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. Last Updated: 07/27/2016

Rostelekom Cool on Cutting Prices

Long-distance telecoms provider Rostelekom is unlikely to reduce tariffs any time soon to comply with a rate cut urged by the government, officials and analysts said.

Led by First Deputy Prime Minister Anatoly Chubais, Russian government officials announced earlier this month that telephone companies should cut long-distance costs 5 percent to 10 percent in the near future, but did not specify when.

Rostelekom's assistant deputy director Kirill Skokov said Thursday the company could not comply with the price cut because it did not have direct power over domestic billing and price setting.

"Regional operators, in agreement with local governments, set tariffs on domestic long-distance calls," he said at a news conference. "Rostelekom has no relationship to these tariffs, as we are not a charging office."

Rostelekom handles 95 percent of all long-distance domestic calls and 85 percent of international calls. It charges domestic regional operators for use of its lines and they then set consumer tariffs, the company said.

Vladislav Vasin, the company's first assistant general director, said the State Anti-Monopoly Committee would have to give its approval to any regional price reduction.

Rostelekom officials failed to explain why international long distance rates, which could be changed without difficulty, would not be lowered. But company officials said international rates, which have remained static since 1996, have fallen 15 percent in dollar terms due to inflation.

However, Rostelekom has increased the period during which international calls are most expensive.

In January, Rostelekom increased international tariffs by 50 percent between 8 p.m. and 10 p.m. It is unclear how much the change will increase revenue streams. But the two-hour time window corresponds with the beginning of the U.S. work day when telephone use, and therefore revenue, was most likely high, analysts said.

Traffic, or telephone use, last year increased 12.7 percent, Rostelekom reported, though the company is still far below capacity using less than 30 percent of its lines, analysts said. Analysts attributed traffic increases to the country's improving economic condition, rather than Rostelekom's own marketing.

If international tariffs drop, it will most likely be on the initiative of a traffic-seeking Rostelekom than the government, analysts said. They said Rostelekom has far more freedom to drop international charges than local charges.

"The government has other issues to address, such as adjusting gas and heat tariffs which society depends on more," said Dmitry Sedov, an analyst at Creditanstalt-Grant. "Phone charges are ultimately consumer driven and follow supply and demand cost curves."

The long-distance company attempted to increase international traffic by offering discounts twice before. In 1996, the company offered a Christmas holiday discount, and for all of 1997, the company promised reductions on calls longer than five minutes. But because they were poorly advertised, analysts said, there was no change.

Moscow and St. Petersburg account for 80 percent of international traffic in Russia, but eventually this may change as pressure mounts to permit foreign companies to enter the market, analysts said. Cutting tariffs then will be imperative in holding its place in the market.

Now, though, Rostelekom's 1.9 billion ruble investment plans for 1998 led analysts to believe it would not decrease tariffs any time soon.