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. Last Updated: 07/27/2016

Sky's the Limit for TV Transmission Market

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Talk about an untapped market: Of the approximately 140 million people living in Russia today, nearly 1.75 million do not receive broadcast signals for a single television channel in their homes. Only 60 percent to 65 percent of the population gets more than two channels, and only a quarter of Russians receive more than four.

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These figures, published in a Press Ministry report, are fuel for Russian broadcasters' long-standing lament: The country's signal-distribution system, built during the 1960s-'80s, is old, expensive and sometimes literally falling apart.

Two weeks ago, the ministry announced a potential solution, saying that President Vladimir Putin had given the green light to a major restructuring of the country's broadcasting and radio networks — a restructuring that may eventually include the industries' partial privatization.

Among the fixer-uppers is RTR-Signal, a daughter company of the state-owned All-Russian State Television and Radio Co., or VGTRK. Founded four years ago to digitize state-owned TV signal distribution, RTR-Signal has in fact borne little fruit beyond piling up an impressive resume of embezzlement allegations and visits from the Audit Chamber and Prosecutor General's Office.

This time, however, its lobbyists say the company is ready to stay the straight and narrow. Despite fierce opposition, the State Duma this month approved government guarantees of $28.6 million in foreign loans for RTR-Signal. The rocky decision, however, points to a future full of battles for property and capital in the TV communications industry.

At stake is Russia's distribution network, a system of about 100 regional transmission centers and some 15,000 transmitters around the country with an annual turnover in the range of hundreds of millions of dollars.

Also at stake are additional hundreds of millions of dollars of potential investment in the industry — either directly from government coffers or in the form of state guarantees of foreign credit.

"There's a lot of money involved, and it's attractive for many," admitted Valentin Khlebnikov, the official in charge of VGTRK's distribution network and the state body's representative on the RTR-Signal board of directors.

RTR-Signal's main opponent is Leonid Mayevsky, a Communist Duma deputy who chairs the Duma's subcommittee on communications and is a reputed enemy of Press Minister Mikhail Lesin, who applied to the Cabinet for the $28.6 million in loan guarantees to RTR-Signal. During the parliament debate, Mayevsky accused RTR-Signal and the Press Ministry of "cheating" the Cabinet.

"I have nothing against [RTR-Signal general director Sergei] Kalugin personally," Mayevsky said. "But I am against people who are trying to obtain state funds illegally. I mean Mr. Lesin … How can a company that has only seven people on staff, that hasn't accomplished anything over a number of years, get $28.6 million?"

A Slow Start-Up



Formed in December 1996, RTR-Signal — which now says it has more than 120 people on staff, contrary to Mayevsky's claim — was registered the following year as a joint-stock company in which VGTRK had 25.5 percent. The remaining 74.5 percent was, formally, won in a tender by Unikominvestcenter, a subsidiary of Unikombank led by Ashot Yegiazaryan, a controversial businessman.

VGTRK contributed two facilities it had been given by the military complex: a huge, unfinished building at 35 Ulitsa Shabolovka, which was to be turned into a new television center, and an air defense facility near Klin, 100 kilometers northwest of Moscow, designated to become an uplink station. According to First Deputy Press Minister Mikhail Seslavinsky, $100 million had to be invested in the Shabolovka building, and an additional $15 million was to go the Klin facility.

Kalugin said that Unikominvestcenter had invested some 360 million rubles (about $60 million at the pre-1998 rate) in the project. Some of the money was spent on conservation of the unfinished buildings. The remainder was invested in securities, which devalued in the wake of the 1998 financial meltdown. In 1997, the government guaranteed an additional 260 million Deutsche marks (about $130 million) in German loans, but the credit line was frozen in 1998.

VGTRK currently leases 11 transponders — radio or radar transmitter-receivers activated for transmission by reception of a predetermined signal — on nine satellites to distribute television signals around Russia. Most of these satellites, such as the Gorizont and Ekran, have already served more than two terms, with only one replacement model in stock.

According to RTR-Signal's business plan, the new digital distribution system will use only four transponders on three Express satellites and — due to the possibility of compressing signals digitally — each will contain six programs, and not one as they do today.

Both Khlebnikov and Kalugin have said that the $28.6 million will be spent on purchasing 6,000 reception stations that will be able to receive the satellites' digital signal, convert it to an analogous signal and send it on to the existing transmitters. The system will also cut back on the use of expensive terrestrial relay lines, which are owned by Rostelecom and cost VGTRK about 500 million rubles a year.

Poised for Progress?



From its inception, RTR-Signal has been mired in controversy. In 1998, the Audit Chamber decried the formation of the company as illegal and said that major state property facilities had been funneled into private hands as a result.

This year, however, has marked the company's revival. After Unikominvestcenter gave up 24.5 percent of its shares to VGTRK in December last year, the breakdown between government and private shareholders became an even 50-50 split, the Press Ministry said. RTR-Signal also signed a special agreement with VGTRK granting it board chairmanship. In so doing, the ministry said, the company gained the ground to ask for and obtain credit.

In the fall of this year, both the Cabinet and the Duma — despite angry opposition from Mayevsky — agreed to open the credit line. According to Seslavinsky, the first deputy press minister, negotiations are currently under way to buy out the remaining 50 percent stake from Unikominvestcenter, a move that would make RTR-Signal a 100 percent VGTRK-owned company.

Mayevsky has argued that such an allocation is against the law, and that VGTRK's legal status as a "federal unitary enterprise" does not allow it to form daughter companies incorporated as joint-stock companies. He has also said that handing the digital communications control system to private hands is nothing short of a national security threat.

Kalugin says simply that it would be impossible to launch the project without private investment to pay both for the conservation of the old and unfinished facilities and for the legal and insurance fees on the loans to come. He confirmed that Yegiazaryan, though no longer on the RTR-Signal board, remains dedicated to the company and considers it "a project of his own."

Yegiazaryan, a former banker, was named in the Russian press last year as one of the shadowy businessmen elected to the Duma on the LDPR party list. He now serves as deputy head of the budget committee — which reviewed, among other things, the granting of the loan guarantee to RTR-Signal.

According to VGTRK and Press Ministry officials, Mayevsky has a personal interest in preventing RTR-Signal from getting government money. Khlebnikov said that Mayevsky is involved with a company called 21st Century — New Technologies, which also bids on developing digital television broadcasting projects. In the early 1990s, Mayevsky was also involved in several television projects and held licenses and funding, but failed to produce any publicly recognized programs. He eventually lost his licenses and was elected to the Duma on the Communist Party list.

"[Mayevsky's] metamorphosis from an unsuccessful television businessman to a Communist deputy and his blatant desire to lobby for the interests of the Communications Ministry all raise skepticism about his declared drive for the purity of the television business," said Anna Kachkayeva, a television analyst with Radio Liberty and Moscow State University.

The outcome of the battle for RTR-Signal remains unclear. Mayevsky has vowed to prevent the company from getting state money by unleashing one investigation after another. The Audit Chamber is due to report on its findings at the end of December, and Mayevsky has said that the Prosecutor General's Office will go after the company as soon as it receives the first tranche of its loan.

Kalugin, meanwhile, said he hoped the Duma approval of the loan guarantee will finally push the project further. As soon as the loan is approved, he said, he will begin negotiating with the U.S. company Lucent Technologies for the first supply of receivers. If successful, RTR-Signal may eventually boost Russia's number of channels and transmit not only radio and television but newspaper pages and Internet as well. It's a billion-dollar prospect.