The Russian Anti-Monopoly Ministry has issued a resolution that is likely to result in a 10-fold increase in the number of telecoms subject to price regulation by the government. The ministry's regional divisions have started drawing up lists of telecom companies that correspond to the new criteria for being monopolies.

The campaign has started in the regions, and Moscow and St. Petersburg will be the last to face the innovation. The Anti-Monopoly Ministry's regional branches are busy verifying lists of operators that provide general-access services, preparing proposals and submitting them to the federal structures. On the federal level, these proposals are analyzed and some are accepted and some are declined.

Thus, the Samara Oblast division of the ministry submitted a list of some 100 companies, which was reduced to 60 by the federal ministry's department for monopoly regulation.

Samara telecoms addressed the issue with little interest. Although all potential monopolists were sent letters notifying them that their fate would be decided at a board meeting of the Anti-Monopoly Ministry, only three of them – mainly from Togliatti – showed up to make their point at the meeting.

The monopoly criteria are being revised in accordance with the Anti-Monopoly Ministry's Resolution No. 761, called On Amending the Regulations on Natural Monopoly Register in the Communications Industry, issued in October 2000 and affirmed by the Ministry of Justice in November 2000.

Before that, the list of monopolies in the industry comprised some 300 companies, including postal services, television and radio broadcasters and state-run companies providing electronic-communication services. Now that the resolution has taken effect, the list is likely to be expanded to 3,000.

There is probably no other country in the world with that large a number of telecom monopolies. Explaining the situation, the ministry's representatives referred to historical reasons. As a result of the privatization that took place in 1993-95, the regional communications operators and Rostelecom appropriated practically all infrastructures of general-access communications and they were incorporated into a holding, Svyazinvest, which became a monopoly.

Svyazinvest owns more than 80 percent of the telecom infrastructures in the country and provides local, domestic long-distance and international long-distance communication services to the great majority of the population. Obviously, such a colossus should be controlled by the government, and its tariffs should be regulated with due respect for the interests of all categories of users.

The head of the Anti-Monopoly Ministry's department for regulating natural monopolies in the industry of communications, Valery Goryachev, said there is no real competition on the market for public access to electronic communications because the networks are not developed enough and the supply of services is below the demand.

"Real competition exists only in Moscow and it involves a limited number of companies – companies that will not be included in the monopoly register. In the rest of the country, there is no competition, only a division of spheres of interest. Under the Anti-Monopoly Ministry's resolution, a situation where consumers do not have a real opportunity to buy similar services from a different provider is classified as a non-competitive market."

A serious problem here is that Russian legislators have not been given a clear definition of the term "market" as applied to the communications industry. Mechanisms that have been elaborated on the basis of the Law on Competition allow any territory, from a block of houses to a whole republic, to be defined as a "market."

According to Goryachev, a situation where an operator is servicing only one out of 100 apartments, and in which this apartment is not provided with connections to other operators' networks – hence giving residents no choice – can be classified as a monopolized market.

This means that all telecoms – except Internet providers and operators of mobile and technological networks, not only those which are real monopolists – can be automatically included in the register of monopolies in the communications industry. The register may well come to include such giants as Global One or MTU-Inform together with, say, an operator of an outdated telephone exchange servicing a small town.

All prices for the general-access telecom services will be regulated on the federal level of authority. Earlier, the prices were regulated by local administrations or regional divisions of the Anti-Monopoly Ministry. Yet recently, regional authorities fought against the center trying to secure control over the prices of at least those operators who were not on the monopoly register. But in January 2001, the Supreme Court of the Russian Federation put an end to all these disputes, ruling out the possibility of local regulation of natural monopolies.

According to Goryachev, the introduction of centralized tariff regulation will not inflict any noticeable damage on the major companies. First, their present prices for long-distance communication are 10 percent lower than those established by the Anti-Monopoly Ministry. Second, their income comes mostly from corporate clients, while the services provided to the population constitute a minor proportion of their business. Third, they market their services as a package (including local telephony) and clients pay for the whole package if satisfied with the price/quality ratio.

Of course, now they will have to show the costs and prices of services subject to price regulation separately, and consumers will see how much they pay for local communications.

Representatives of the Anti-Monopoly Ministry maintain that putting all telecoms on the monopoly register will help establish equal conditions of accessing the networks and data traffic through them. As things stand, the Anti-Monopoly Ministry is setting official traffic rates, while actual prices are determined by agreements between the operators. In the next few months a system of state regulation will be introduced that will establish the ministry's desired equal conditions.

Moscow telecoms have received the ministry's initiative without enthusiasm. They will be the last to face the innovation. According to plans, a list of Moscow telecom monopolists is to be affirmed in late 2001 or early 2002.

MTU-Inform Marketing Director Dmitry Dronov maintains that competition on the Russian telecom market is fairly tough. "Any contract on laying telephone networks to a region is put to competitive bids or a tender and the winner is the company that offers the best services. Situations where an operator dictated its will and conditions have long since become a thing of the past," Dronov claimed.

Goryachev noted that, throughout the world, all telecom and network-connection services belong to the sphere of government control. In the United States, for example, the operations of telecoms, including their business plans, are under strict control.

The Anti-Monopoly Ministry now plans to introduce tougher control over the industry in Russia using the Western model as an example. According to Goryachev, the increased control will be in line with requirements set, for example, by the World Trade Organization.

"There will be less freedom, but for solid investors, equal conditions of operation and development for all participants in the market and their transparency may be even more attractive than freedom," Goryachev said.

As for the companies, they do not agree with this point of view. They maintain that Russia's situation is drastically different from that in the West and that thoughtless copying of Western schemes is fraught with negative consequences.

"The level of telecom infrastructure development in Western countries is miles ahead of Russia's," Dronov noted. "In most cases, these countries have long since built their telecom infrastructures and the costs have paid back. In Russia, everything has to be done from scratch. If the government moves to regulate telecom-service prices, the operators may find themselves unable to return their investments.

"Figuratively speaking, our telecom market can be compared with a pyramid. Corporate clients are on the top – they represent the most profitable but the narrowest segment of the market – and the population, the general public, represents the pyramid's base. Our company has long since started providing services to the population, but if the Anti-Monopoly Ministry's decision is enforced to the fullest extent, this line of business will be effectively ruled out."

Fyodor Boldyrev is a journalist for the Kompaniya weekly magazine, where he originally filed this article.