Russia’s strategy for competition in broadband Internet access

In today’s always-on global economy, digital infrastructure has become an essential foundation of modern economies. Modern Russia recently interviewed Minister of Telecommunications and Mass Communications Igor Shchegolev to learn about Russia’s strategy for expanding and enhancing its digital infrastructure and making high-speed, broadband Internet access available and affordable across the country.

Will you tell us your views on the importance of broadband, high-speed Internet access for businesses and consumers in Russia?

Broadband access is among the top economic priorities of governments around the world, including in Russia. We see the development of digital infrastructure as an essential element of a modern economy. Telecommunications and broadband access, in particular, have become the foundation for a modern and efficient economy. Transportation and logistics, energy-saving technologies, education and trade are just some of the areas that have changed substantially due to the availability of broadband Internet access.

The advantages of broadband are obvious. It lays the foundations for innovation of policy and business models, and energizes production and industry. Studies show that in the present economic situation, broadband services contribute to economic growth and job creation.

There are different views on how the development of broadband access affects economic growth. But, the fact that there is a clear relationship between the average speed of broadband Internet access in the country and the pace of its economy is indisputable.

Broadband opens up possibilities for new Internet services, upgrading of infrastructure and telecommuting. The multiplicative effect is not only due to the increase in overall economic efficiency, but also due to the creation of new industries and businesses in the long run. 

In all countries the Internet has become an important educational and scientific resource, so governments seek to help their citizens resolve problems with access and training.

According to McKinsey, on average 3.4 percent of GDP in the 13 countries that make up 70 percent of world’s GDP, come from the Internet-based economy. The Internet economy provides for an 11 percent economic growth. Ten per cent penetration of broadband access yields 1.5 percent GDP growth. Thanks to the Internet 2.6 new jobs are created for every one lost. Small businesses in this area have seen their profits increase by 10 percent or more.

The industrial revolution took 50 years to achieve the same contribution to the global economy as the Internet revolution did in 15 years.

Most G8 countries have a strategy in place for the development of broadband/high speed Internet access. Is Russia developing a similar strategy?

Yes. Russia has a “Strategy for the development of an information society,” according to which, by 2015 the level of broadband use will be 35 lines per 100 inhabitants. But these calculations were developed in 2007, before Russia’s growth rate of the broadband market access has far outpaced the global rate.   By late 2011, this index will be 40 lines per 100 inhabitants. And now we can assume that by 2015 the use of broadband access lines will have increased to 60 lines per 100 inhabitants.

We are now establishing long-term goals for the development of broadband infrastructure. My department is tasked with creating an environment for broadband infrastructure that will ensure high-speed satellite access to information networks and high-speed Internet access through community access centers and information points before 2020.

How common is the use of broadband Internet in Russia at the present time and what is the availability of broadband at the moment?

Our country has become one of the top ten countries in terms of the development of broadband Internet access. Russia is recognized as the fastest growing market in terms of rate of growth in user numbers with an annual increase estimated at more than 2 million people. This is more than a 20 percent increase compared to the global rate of 12 percent. 

Currently our largest market is broadband access via cable lines, but in the coming years it will be broadband Internet access via the air (radio access) with the help of satellite systems operating in Ka-band. At the same time the country will have at least six federal operators, and the conversion of radio frequency spectrum will be done by public-private partnerships.

According to the draft approved by the Commission for Modernization and Technological Development in Russia and by the President, by 2015 satellite broadband access in remote and isolated areas will cover approximately 2 million subscribers.

This is despite the fact that the development of broadband in our country has been hampered by several factors including geography (remote settlements increase construction costs and return on supply networks) and economic factors (provider tariffs, the penetration rate of computers). Nevertheless, the high level of broadband access to a certain extent depends on the operators providing various additional services, such as television and radio broadcasting, IP-telephony, Internet TV, as well as other services.

What are the expected growth rates in Russia and what do you think are the prospects for the development of broadband high speed Internet? 

According to our estimates, the penetration of broadband Internet access by 2015 will amount to 60 to 80 percent, and by 2020, given the ubiquity of 4G networks and satellite broadband access, it is expected to reach 90 to 95 percent.

From 2012 through 2015 the largest increase in the number of subscribers will be in the wireless broadband access segment. A process for the systemic development of broadband wireless access in the Russian Federation has been developed through the efforts of the operators.

What is the structure of market access to the Internet?

In Russia, the development of the broadband market is based on the principles of open competition. In our view, only the possibility of free competition in the broadband Internet access space, consolidation and the emergence of large players can ensure its development. A separate issue is subsidies and public-private partnerships providing access to small towns and remote areas. We used this technique to provide communications along the Chita-Khabarovsk highway.

If the broadband market is to realize its full growth potential, we cannot restrict access to it and increase the tax burden on its members. But these are not the only conditions that will allow realization of impressive growth in the broadband market. In order to achieve this, we need to unify international standards and ensure the availability of the radio-frequency spectrum. And that's not easy, because the spectrum is a resource of social and economic development of the country, and it cannot be dealt with in a wasteful manner.

What is the pricing model for broadband services in Russia?

Russian users want to send and receive e-mails, communicate through the social networking sites, work and learn remotely, and shop without leaving the house. This requires a high-quality Internet, preferably at an affordable price. The laws of markets work very well here: if the provider cannot cope with the growing traffic, or has higher prices than its competitors, it will lose the subscribers.

Price competition in major Russian cities has practically ended and the cost of broadband access is significantly lower than in many Western European countries or in the United States. In the remote regions the situation is different because few companies wish to operate in the Far East, Siberia or in small towns. That said, even in the rural regions Russian citizens appreciate the benefits of Internet access. It is our job to seek a middle ground solution to meet the needs of everyone and so we have introduced an evolving service delivery of public services electronically.

Since June 2009, social tariffs for access to the Internet were launched. The "Social" tariff plan provides for unlimited Internet access with data rates up to 108 kb per second. In the Far East, where the situation with Internet access was most severe, the average prices for unlimited Internet access have fallen by 36 percent (to 936 rubles per month). The lowest price of for access to the network is now in the Urals Federal District, 167 rubles for 1 Mb per second, a decrease of 48 percent.

Igor Shchegolev is the Minister of Telecommunications and Mass Communications of the Russian Federation.