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. Last Updated: 07/27/2016

Rostelekom Plans JV for Overhaul

Russian phone company Rostelekom has agreed in principle to set up a joint venture with U.S., German and French firms to implement a $40 billion refurbishment of the country's phone system, Communications Minister Vladimir Bulgak said.

The joint venture, to be called RosKom, will enlist the cooperation of Deutsche Bundespost Telekom of Germany, France Telecom and US West to work on the world's biggest single telephone project, intended to lift Russia out of the telephone industry's dark ages.

Dubbed "50x50" because it will include 50,000 kilometers of modern fiberoptic long-distance cables and 50 digital switches, the project will nearly double the number of telephones in Russia, adding around 20 million new lines over 10 years.

"A joint-stock company for the 50x50 project will be set up in the next few months," Bulgak said Wednesday at a news conference in Bonn after talks with German Postal Minister Wolfgang B?tsch and the head of Deutsche Bundespost Telekom, Helmut Ricke.

The Russians will hold a 60 percent stake and will finance around 50 percent of the cable and equipment costs through the sale of telephone concessions. Around 40 percent of the total cost of $40 billion will be raised by Western investors.

US West this month launched a new venture, the Russian Telecommunications Development Corporation, to run its investments in Russia and attract more foreign money for projects like the 50x50. Viktor Pavlenko, president of the RTDC, has estimated that Russia will require between $80 billion and $120 billion to bring its telecommunications network up to Western standards.

Deutsche Telekom, Germany's state monopoly, said the 50x50 project had taken a big step forward but many obstacles remained.

Gerd Tenzer, Deutsche Telekom board member in charge of the project, said that the Western consortium was still negotiating over how much cash it would put up and how this would be divided up between the Western partners.

"We are setting up a liaison office in Moscow and expect to be able to make a final decision in about six months," he said. "There is a lot of momentum now, particularly from the Russian side."

Annual Western investment in the project would be around $1.4 billion, which would be raised by RosKom on international capital markets, he said.

Industry analysts say they expect the world's number one telephone company, AT&T, and an Asian telephone company to join the venture. AT&T's German subsidiary declined to comment.

The 50x50 project has been dogged with problems because of instability in Russia and uncertainty about what the Moscow government wants. Western companies have urged Russia to come up with clear and reliable guidelines on financing.

Bulgak said planning was now complete in principle but Tenzer said talks would continue next week in Moscow.