Telecommunications operators are facing the task of introducing a new service to the Russian market – broadband access. The most popular service now, broadband access based on ADSL technology, allows high speeds (over 10 MBit/sec) that provide extraordinary opportunities: downloading large amounts of data, Internet access, unlimited phone traffic, video access and TV broadcasting.

Estimates from Brunswick UBS Warburg predict the Russian IT market will grow from $3.9 billion in 2002 to $4.6 billion in 2003. This data looks quite optimistic, considering the U.S. IT market has decreased more than 5 percent (according to Giga). At the conference The Internet – A Medium for Business Cooperation, Leonid Reiman, the communications and information technologies minister, said the Russian Internet is now a substantial factor in business. In 2001, the Russian IT market grew 18 percent, and services provided by Russian Internet companies amounted to $220 million, growing 50 percent over the year before.

E-commerce, however, is still in an early stage of development in Russia. Such development emerges only when the share of the population with Internet access exceeds 9-10 percent, and, in 2001, only 3 percent of the Russian population could access the Internet.

A few statistics: in the United States, there are nearly 7.7 million (8 percent of all families) broadband subscribers, in Canada 1.8 million, in the U.K. close to 1 million, in France 800,000, in Korea 40 percent of the total population and in Finland every resident will have broadband access by 2005, according to the country's Transport Ministry. The subscription fee for such services are somewhere in the realm of $35-$50 per month.

In Russia, the number of broadband-access users is extremely low. There are about 3,500 ADSL users in Moscow, most of which belong to the corporate sector. The main reasons are the installation fee, which is still high (starting at $400), the subscription fee of $40 to $600 a month and the low financial solvency of the general population.

DSL Forum consortium estimates show the number of users of subscription digital lines worldwide reached 18.7 million by the end of 2001. In other words, the market grew 188 percent. The DSL access market has been more dynamic in its development in Russia. According to estimates by MTU-Intel, its growth exceeded 350 percent in 2001. However, the number of lines is relatively small. MTU-Intel, for instance, has over 3,500 ADSL lines, and the company itself states that it is the leader in this area. The president of the Systema Telecom holding, Alexander Goncharuk, explains that so far MTU-Intel only provides Internet access. This is not enough, since the rest of Europe has started providing other kinds of services over broadband networks – including help lines, pay-per-view video, news and music.

"It is only a question of how we can combine services to fill broadband networks. Cable television is not developed in Russia. That is why filling broadband networks is a revolutionary thing. We are now in the process of negotiating with a number of companies that provide similar services in the West. Over the next two months, MTU-Intel may just get a strategic partner with a capacity to fill the network," he said.

The government has adopted a federal program, Electronic Russia, to develop the country's information and communication society and plans to have allocated 76 billion rubles ($2.5 billion) toward its implementation by the year 2010. In the near future, that should mean connecting libraries, schools and other educational establishments to the network, creating public-access centers and providing adequate opportunities to health care institutions and federal institutions of all levels.

Russian companies, both those that survived the crisis and those newly created — particularly those merged into today's large holdings — have moved past the financial stage of development and are now increasing the effectiveness of their management. It is not surprising, then, that there is sharp growth in management IT technologies, such as ERP, KM and CRM solutions, in Russian enterprises. All demand the presence of a well-developed telecommunications infrastructure.

The world's largest suppliers of those systems are expanding their presence, expecting considerable profits, in Russia and the other C.I.S. countries. For instance, Scala, an ERP solutions supplier, has seen its profits grow by more than 10 percent over the first quarter of this year alone, and expects that Russia will account for over half of the European market in 2005.

A unique opportunity may emerge in which the "last mile" problem may be overcome with a modern telecommunications system, which is happening now in Moscow's new subdivisions: some are having their ground telephone systems installed by alternative operators. Access is provided by the largest operators, including MTU-Intel, Central Telegraph, Cominkom-Combellga, Kosmos TV and Komkor TV.

Wireless broadband-access operators have emerged: Alaris, Taskom (known before as a paging-services operator), Sovintel and Art Telecommunications. Alaris estimates the potential capacity of the Moscow market at several tens of thousands of subscribers, including corporate subscribers. Their number does not exceed 2,000 now.

But the picture is not perfect. Broadband's colossal capacities are still not deployed widely among potential customers.

As Artur Alekperov of MTU-Intel said, considering the general population's low level of income, the market consists of several tens of thousands of subscribers. Timur Feizov of Diamond Communications speculated that broadband access in Russia is not in demand, and said that ADSL networks only exist in four large cities.

The author is a market researcher at the IT Management School