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. Last Updated: 07/27/2016

Rostelecom Will Test New Boss

Sergei Kuznetsov’s appointment as acting general director of long-distance monopoly Rostelecom on Friday is viewed by most industry observers as a generally positive development for the company.

Or, if not positive, it is something that can do little harm.

That’s because the last year has been far from rosy for the state-controlled giant, which has failed to raise revenues and is increasingly losing its share of traffic to alternative operators.

The release of Rostelecom’s first-half 2000 financial results last Tuesday was followed by disappointed commentary from telecoms analysts.

"Not pretty," read a note from United Financial Group brokerage. Some brokerages lowered their recommendation on the stock after the results came out.

Rostelecom said revenues were down 9.1 percent in the first half of 2000 year on year, and that the company had a net loss of $10.3 million, compared with a profit a year earlier. Its debt by mid-2000 was $451 million, with most of it due by mid-2002.

Rostelecom deputy general director Kirill Skokov said last week that the slow traffic growth was due to the company’s declining market share, rather than low demand for long-distance services.

"I’ve been very negative on Rostelecom fundamentals for a long time," said Andrei Bogdanov, telecoms analyst at Alfa Bank. "The business is not growing. The only hard-currency revenue source for them is international traffic, which is being shifted away to alternative carriers."

Rostelecom has been criticized by some for not taking advantage of the opportunity knocking at its door to become a leader in data traffic. Its revenues for data and Internet in the first half of 2000 were $5.2 million.

But the looming consolidation of the country’s telecoms operators puts the largest question mark over Rostelecom’s fate. What happens to Rostelecom largely depends on the strategies of national holding Svyazinvest, which has a 50.67 percent stake in Rostelecom.

In November, Svyazinvest hired consultants Arthur Andersen to come up with a strategy for Rostelecom, and Skokov has set a date of March or April for the report.

Options include continuing its role as a national long-distance carrier for regional telecoms, merging with Svyazinvest or with one of the seven consolidated pan-regional operators.

No one, including Kuznetsov himself, doubts that the role of general director will be a hectic one.

"You should be expressing condolences, not congratulating me. What a workload!" Kuznetsov said about his appointment in an interview with Vedomosti. "The work appears gigantic."

Outgoing general director Nikolai Korolyov has apparently been in the hospital for the past two months and out of action even longer, and his resignation Friday surprised few.

Whether Kuznetsov will be confirmed as general director at Rostelecom’s June annual shareholders meeting is not certain, with talk also circulating that another St. Petersburger is a candidate. But there is little doubt that the appointment came partly because of his close connections to the people who run the country’s telecoms sector.

Led by Communications Minister Leonid Reiman and Svyazinvest head Valery Yashin, an ever-growing team of St. Petersburg telecoms employees has moved to Moscow since the election of fellow Petersburger Vladimir Putin as president. Until last week, Rostelecom was one of the few arms of the state-run industry not filled by someone from the northern capital.

Kuznetsov’s resume crisscrosses with Reiman’s in more than one company. He is a member of the board of St. Petersburg operator Telecominvest, which Reiman and Yashin helped create, and was its first director in 1994. In the 1980s, Reiman and Kuznetsov held similar positions in different departments at the municipal telephone network. To take on Rostelecom, Kuznetsov leaves his general director position at Peterstar, the leading alternative long-distance operator in St. Petersburg that is 29 percent owned by Telecominvest and 71 percent owned by U.S. company Metromedia.

Kuznetsov has been loath to speak to the media since being misquoted in the early 1990s when he ran Delta Telekom, another Telecominvest subsidiary in St. Petersburg, a former colleague said.

"The question is will this Kuznetsov at least try to be independent and work Rostelecom out of its problems," Bogdanov said. "Or will he just be a link between Rostelecom and Reiman and Yashin in … getting orders from the top."