Global Business
References Environment Case
May 15, 1994
A technician tests the phone base for Moscow Cellular, which is in a venture with U S West.
The money raised will be spent improving the region's decrepit telephone system. By paying interest at 1 percent a day for any delay beyond six months, the plan provides considerable incentive for the local telephone company to speed its work. Though the method may be unorthodox and the scale relatively small, the plan indicates the huge demand for improved communications in a country where getting a dial tone can be a triumph.
If there is a consensus within Russia on anything, it is that the telephone system must be upgraded, to provide Russians with greater access to service and to make it possible for business to be conducted more easily with the rest of the world and within a country that spans 11 time zones.
"It's hard to speak seriously of economic and business development in Russia without the development of modern telecommunications systems," said Dmitri B. Garamov, the director general of Westelcom, which operates the nation's main international telephone service.
Modernizing the telecommunications system is so high a priority that it is one of the few businesses in which the Russian government, local and regional authorities and the domestic industry have all made a determined effort to welcome foreign investors like U S West and AT&T- or at least the cash, technology and operating skills they bring.
It's next to impossible to develop a high-quality telecommunications infrastructure without Western investment," said Vyacheslav F. Gurkin, a former first deputy communications minister who now runs Moscow Cellular Communications, a joint venture; with U S West, the regional telephone company based in Denver.
Indeed, U S West and other foreign companies have established sizable operations here, and are cautiously optimistic that the upgrading of the national and local phone systems will prove to be a huge business opportunity. By various counts, Russia has 11 to 15 phone lines for every 100 people. In Spain there are 35 lines for 100 people, and in the United States, 70 lines for 100 people.
In Moscow and St. Petersburg, callers can usually count on getting a dial tone, but not much more. Calls are often not completed, or are plagued by static and other mysterious noises, or are abruptly cut off. In outlying areas, service is much worse - if it exists at all.
Even in Moscow, which has 4 million of the country's 23 million phone lines, hundreds of thousands of people have been waiting years for service. The centerpiece of the nation's telecommunications strategy is a multibillion-dollar plan, in which U S West will play a key role, to install 31,000 miles of inter-city long-distance lines and 50 switching centers across the country. After a number of fits and false starts, there is cautious optimism that the plan - the biggest telecommunications project on the boards anywhere - will come to fruition, wiring the country reliably together for the first time.
For foreign companies seeking business here, an even bigger prize lies just over the horizon: the tens of billions of dollars - some estimates run as high as $120 billion - that it would take over several decades to add 20 million or more local lines and bring Russia's phone service up to the level of, say, Spain's.
While both Russian and Western executives here said they were hopeful about the opportunities, the prospects for the modernization programs remain clouded by the very scale and the cost of the task in a nation that is struggling just to keep its economy functioning.
Moreover, it unclear that the Ministry of Communications can exert sufficient control over local and regional telephone authorities to pull off what some Russian telephone executives consider one last gigantic central planning project.
Then there is the continuing question of political stability. When Viktor V. Pavlenko, the president of U S West International's division in Russia, assembled a group of institutional investors from the United States and Europe in Moscow last Oct. 25 to ask for $40 million to help finance the American company's expansion here, he hardly needed to point out the risks. Clearly visible through the conference room window was the charred hulk of the White House, the parliamentary building where a political uprising had been violently squashed by President Boris Yeltsin a few weeks earlier.
Despite the risks, nearly every big American and European telecommunications - equipment supplier and telephone network operator has a presence here, including AT&T, Alcatel of France and Siemens of Germany. Cable and Wireless of Britain recently bought a stake in an international long-distance carrier in St. Petersburg.
"Clearly you're betting that this place is going forward," Pavlenko said.