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. Last Updated: 07/27/2016

Court Rules Against License Restrictions

The telecommunications industry is facing chaos after last week's Supreme Court decision to cancel a regulation limiting the geographical area in which operators can work.

If the Communications Ministry fails to get the ruling overturned, all 7,800 communications license holders in Russia could become nationwide operators overnight.

The ability to decide whether or not to issue licenses to operators for providing their services in a particular region has always been the Communications Ministry's main tool for exerting pressure on communications operators.

If this instrument is taken away, disobedience is expected to be rampant.

For example, mobile operators will be able to establish networks on other territories and compete with those companies that have made considerable efforts in acquiring their licenses. The regional regulator would in this case lose its position on the market overnight.

The Supreme Court issued the ruling in connection with a claim by the Kostroma city telephone network. The appeal stated that it was unlawful for the Communications Ministry to apply territorial limitations on the operators' activities. According to the deputy general director of the Kostroma city telephone network, Viktor Vakulenko, the Supreme Court canceled one of the articles in the regulations "on licensing activities in the communications sector," which limits the territorial effect of an operator's license. This article was the formal reason why the Communications Ministry refused to issue a license to the Kostroma city telephone network.

Each license issued by the Communications Ministry indicates the territory where it is in effect. The ministry has never issued a license covering the entire territory of the country.

In the laws "On Communications" and "On Licensing" there are no limitations in the area of operators' activities. The government resolution that was changed by order of the court contradicts these laws.

This is the first case where a traditional communications operator has abruptly and effectively objected to the policy of the branch regulator.

Dmitry Ryabikov, a lawyer for the Kostroma city telephone network, said now any operator — including mobile operators — has the right to provide services anywhere in the country.

A Communications Ministry representative said the ministry plans to argue the court's decision soon. Furthermore, the ministry, together with State Duma deputies, is rushing to prepare amendments to the laws.

"Changing the territorial limitations for licenses is ridiculous," said Andrei Braginsky, an analyst with Renaissance Capital. "No one wants a situation whereby an operator from Chuvashia could theoretically offer its services on the Moscow or St. Petersburg market."

"The existing licensing system for territories in the country as with anywhere in the world is connected with technical, networking and frequency policies and it is completely incomprehensible how it could be changed," said Vimpelcom press secretary Mikhail Umarov.

"Any rules of the game are better than chaos and anarchy on the market," said a representative with another major Moscow communications company.