Minister confirms DLD/ILD liberalisation: first licences to be issued in May

17 Mar 2005

Leonid Reiman, the Russian Communications Minister, has announced that the country’s long-distance and international telecoms markets will be opened up to competition, and that the first licences for alternative operators will be issued in May. Reiman says that seven firms have already applied for licences, but that only five concessions will be issued. Industry watchers, however, believe the market is only strong enough to support three players, with AFK Sistema (through its Multiregional Transit Telecom unit MTT), alternative fixed line operator Golden Telecom and state-owned TransTelecom seen as the most likely winners. MTT owns and operates eleven local switches in federal districts and plans to increase this four-fold by the end of this year. Golden Telecom, part owned by Alfa Group, has begun to build out its trunk line and will lease capacity from Rostelekom, while TransTelecom has Russia’s second largest trunk network which can easily be adapted to offer voice services.

Russia’s decision to open up the DLD and ILD markets is a key part of the government’s WTO accession talks: the country has promised to terminate Rostelecom’s monopoly on the sector by 2007, although Reiman has long made it clear he wishes to do this sooner. Rostelecom, which is part of the state-controlled Svyazinvest holding group, provides inter-city and international telecoms services to the military and intelligence agencies. Its strategic importance has been a thorn in the side of the state’s proposals to sell off its 75% minus one share interest in the telecoms holding company which also controls Moscow fixed line operator Moscow City Telephone Network (MGTS) and seven ‘mega-regional’ operators: Center Telecom, North-West Telecom, Volga Telecom, South Telecom, Uralsvyazinform, Siberia Telecom (Sibirtelecom) and Far East Telecom (Dalnevostochnaya). Yesterday, Russia’s Economic Development and Trade Minister German Gref said that the government might be able to privatise its stake in Svyazinvest this year, subject to the progress of a draft presidential decree on the matter, which is due to be submitted next week. According to Gref, the presidential decree calls for the sale of the government’s entire 75% minus one share holding. Earlier this month the IT and Communications Minister, Leonid Reiman, had said that the privatisation would most likely happen in 2006.

The liberalisation of the DLD and ILD markets is expected to impact heavily on Rostelecom, which is set to lose around a third of its business in the short-to-medium term, mainly drawn from higher value corporate clients which are already signing up to take rivals’ services. This will leave the operator to fight it out with other smaller players for control of residential users in an increasingly competitive market. Already, companies such as Comstar, Golden Telecom and TransTelecom – owned by the state through OAO Russian Railways – are ready to jump when Rostelecom loses its monopoly; Svyazinvest too expects to see a surge of competition in the local loop where it currently controls more than 90% of all local connections.