Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Wealthy Pay to Cut Queue for Phone Service

VedomostiAlternative operators like Golden Telecom are not interested in the mass market.
Historically, Russians who buy new apartments have to wait several months, sometimes years, for state-owned operators to install a phone. There are no financial incentives to fix new lines because strict government regulation means that tariffs are kept below cost for social reasons.

But as luxury apartment blocks and cottages mushroom, wealthy buyers are bypassing state-owned carriers, and are paying the country's fledgling private telecommunications operators $10,000 to jump the line for a phone.

"When we were building networks for large corporations, many top managers asked us for the same services at home. These were well-to-do people and they were prepared to pay," said Alexander Vinogradov, chief executive of Golden Telecom, the country's largest alternative operator. Golden generates about 8 percent of its $360.5 million annual sales from individuals, and Vinogradov says he expects revenue from wealthy private customers to rise as incomes grow and more top-tier real estate is bought.

According to real estate journal Square Meter, there are more than 50 so-called "elite blocks" -- where prices for spacious apartments start at around $900,000 -- being built each year in Moscow, along with about 250 country houses costing more than $1 million in the city's outskirts.

"Demand still exceeds supply by far," editor-in-chief Mikhail Morozov said.

Targeting individuals is a departure for the biggest private operators, which established themselves as major rivals to the state-owned crowd by focusing mainly on corporate clients.

Sistema's Comstar, Golden's main rival in Moscow, started by providing telecom services to building firms.

Chief executive Semyon Rabovsky said his company now controls a third of the elite real estate market and expects this sector to generate more than $3.5 million in revenue for Comstar in 2004, a 30 percent rise on the year.

Owners of luxury pads in Moscow are prepared to pay 20 times the amount a regular customer spends on the phone each month. Monthly bills for Golden Telecom or Comstar subscribers average $130 per month, according to Alexander Konovalov, commercial director of state-owned Moscow City Telephone Network. MGTS, by contrast, charges a flat fee of $6 per month for fixed-line telephony, about $30 per month for Internet use and a $200 connection fee, Konovalov said.

Comstar and Golden say charges vary, depending on how much they invest in wiring up a building and how much traffic is generated. Aside from squeezing more cash out of their clients, the operators note that combining corporate and private clients allows more efficient use of network capacity.

The alternative operators have the same legal rights to provide last mile connection to the end user as state-owned MGTS. Like MGTS, they operate their own cable networks.

These networks have to be connected to both the local state-owned operator for local calls and the national long-distance grid operated by Rostelecom for intercity and international access.

Alternative operators say that the existing operators sometimes create obstacles, but these are usually resolved by negotiation. Court cases are rare.

The alternative operators stress that they are only targeting the wealthy and have no plans to aim for the less lucrative broader consumer market.

"We don't plan to enter the mass market of newly built houses, we plan to work with individual buildings and condominiums," said Viktor Koresh, CEO of Metromedia International Telecommunications' Peterstar.

Having finished a project in the Black Sea resort of Sochi, Comstar CEO Rabovsky's most ambitious plans are for the country houses being constructed outside Moscow.

The company is building a network that will initially connect some 600 villas near Moscow, giving Comstar customers the same services they get in the city, including high-speed Internet and cable television and even remote access to their office networks, Rabovsky said.

These niche revenue opportunities for the alternative telecom companies underline the delay most would-be customers face in getting a phone installed.

In Moscow, 35,000 are waiting for an MGTS phone installation while in St. Petersburg, 62,000 are on the list to be wired by state-owned Northwest Telecom. Belatedly, these operators have woken up to the opportunity.

"We've suddenly realized that there are all these small companies wiring up elite apartment blocks and we're not doing so," said Konovalov. "Now we are also going to work with constructors."

Volgatelecom, a state-owned operator in the prosperous southern Volga region, said it has been successful in attracting VIP clients.

"We understand that we have to get the cream of users fast and polish up our marketing," said Vladimir Lyulin, Volgatelecom chief executive.

But in most regions that might be easier said than done because the bulk of state-owned operators are burdened by decades of inefficiency. "MGTS has an image problem. It just isn't upscale enough for this segment and can get in the way of selling these elite apartments," said Morozov of Square Meter.

Reprinted by permission of Dow Jones Newswires © 2004 Dow Jones & Company. All rights reserved worldwide