Duma Votes Down Per-Minute Billing

The State Duma passed in the crucial second reading Friday a set of amendments to the law on communications that critics say falls short of what it was supposed to do -- level the playing field for market players and boost development of the telecommunications sector nationwide.

The amended version will replace the 1995 communications law, considered to be outdated by the industry, if it passes a third reading and the Federation Council and then is signed by the president.

A compromise on one of the most controversial measures -- allowing fixed-line operators to charge their customers by the minute, a key issue for telephone companies, which struggle to break even in some regions -- will give consumers the right to choose their billing method.

"The bill states the right of a citizen to choose between paying a fixed monthly fee and per-minute billing," said Vladimir Katrenko, chairman of the Duma's energy, transport and communications committee.

The freedom to choose how their bills are calculated may be an election-year victory for consumers, but it will not help struggling operators increase their revenues, said Yevgeny Golosnoi, who tracks the sector for Troika Dialog.

"People who talk a lot will choose to pay a monthly fee and people who talk little will pay by the minute," he said. "As a result, revenues will not grow and companies will lose. ... This is a step back, not a step forward."

Another key provision in the legislation is the introduction of the term "universal services" -- a set of telecommunications services that every citizen is entitled to. Katrenko said the provision "will solve the problem of communications nationwide, especially in rural and remote areas."

However, in its current form, the definition of universal services has been narrowed to having at least one payphone with free access to emergency services in every community and at least one public Internet access point for every town with more than 500 people.

"The idea of the universal service is right, but it has been reduced to naught," Golosnoi said.

But the amendments do little to clarify the issue most important to Svyazinvest, the national fixed-line monopoly undergoing a radical restructuring that has so far seen 72 of its subsidiaries grouped into seven super-regional companies -- tariffs.

Tariffs are capped by the government, whose current policy is to let prices rise by about a third each year. Svyazinvest and other operators, however, say current policy discourages investment in the sector and that more revenues are needed to modernize antiquated networks.

Golosnoi said current tariff policy will lower the price the government will be able to charge for its 75 percent stake in Svyazinvest, which may be put up for sale later this year. International financier George Soros' consortium Mustcom paid $1.8 billion for 25 percent of Svyazinvest in 1997 -- about what the entire company is now valued at.

"The government should show investors interested in purchasing Svyazinvest that its tariff policy will result in growing revenues," Golosnoi said.

"Regular hikes of only 30 percent to 35 percent a year are not enough," he added.

Svyazinvest declined to comment.

The draft was also supposed to determine the terms allowing alternative operators to connect to public networks, but instead simply states that they have such a right, but without specifying the terms.

"This law doesn't stimulate the emergence of a competitive environment for traditional fixed-line operators and alternative operators," said Vladimir Zaitsev, general director at the Association of Telecommunications Operators.

Zaitsev said his organization would lobby the Federation Council and the Kremlin to oppose the amended law in its current form.