NEW YORK-With just 0.04 mobile telephones per 100 people today, Russia is fertile ground for an expanding wireless industry, said Alexander Nyago, general director of AO North-West GSM, a St. Petersburg cellular carrier.
Of the 200,000 wireless subscribers in the country at the end of 1996, about 80,000 use Advanced Mobile Phone Service networks deployed in 33 regions by 36 operators. Another 70,000 are customers of Nordic Mobile Telephone-450 networks in 47 regions by 38 providers.
Global System for Mobile communications, the latest available standard, has nine carriers providing service to 55,000 subscribers in 13 regions of the country. Of the total number of GSM customers nationwide, AO North-West’s account for 24,000, and this amount is triple the company’s subscriber base at the end of 1995.
“In Russia, according to the 1995-1996 results, networks of this standard became the most rapidly developing cellular communications structures,” Nyago said. “The fast rate of development of this standard throughout the world prompted Russians to a more active usage of this service.”
At the end of last year, the Ministry of Communication of the Russian Federation also began issuing licenses for Digital Cellular System 1800 technology.
Most of the expansion in the number of wireless telecommunications networks and providers in Russia to date has occurred in large metropolitan areas. In the longer run, Nyago predicted industry consolidation as better-financed and developed carriers will be better positioned to provide service in less profitable rural areas where realizing economic development potential is a priority for the federal government.
Voting with their dollars in support of cellular’s growth potential are foreign investors. Outside investments-valued at $94 million in 1994-are expected to reach $1 billion this year.
“In Russia, different from (other) developed countries, the investment risk is higher,” conceded Nyago. He spoke at a conference, “Russian Telecommunications Opportunities for Financial and Strategic Investors,” sponsored by Tele-Strategies Inc., McLean, Va.
For one thing, limited capital availability forces new carriers to go into commercial operation with thin coverage over a large territory. In St. Petersburg, a city of 5 million people, AO North-West turned on its system in late 1996 with just 13 base stations.
“Typical for GSM operators, this causes an avalanche-like attraction of subscribers which in the beginning discredits the GSM standard due to unsatisfactory coverage and therefore low quality of services provided,” Nyago said. “Unfortunately, till the present moment, our country cannot boast of a widely developed digital channel network. But for the sake of justice, it is worth mentioning that we are working on it, notwithstanding the impressive territory of Russia.”
On the positive side of the cash flow equation, however, is the fact that prepaid calling is the norm among wireless carriers in Russia. While the lack of available radio frequencies in certain telecommunications bands can act as a brake on network and subscriber growth, it also makes it easier-for GSM carriers in particular, at this point-to obtain exclusive operating franchises, thereby insulating them somewhat from competition.
Other impediments to successful deployment and expansion of wireless telecommunications systems include the “time consuming approval” necessary in order for foreign companies to export their equipment to Russia. The approval process for new wireless network operators also is lengthy and costly.
“Legislation of the Russian Federation constantly changes, and as a consequence, [so do] customs regulations, thus making customs clearance of incoming cargo a lot more difficult,” Nyago said.
The federal government is reviewing a draft of a new tax code for the country. “The taxation system in Russia leaves much to be desired … but it will take much time till [the new tax code] is adopted,” he said.
Despite these significant hurdles, the need and demand for wireless telecommunications services seems certain to propel their expansion in Russia, Nyago said.
