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. Last Updated: 07/27/2016

Right Connections the Key to St. Pete Telecoms

ST. PETERSBURG -- Without a doubt, Telecomivest is the most powerful player in St. Petersburg's telecoms industry, an industry City Hall estimates was worth $620 million in 1998.

With partial or full ownership of 29 companies Telecominvest is involved in every facet of telecommunications f from providing Internet services to manufacturing telecoms equipment. Telecominvest companies have 81 percent of the cellular market alone.

The biggest growth should still come in fixed line telephony: St. Petersburg's 5 million residents are served by a mere 2 million mostly aging telephone lines. That's about half as many as would be normal for a Western city of comparable size. Telecominvest has positioned itself as the entry point for this market f and it's willing to invest millions in maintaining its capacity to perform that role.

"[Telecominvest] companies will receive more than $25 million worth of investment in 1999," Telecominvest General Director Alexander Nyago said at the opening of the Norvecom exhibition last month.

The Big Switch

In order to understand what and who Telecominvest is, a brief history of the post-Soviet telecoms industry in St. Petersburg is necessary.

In the early 1990s, St. Petersburg's two local telephone monopolies f local provider Petersburg Telephone Network, known by its Russian acronym PTS, and international and domestic long-distance provider SPMMT, or St. Petersburg National-International Telephone f began establishing new companies for advanced telecom services.

After the Soviet Union fell, capital was desperately needed to improve the city's antiquated telecommunications system. PTS and SPMMT, both state controlled, gave buildings, phone lines and public telephone network access to Western companies who wanted to invest. U.S. West joined PTS and started Delta Telecom; Nokia of Finland joined PTS and established the Neva Cable factory; PLD Telecom Ltd., then Canadian, now U.S., joined PTS and started PeterStar, a fiber-optic alternative local provider; Ascom Nordic of Denmark joined PTS to start NEDA paging and St. Petersburg Payphones.

Meanwhile, Telecom Finland, Telia of Sweden and Telenor of Norway joined SPMMT to establish North-West GSM; and Telecom Finland joined SPMMT to form Lenfincom.

Originally the Russian Federation had a share in all of these new joint ventures by controlling 51 percent of the voting stock in both SPMMT and PTS.

But that changed.

According to Leonid Konik, founder of the North-West Media Group and former telecoms expert for the business newspaper Delovoy Petersburg, when these joint ventures started to make profits, top management at PTS and SPMMT moved to eliminate the influence of the federal government.

Konik, whose North-West Media Group will publish the first comprehensive encyclopedia of the St. Petersburg Telecoms market next month, said these top managers took steps to cut Moscow out of the new joint ventures.

"First, they claimed it was difficult to manage all these new joint ventures, so, in 1994, PTS and SPMMT established a holding company, Telecominvest, and gave it all the stocks of all the daughter companies," Konik said. "This made sense to Moscow f they still had control of Delta, Peterstar, NWGSM and the rest f because they still controlled PTS and SPMMT, and thus Telecominvest."

PTS and SPMMT sold 51 percent of Telecominvest in 1996 to an offshore company in Luxembourg called First National Holding S.A., leaving PTS with 25 percent and SPMMT with 24 percent.

"Officially they said First National Holding S.A. is a subsidiary of Commerzbank of Germany. But Telecominvest won't say exactly what the ownership is of First National Holding," Konik said.

Commerzbank of Germany declined to comment, while First National Holding of Luxembourg could not be reached for comment.

Shining Star

The most successful company in the Telecominvest empire is PeterStar, an alternative provider of fiber-optic local and long-distance service. With revenues of $57 million for the first three months of 1998, PeterStar is the most profitable company not only of Telecominvest, but also of PLD Ltd., PeterStar's major shareholder. PLD Ltd. of New York, which has 71 percent of PeterStar (Telecominvest owns the rest), made international business waves last year when global media tycoon Rubert Murdoch entered the Russian market for the first time when a wholly-owned subsidiary of his behemoth News Corp. purchased a 38 percent stake in the company.

According to analysts, Murdoch, by purchasing part of PLD, which has interests in Moscow as well as being the only cellular operator in Belarus and Kazakhstan, secured a toehold in Russia from which he could later expand.

But regardless of Murdoch's intentions, PeterStar is viewed by many as a prototype of how to do business in the Russian telecoms industry. Since 1992, PeterStar has invested over $60 million in communications infrastructure in the city, including a 700-kilometer fibre-optic web of lines that "sit" on the existing system, connecting to it at 34 points.

Another reason PeterStar is seen as a prototype is because the mostly foreign-owned company with Russian partners has succeeded with a staff comprised almost exclusively of Russians. Out of 400 employees, PeterStar's commercial director, Rick Macy, is the only foreigner.

But the biggest reason is the simplest f success.

From January through July of last year, PeterStar added approximately 4,700 business lines. After the crisis, from August through December, it added 6,700.

"The demand for high-quality telephony in St. Petersburg is not going to go away, crisis or no crisis," Macy said. "In December, we had our second-best month in our seven-year history."