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Russian Govt Moves to Outlaw 2000 VoIP Operators

Created: 05.04.2005 12:44 MSK (GMT +3), Updated: 14:16 MSK

Sergei Rublev


Internet telephony (VoIP, or voice over IP) has been a hot topic in Russia since the end of the last century. Thousands of new and relatively small companies are competing on this market, filling the gap left by obsolete telecom monopolies, whose standing, thinking and much of their infrastructure, is largely inherited from the Soviet era. It’s hardly surprising that Russians, businesses and individuals alike, spend billions of rubles annually on VoIP services, instead of using overpriced and obsolete national and international connections, offered by old-fashioned telecom mammoths.

So far those mammoths have been quietly ignoring the trend, but lately their attention had been drawn to the phenomenon, and their first reaction was to outlaw the local VoIP market outright, pulling the usual strings of state bureaucracy. The industry made a faint attempt at striking back, sending an open letter to President Putin. Sergei Rublev of the Moscow-based Lenta.Ru information agency reports on the latest developments:


Russian economists estimate the current turnover of the Russian VoiP services market at $300 million per annum. At the moment there are different firms working in the area: VoIP departments at huge telecom companies alongside smaller local providers. The recent conclusion reached by analysts is that bigger operators like Rostelecom or MGTS (the Moscow City Telephone Network that also entered the VoIP market last December) are trying to get rid of the smaller operators by means of administrative resources, or connections.

Representatives of VoIP-providing companies believe that the commercial abuse of administrative resources is obvious from a recent government resolution, dated March 28, 2005 that brought into effect an order from the Ministry of Information Technology and Telecommunications on electricity networks. The experts say that by setting unachievable liabilities and limitations the document actually prohibits the provision of VoIP services.

The problem was widely discussed by more than 700 participants of the annual Russian Internet Forum that took place near Moscow on March 23-24. In accordance with the traditions of a democratic society, the representatives of the VoIP-providing companies present at the Forum decided to ask for President Putin’s help, and sent him an open letter dated March 31. The letter said:

Respected Vladimir Vladimirovich,
The participants of the Russian Internet Forum and representatives of Russia’s small and medium businesses are applying to you to express their deepest concern with the future of the communications market. One of the main telecommunication market trends is the convergence of voice, video and data within a single multi-service IP-based network. Nowadays about 30% of international voice traffic is transmitted by means of IP networks worldwide.

The main problem that the VoIP industry of Russia has to face is regulation. The state regulators of Western Europe and the USA see stimulating new technologies as a priority and support the development of VoIP as the main revolutionary technology on the market. At the same time, the instructions designed by the Ministry of Information of Russia and approved by a governmental resolution on 28.03.2005, actually prohibit the provision of VoIP services, forcing operators to turn the traffic towards national and international telecom companies.

The business of more than 2,000 Russian VoIP operators with a total turnover of about $300 million PA has been proclaimed illegal and forced to shift to unauthorized — that is, tax-free — schemes of work. Legislation to turn market traffic towards national and international telecom companies is a serious violation of the principle of free competition and is, in fact, a monopolization of the telecom market in favor of one or two major companies. The instructions were designed by the Ministry neglecting the opinions of the market participants and without an independent analysis.

President Putin and the government have declared their total support for competition. “It’s obvious that the entrance of new and efficient business units to the market depends on the existence of essentially free competition. The government has already prepared a new project in support of competition. Its aim is to fight monopoly and assist the opening of markets, including regional ones, to thousands of Russian businessmen,” Vladimir Putin was noted as saying at a meeting with representatives of Russian business at the Moscow Kremlin Palace on March 24, 2004. At the same time, the Ministry’s instructions have destroyed competition in a whole sector of Russian information communications.

The Russian Internet Forum thinks the Ministry’s instructions are an enormous step backwards in the regulation of the Russian communications industry. The document is controversial in the light of world experience of regulation and neglects modern trends of development in information communications. The acceptance of the instructions in their current form will slow down the development of the telecom market in the country and diminish Russia’s competitive ability on the world market. The Russian Internet Forum demands that the order be rewritten in view of current market trends and include the opinions of market participants, independent experts and social organizations.

Alexander Militsky, a leading Russian Internet and VoIP expert, explained in an interview to Lenta.ru that regardless of state regulation and the efforts by monopolists, VoIP is bound to go its natural way of development: if VoIP operators can’t work properly in the open, the whole service will shift from the level of providers to the level of consumers, where “regulating or prohibiting it is virtually impossible”.

Besides, liberalization of the market is inevitable anyway, because it is one of the main conditions for Russia’s entry to the World Trade Organization. If Rostelecom manages to drive local VoIP providers out of the market, “it might prove to be more difficult to bring the traffic back to their network, than forcing the toothpaste that’s been squeezed out of the tube back in,” Militsky said.


On the whole, all of the revolutionary changes and possibilities in human communication at a distance can only revolutionize the situation on the corresponding sector of the market. The launching of cheaper VoIP services means that the consumer, in accordance with all market economy laws, is likely to opt for them instead of the more expensive services of national and international connection providers.

The situation would be considered a perfectly normal correction of the free market in the U.S., but in some other countries it’s a cause for anxiety — mainly the anxiety of those traditional connection-providing companies that see VoIP as a threat to their income. So, despite the laws of the free market, some companies are trying to prevent VoIP development by every means available.
One of those means is lobbying the introduction of governmental orders to limit the activities of rivals. Some of the world’s leading analog providers, among them monopolists or near-monopolists have been noticed pressing their governments to force in “convenient” laws for them.

For example, Costa Rica is trying to regulate VoIP activities by means of the law. The Costa Rican market has long been the monopoly of a national telephone provider called Instituto Costarricense de Electricidad, which has recently offered to admit VoIP operators to be factoring companies, generating added value, and thereby enforcing additional taxes on them.

Another indirect proposition from the Costa Rican monopoly, reports TechWeb, is to simply outlaw VoIP. That is, to proclaim it illegitimate. Some of the local experts are horrified at the prospect and consider it a huge blow to the country’s economy, as lately the industry of outsourcing has been gaining in popularity, and for that the availability of cheap international telephony is crucial.

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