to those in major urban areas. Due to this, cellular communications have been growing rapidly.

Recommendations:

It is clear the development and standardization of Russia’s telecommunications network is crucial to the country’s technological and economic development. Urban areas with adequate access are able to prosper in areas like e-commerce leaving rural areas out of the picture. For Russia to truly prosper, the majority of its primary backbone network needs to digitized, an effort the government is already tackling aggressively. The wireless market in Russia should continue to grow rapidly as it may be the only option for many citizens, something many developing countries with poor telecommunications infrastructures experience. A standardization of Russia’s network also lays ground for many foreign companies to invest in technology and further help Russia develop its infrastructure to aid in their own ventures.