Line Goes Dead for IP-Telephony Discounts

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Cheap international calls from Russia via IP telephony are becoming a thing of the past.

Russian IP telephony operators have been abandoning their previously low intercity and international phone rates as they sign agency agreements with Multiregional TransitTelecom, or MTT, and Rostelecom.

As a result, subscribers will be forced to pay at least one-third more for long-distance calls, experts said, at least until competition increases.

IP operators have traditionally built their businesses on cheap longdistance calls, often charging significantly less than Rostelecom, which until this year had a monopoly on fixed-line long-distance services. New rules for telephone service that came into effect in January permits operators to offer long-distance services only once they have established network access in all 88 regions of Russia. Companies not fulfilling the requirement can only work as agents of those that do.

The largest IP operators -- OSS, Zebra Telecom and Arktel -- have received long-distance licenses, but cannot take advantage of them until they build complete nationwide networks. They therefore have no choice but to sign on as agents of either Rostelecom or MTT.

Zebra Telecom has become an agent of MTT, said its general director, Viktor Kaledin. Similarly, Yevroset, which began offering IP telephony in October, now provides the service on an agent basis, said Yevroset public relations director Tatyana Gulyayeva.

One of the largest Russian IP-telephony operators, OSS, recently notified its clients that long-distance service on their calling cards was now provided by MTT, and that prices would increase as a result.

OSS concluded an agency agreement with MTT and now can render long distance service only as its representative, said OSS director of marketing Dmitry Krasilnikov. The company is also going to conclude a similar agreement with Rostelecom, he added.

At least one IP operator plans to curtail sales of telephone cards entirely.

"Now, we are entirely focused on the Sipnet project, which allows users worldwide to connect to our network and communicate with each other through the Internet, using computers," said Tario's deputy director, Sergei Belovolov.

More than 135,000 subscribers are already connected to Sipnet, he said, of which 60,000 are frequent users.

Subscribers may lose the opportunity to make long-distance calls at the old rates, experts said.

"All IP operators will sell their services according to Rostelecom and MTT rates, which are at least twice as high as the operators' former prices," said Krasilnikov.

Tatyana Tolmachyova, an analyst for IKS-Consulting, estimated that there was a 30 to 40 percent price difference between Rostelecom and IP operators on the most popular call routes.

Gulyayeva,of Yevroset, said she expected that on average, market prices would rise by more than 20 percent.

Belovolov, of Tario, said he expected that some operators would continue offering cheap services "on the sly," but not on a large scale, as advertising those rates openly would be impossible.

The prices of MTT, Rostelecom's only legal competitor, are comparable to the prices of the former monopolist, said Tolmachyova. According to her observations, it is cheaper make calls with MTT during business hours on weekdays, and with Rostelecom in the evening and on weekends. Prices will fall only when new long-distance service providers enter the market, she said.

An MTT representative said that, should competition increase, international calling prices may drop to the rates that IP operators had previously been charging. However, intercity rates are not likely to fall significantly, he said.

"They cost more in comparison to overseas calls because they include fees charged by the interregional companies of the Svyazinvest holding acting as zonal operators, as well as local carriers' charges," he said.

Rostelecom's director of public and investor relations, Anton Klimenko, said that expenses for all legal market participants would be essentially identical.

"At the moment, we do not see much leeway for pricing games," he said.

Consolidated proceeds of Russian IP-telephony operators reached $260 million in 2005, a 54 percent increase over 2004, or about 1 percent of cumulative earnings, according to the Center for the Study of Telecommunications Development.

The largest market participants are Arktel, Zebra Telecom, OSS, Mango Telecom and Tario, IKS-Consulting said.