Kokusai Denshin Denwa Co Ltd of Japan has pledged $200m to assist Rostelecom, the Russian long distance and international carrier, to upgrade the trunk telephone line from Moscow to Khabarovsk in the Russian Far East. Overseas Private Investment Corporation, which partly operates using US government funding, has agreed to guarantee a $300m Russian fund which will be used specifically for Russia infrastructure projects, in which telecommunications is likely to play a major part. SFMT, the co-owner of Sovintel and Sovam Teleport has amassed $100m in debt and equity for an ambitious Russia-wide telecommunications services plan. US West Inc says through its Russian Telecommunications Development Corp, it has raised $75 for its various Russian projects. All these companies appear to bear out the belief among Western financiers that the Russian telecommunications market is no longer an unjustifiable long term risk. Even at operator level, companies are also finding funding easier to come by. US-Russian joint venture Rustel has $25m to $40m to invest in providing telecommunications to rural and secondary urban areas in next 18 to 24 months. Its rival, BelCom, claims to have equally impressive plans after receiving a cash injection from US satellite giant Comsat Corp last year. So is Russia getting easier and safer? Not in the opinion of the companies spending the money.
Always the danger
By no means is our investment safe and certain nor is our return guaranteed, says Jim Hickman, director of Rustel. There is always the danger that any number of political factors might arise to move the country in a different, less advantageous, direction than it is going now. He says the business environment may not always look so attractive. As is becoming the case in the energy sector, an uncontrolled regulatory climate can force companies to choose China rather than Russia. The Chinese are much more aggressive and orderly about what they are doing in terms of foreign investment, he says. Henry Radzikowski of SFMT holds a similar opinion. He says raising money is a lot easier than turning it into profitable ventures: In Russia you don’t invest if you don’t run the network – and if you don’t know how to run a network don’t invest, he says. What is changing, however, is the amount of money telecommunications businesses are now making as the economy grows. This improvement in the general business environment here has a number of causes. Capital, locked up for many years, is now being released into the economy, giving customers more buying power. One only has to consider that Moscow now has half a dozen mobile telephone networks to see how the customer base has dramatically improved in recent years. On a more mundane level, high technology trade restrictions are no longer preventing the sale of switches, computer control systems, fibre optic cable and satellite equipment. The dissolving of the Co-ordinating Committee for Multilateral Export Control, CoCom, earlier this year was the final step in an already accelerating process that stripped away virtually all remaining controlled exports. Trade restrictions were the biggest single barrier for a big investment project like Rostelecom’s 50 by 50 plan. It also appears that Rostelecom is beginning to realise that it does not need to own the entire telephone network in order to control and profit from it. Its own investment plan, the 50 by 50 project, has involved years of negotiations with foreign suppliers, and Rostelecom is now becoming much more expert in understanding the position of Western companies and the demands of potential financiers. It is this kind of flexibility that probably won the company its recent injection of Japanese financing. Perhaps most importantly, these developments would have been impossible were it not for the speed at which Russian organisations are maturing as businesses. Local telecommunication companies are now taking on a greater degree of managerial and financial responsibility, which makes the organisation of true joint ventures more realistic. It was
in part the growing number of Russians who have experience of the West, who have some training in non-Soviet management styles, and who are willing and interested in becoming part of an entrepreneurial venture that led to the opportunity for Rustel, says its director, Hickman.
