Telecommunications: The regulatory framework in Russia

Rapid developments in technology and the growth of the Internet are among the drivers of fundamental change in the structure of the old telecommunications, broadcasting and media industries across the world. Russia is no exception. The Internet, mobile, telephony and digital broadcasting are likely to grow at exponential rates, although starting from a comparatively low base (e.g. penetration rates for mobile phones remain low at approximately 5.4 per cent of the population). Significant investment is still needed in the public service telephone network if penetration rates are to be lifted from the current national average level of 21 per cent to the target level of 60 per cent, which has been set by the Ministry of Communications and Information Science. The Ministry has calculated that some US$60 billion of investment in telecommunications will be required over the next ten years to achieve this.

Privatisation

Until 1993 the Russian telecommunication network was fully controlled and owned by the state authorities of the Russian Federation. In 1992 the Russian government announced plans for privatizing the telecommunications sector and local network operators were privatized according to the following scheme: 51 per cent of common shares were kept by the State; 5 per cent were transferred to the companies' management; 10 per cent were transferred to the companies themselves; 25 per cent were transferred to the employees as preferred shares; and the remaining shares were sold by the local state property management funds to investors. Later the government formed a holding company, Svyazinvest, which owned all government shares in all regional telecommunications companies. Currently, each 'subject' of the Russian Federation has its own telecommunications company. These companies tend to suffer from regulated low tariffs but enjoy a monopoly position in their respective regional markets.

The government developed a two-stage scheme to privatize part of Svyazinvest. In July 1997 25 per cent of the capital plus one share in Svyazinvest was sold for US$1.875 billion. The second step of privatization (25 per cent minus two shares) was postponed owing to poor market conditions after the financial crisis in 1998.

Rostelecom is Russia's main international and long-distance telecommunications carrier. Svyazinvest currently owns 51 per cent of Rostelecom. Other strong players on the Russian telecommunications market are the state-owned natural monopolies, such as the Ministry of Railway Transportation, Gazprom and RAO Unified Energy Systems, which use their infrastructure networks for telecommunications business.

The general principles of Russia's telecommunication legislation are set out in the Federal Law On Communications of 16 February 1995. The Law sets out the framework for licensing telecommunications business and the basic certification requirements for telecommunication equipment. Telecommunication networks may be owned by both Russian and foreign legal entities and individuals.

Governing Agencies

The principal ministries and committees that have jurisdiction over telecoms operators and equipment suppliers are set out below.

The agency responsible for regulating the telecommunications market is the Ministry on Communications and Information Science of the Russian Federation, which in turn is responsible for a number of state committees that have delegated authority in relation to specific areas. The Ministry is responsible for state policy and state management of the communications industries, including postal and courier services. The Ministry also manages a number of state enterprises operating in the telecommunication sphere. The Ministry is responsible for certification of telecommunications equipment the issuing of licences to telecoms operators. The Ministry supervises, on a day-to-day basis, telecoms operators and has the power to inspect equipment and generally monitor compliance with licence terms.

A number of other state agencies and institutions have authority over the telecommunications sector. The Federal Agency for Government Communication and Information certifies and licenses the use of encryption codes and equipment. Jointly with the Ministry of Anti-Monopoly Policy, the Ministry of Communications and Information Science develops and coordinates tariffs and tariff policy for the telecommunication services. The State Committee for Radio Frequencies assigns radio frequencies, monitors the use of frequencies, and defines technical standards in broadcasting. The State Commission on Electronic Communication coordinates the development and construction of telecommunications networks and systems and supervises their operations. The State Commission on Information Science is responsible for state policy in the sphere of information distribution and control, as well as for developing state standards for certification and licensing. The Ministry of Health Protection regulates certain issues regarding the location of the telecommunications equipment.

Licensing

The Ministry issues licences to provide various telecommunication services. The scope of licensing covers almost every type of telecommunication activity. For instance, the Ministry issues licences to provide the following services:

• local telephone services;
• interregional and international telephone services;
• cellular communications;
• mobile radio communication services;
• TV broadcasting and radio broadcasting;
• cable television services, etc.

An enterprise may hold several different licences to provide one or more services.

A licence is not required for:

• internal communication networks within the same enterprise;
• networks within a single building or several adjacent buildings, or installed in vehicles, aircraft or vessels;
• telecommunication services provided exclusively for the purposes of the state, including security, defence and protection of public order.

A licence for a telecommunication service may be issued for a term from three to ten years (and in some cases for longer). TV broadcasting and radio broadcasting licences are subject to a maximum term of five years. Licences are renewable. The licence contains a detailed description of the services to be provided, including the area of coverage, number of lines and subscribers.

Fees are charged for the issuance of a licence. The amount of fee depends on the type of the licence but the amounts set out in the regulatory acts of the Ministry are surprisingly very low – for example, the fee for issue of a licence to provide international and interregional telephone services is approximately US$270. In practice, however, much higher amounts are paid to obtain a licence through a tender procedure.

Licences are usually issued through a tender procedure, although this is not a mandatory requirement and licences have also been issued without a tender. The terms and conditions of a tender are established for each licence by the Ministry. There are specific regulations governing tenders to provide cellular services and some other telecommunication services. In general, a special commission is organised to run the tender by the Ministry of Communication. Members of the commission include representatives of various state authorities of the Russian Federation including representatives of the Ministry of Defence, Federal Security Service, Ministry of Anti-Monopoly Policy and other state authorities. The terms of the licence offered, the starting price, the commencement date, the date of submission for applications and the procedure to be followed are determined by the commission, and information about those terms should be published in the media. Applications must be submitted to the commission indicating the annual fee to be paid for the licence. The applicant offering the highest annual price for the licence should win the tender.

A licence may be suspended or revoked by the Ministry of Communication. The licence may be suspended for the following reasons:

• failure to comply with its terms and provisions;
• failure to provide services within three months after the start-of-service date;
• provision of inaccurate information about the communication services provided to the consumers;
• refusal to provide documents requested by the Ministry of Communication in order to evaluate the quality and scope of the services.

The licence may be revoked for the following reasons:

• failure to remedy the circumstances which resulted in a suspension of the licence;
• unfair competition of the licence holder in providing the services;
• other grounds set out in either Russian legislation or international treaties.

The Ministry's decision to suspend or revoke a licence may be contested in the appropriate court.

Telecommunication Equipment

Telecommunication equipment imported or produced on the territory of the Russian Federation is subject to certification requirements. Certification is provided by the certification institutions approved by the Ministry of Communications according to the rules and conditions established by the Ministry. Certification is conducted to insure technical correspondence of the equipment to Russian state technical standards. The certification process is lengthy and expensive, involving several stages of testing and evaluation.

For further information please contact David Griston at [email protected] or on +7 095 2585000.