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Why Ivan Can't Place A Call

Information Processing


Russia would seem to be fertile soil for suppliers of phone equipment and services. The nation's antiquated phone network is simply incapable of coordinating the efficient movement of money, goods, and people--vital first steps in rebuilding the shattered Russian economy. The country has only 12 phone lines per 100 people, compared with 43 per 100 in Western Europe. Ordinary Russians are on a 32-year waiting list for new phone lines. Some 360,000 villages are without any phone service at all. And the sole international phone switch in Russia's public network can handle only 124 simultaneous calls between Russia and the U.S.

Yet, even though the world's top telecommunications companies have come to Russia in the past few years, there have been only small pockets of improvement. The biggest gains have been in creating private-network connections from downtown Moscow to the outside world. For calls within the sprawling nation, service is as bad as ever. And it isn't just for lack of money. In a country once famous for its Five-Year Plans, there is no overall, Russia-wide strategy to guide East-West partnerships. Bureaucrats enforce operating licenses inconsistently. Technical standards set in Moscow are sometimes ignored by regional authorities. And there are still few incentives to lure Western investors to pump money into projects that will benefit the nation as a whole--as opposed to quick-fix projects, such as hooking hotels or oil rigs to the outside world via satellite.

How bad is it? The phone system is so fragmented that a number of Western companies find themselves yearning for good old central planning. "Decentralization helps us in striking deals, but it also hurts because there's no grand plan," says Erik Jennes, general manager of the Network Systems arm of American Telephone & Telegraph Co. in Russia. Adds MCI Communications Corp. Chairman Bert C. Roberts Jr.: "Eventually, Russia is going to have to come to the conclusion that telecom coordination is important to its economic future." MCI currently has more money invested in New Zealand than in all of Russia.

NOT IN TOUCH. For now, systemwide improvements are scarce, and it's excruciatingly difficult to get anything done (box). Calls from Ingersoll-Rand Co.'s Moscow office to its pneumatic-tool operations near Nishny Novgorod, some 200 miles away, for example, elicit constant busy signals. And reserving time for a call requires a 2 1/2-hour wait. So secretaries mostly type messages and send them by telex to a printer at the far end. It's the same at other companies. "You don't have the feeling you can be in touch with your people in the event of an emergency," says Russell D. Kloxin, administrative manager for Conoco International Petroleum, which has installations in Arkhangelsk in Russia's north.

The Communications Ministry, evolving from operator to regulator, is taking a largely hands-off approach. "Our task is to work out the strategy for penetration and to create the right conditions," says Alexei Alyoshin, Russia's Deputy Communications Minister. "But that doesn't mean we have to have a concrete plan. It doesn't mean we are going to plan how many phones in each locality. That is the job of the localregions."

In fact, the Ministry seems to be in a no-man's-land. Last year, it spun off its international and long-distance arm into a commercialized, state-owned company called Intertelecom. That left the Ministry with an uncertain mandate, especially as its branches in various regions began going their own ways. A bill pending in Parliament would create a regulatory body along the lines of America's Federal Communications Commission, but it's unclear whether the Ministry would become that body.

Projects involving international service seem to be the best coordinated. Both U.S. West Inc. and AT&T are investing in international phone switches and satellite stations. And Western telecom companies are continuing to work with Intertelecom on building the so-called Trans-Siberian Line, which could someday serve as a modern telecom backbone for Russia. The idea is to connect the nation with Europe in the west and the Pacific Rim nations in the east via a combination of fiber-optic cable and microwave relay. The project, started in the 1980s, has been delayed by the breakup of the Soviet Union, Russia's staggering inflation, and Coordinating Committee on Multilateral Export Controls (COCOM) rules that prohibit Russia from importing the latest generation of fiber-optic gear. Still, the project is going ahead, with the St. Petersburg-to-Denmark leg expected to be operating as early as next year.

But even if the continental backbone is created, it won't benefit Russia much if most Russians aren't connected to it. What's needed is a strategy for wiring what's called "the last mile," the fingers of the networks that reach homes and businesses. Right now, a few regions--oil-rich Tyumen and diamond-rich Yakutia, for example--are making deals with Western companies to bolster their telecom networks. And AT&T is poised to announce a deal to upgrade the network of a major city. But without established ground rules, these new networks could wind up speaking different telecom dialects. And less affluent Russian localities would be left out in the cold.

Meanwhile, some former Soviet republics that retained their monopoly phone structures seem to be getting along better. In Kazakhstan, AT&T has a deal to supply a million phone lines. And in Ukraine, the government, AT&T, and the Dutch phone company will build, run, and own a $50 million network that will let most customers dial international calls directly. Says Ukraine's Communications Minister, Oleg P. Prozhivalsky: "Our approach is different from Russia's. They are creating competition. In Moscow, people can dial direct now. But in other regions of Russia, nobody can. Here we want to give the possibility of good telecommunications to everyone."

QUICK-FIXERS. That's not to say that all is gloom and doom in Russia--at least not for the Western operators. The list of companies panning for gold reads like a who's who of telecommunications (table). Besides the big players, there are some small ones that specialize in cutting red tape and providing quick-fix solutions. New York-based Belka International Inc., through its Belcom operation, serves oil companies that need to communicate between field operations, Moscow, and the West. Among its clients: Chevron Corp. and White Nights Joint Enterprise, which is partly owned by Phibro Energy Production Inc.

However, Westerners proceed knowing that their plans could suddenly be undone by a new law or a rogue bureaucrat. Laments one Western observer: "The further you go from Moscow, the less they are interested in what the center thinks." Without guidance from officials, say investors, the race for a piece of the action won't add up to better connections for Russian consumers and businesses. "Russian officials tend to say that they're following the American model," says AT&T's Jennes. "But they forget it took the U.S. decades to build a phone network." For a nation that so desperately needs good communication, that's a daunting thought.WHO'S PLUGGING INTO RUSSIA

AT&T/U.S. Sells digital phone switches; plans to install satellite earth

stations in Moscow; funds Russian research

U.S. WEST/U.S. Runs cellular networks in Moscow and St. Petersburg with local

partners. Plans to invest in and operate three international phone switches.

GTE/U.S. Sovintel joint venture with San Francisco/Moscow Teleport and others

lets Moscow hotels and businesses use satellites to bypass the regular network

ALCATEL/FRANCE Combellga, a joint venture of Alcatel's Belgian unit and the

state-owned Belgian phone company, also uses satellites for international calls

ITALTEL/ITALY Builds and sells digital switches; invests in Russian R&D; has a

deal to install phone lines in Siberia


Deborah Stead in Moscow, with Roma Ihnatowycz in Kiev and Peter Coy in New York

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