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. Last Updated: 07/27/2016

Perm Telecom Connects With Investors

PERM, Ural Mountains -- Visitors to Perm, a town situated 1,400 kilometers east of Moscow, can find many things to carp about, but the phone system isn't one of them. Regional monopoly Uralsvyazinform is one of Russia's most promising regional telecoms operators.


Uralsvyazinform is one of the country's 85 "Baby Bells," small regional phone utilities that foreign investors are eyeing hungrily as the nation's appetite for phone lines increases.


Often near the top of investment advisers favorite picks, the Perm-based telecom has seen its net profits double from 1995 to 1996, jumping from 71 billion ($15.3 million) to 148 billion rubles.


In January, the company raised $3.5 million by selling 1 percent of its shares to private investors through London brokerage Williams de Broe, according to a Reuters report.


Vladimir Popov, the company's deputy director for foreign economic relations, attributed Uralsvyazinform's ascendancy over the past year to "correct technical and financial policies."


The company last year won a $67 million credit line from a consortium of German banks and plans to raise more funds by issuing American Depositary Receipts later this year.


Popov said the line of credit is being used to finance the purchase of German Alcatel equipment and has so far enabled the company to build three new digital stations and add 35,000 new phone numbers in the province.


Popov refused to disclose exactly when the ADR would be launched, but said "preparations are under way." Ten percent of the company's shares are expected to be represented by the issue.


He dismissed speculation that the upcoming privatization of the state-owned holding company Svyazinvest would affect the ADR issue. Svyazinvest holds 51 percent of Uralsvyazinform and a controlling interest in almost every one of Russia's regional phone companies.


"Telecoms are always a profitable avenue and more so now," Popov said. "Even without significant investments we could continue to expand, though more slowly."


Last month, Uralsvyazinform began listing its stock on the Russian Trading System, an index of Russia's most traded stocks. Investor interest in regional operators such as Uralsvyazinform is especially keen as gradually improving local economies create demand for new phone connections, at present just 18 lines per 100 Russians.


Telecommunications industry leaders said earlier this month they expect $800 million in foreign investment in the sector this year, up from $550 million in 1996.


But Uralsvyazinform's popularity with investors does not extend to its local clients, who accuse it of exploiting its monopoly to charge cut-throat tariffs. Critics point out that the cost of a call from Perm to Moscow is far higher than from Moscow to Perm.


The company is also the sole provider of cellular phone services in the oblast, charging significantly more than providers in other Russian cities. Setting up a cellular line can run anywhere from $1,850 to $2,200, plus a monthly charge of about $43. Incoming calls cost about 17 cents a minute and outgoing calls about 34 cents.


By comparison, Beeline Communications in Moscow said it charges $1,498 to set up a cellular line with a $50 monthly charge. Daytime calls cost 45 cents and night calls 32 cents. Popov explained the high tariffs as a combination of operating costs and the company's "economic interests." He said further rate increases, particularly for residential users, are on the cards.


Uralsvyazinform is planning to fund further growth by hiking tariffs for residential clients and expanding its program of charging for local calls. It already charges about 38 percent of its clients for local calls on a per-minute basis.


"At present, rates for individual users cover barely half the operating costs, while the burden on industry is too high," Popov said, adding that tariffs for enterprises have been frozen since the beginning of 1997.


Much of the region's hopes, however, are pinned on Uralsvyazinform. Today many factories in the area survive by selling equipment to Uralsvyazinform as it extends its network. Popov said the company bought more than 10 billion rubles worth of equipment last year from converted defense enterprises.


The region's preeminence among Russia's telecommunications sector is the legacy of Soviet central planning, which located a defense production zone in Perm that produced almost all the army's telecommunications equipment. In the 1950s, the government created two giant monopoly factories in the area -- Perm Telephones and Morion, according to Igor Shklyayev, director of Kamatel, a joint venture between Morion and German telecoms giant Siemens.