Cellular Call Costs To Stay Sky-High

Next month Moscow will get its fourth cellular telephone network. Demonstrated for the first time in Moscow at the Expocom '94 telecommunications exhibition last week, the Mobile Tele Systems (MTS) network hopes to attract 3,000 users this year and 70,000 by the end of the decade. Given that there are already almost 15,000 users of mobile phone systems in Moscow, you might have thought that yet another network would create more competition and drive down prices. Think again. MTS last week published traffic costs (the price you pay for every minute of conversation) which are quite similar to those of Moscow Cellular, its main competitor.Moscow Cellular is one of the most expensive cellular services in the world (in Europe its prices are second only to Delta Telecom in St. Petersburg). Local calls in Moscow right now cost as much as calls to Europe using a regular telephone.Several factors are likely to sustain this situation for the foreseeable future. First, the industry believes there is a huge pent-up demand for mobile communications in Moscow. Since there are so many people wanting telephones, and since telephone lines are scarce and awkward to organize, it will be possible for carriers to keep prices high. Businesses have already made the psychological adjustment to paying a lot of money for new telephone lines, so a mobile subscription is unlikely to put people off. Similarly, the hard-wired network is very poor. Even if you have enough lines, the quality is often terrible. MTS' new GSM-900 network is digital, which means it will be able to provide very high quality connections.MTS says it is aiming for as many as 100,000 customers by 2004. The size of this figure comes from research in other Eastern European countries -- especially the former East Germany. Because of the poor quality of the hard-wired network in eastern Germany, mobile communications has swept through the former communist state as a temporary alternative to laying hundreds of thousands of new telephone lines. MTS expects a similar phenomenon to occur in Russia. There are also structural reasons for telephone users paying for the privilege of being mobile in Moscow.In Europe, mobile network operators have income-sharing agreements with their local telephone networks for calls which travel from one network to the other. In Moscow this has not happened. The result is that mobile operators here have to charge their customers for incoming as well as outgoing calls -- effectively doubling the cost of mobile telephone.If they did not, then a mobile user could simply ask whomever he calls on the state network to call him back and thus deprive the operator of any income.The local telephone authorities also play a more active role in keeping prices high.Because the job of upgrading Russia's appalling telephone infrastructure is so huge, and the funds of the local telephone authorities so inadequate, they need to find projects that are relatively cheap to set up and will generate income that can be re-invested in the hard-wired network. Mobile networks are an obvious vehicle. In return for the privilege of establishing a mobile network, the Ministry of Communications and local telephone operators demand a considerable chunk of any profits to enable them to modernize their own networks.For this reason, mobile networks are most likely to grow in wealthier areas, where there are concentrations of people able to pay for them: as the cost of installation is usually borne by the operator, this investment must be recouped through tariffs and subscriptions. Today four cities have operational mobile networks: Moscow, St. Petersburg, Tver and Nizhny Novgorod. Though Novosibirsk may have Russia's third largest population, it is the much smaller Rostov on Don that will be the next city to get a network (this summer) because of its rapidly increasing importance as a trading center at the mouth of the river Don. In a recent Ministry of Communications tender for mobile telephone licenses, some areas of the country attracted absolutely no bidders interested in establishing mobile networks. Mobile communications are on a roll in Russia -- but they will be strictly for the wealthy. Robert Farish is the editor of Computer Business Russia: 275-2542.