A. The Ghost of Soviet Past
* Soviet Legacies
* Problems with the infrastructure
B. The Ghost of Russian Present
* Geographical Obstacles
* Consumer demand
* Regulation and Licensing
3. Overcoming the obstacles
A. New technology overlay
B. Limited-license overlay networks
C. Application of New Technologies
* Fiber Optics
* Cellular
* Satellite
D. Direct Foreign Investment
4. Future of the Double Headed Eagle
A. Teleeducation: Zelenograd
B. Remote technology spillover : Academgorodok
C. Technological leapfrogging: Nizhny Novogorod
Appendix A: Russian Decision Makers
SCENARIO: THE DOUBLE-HEADED EAGLE AWAKENS
The year is 2025. After many turbulent years of economic and political transformation, the Russia Federation has emerged onto the world scene as a technological powerhouse. The newly restructured Ministry of Communications has just successfully completed its second 50x50 Telecommunications Project. The decaying coaxial cables and antiquated electromagnetic switches have finally been replaced by an extensive overlay of ground-based fiber optics and wireless communication networks all interconnected by high-speed, computer-assisted digital switches. With this new national information infrastructure, Russia has developed a tremendous global comparative advantage, establishing a geopolitical trump card for its economic future.
In 2025, the Russian communication networks-both wireless and fiber-handle the data traffic flows between the Pacific Rim and Europe, between Europe and India, between the Middle East and Asia, and also between the New Independent States and the rest of the world. Strategies for transportation and distribution of natural resources from the New Independent States and the Middle East, multimillion dollar financial transactions from the Unified Koreas, China, and Japan, and computer consulting from India and Pakistan all rely on the extensive satellite, cellular, and fiber optic networks of the Russian Federation.
Besides Russia's controlling the information flows, Russian communication networks have also linked the Russian research communities to global science and technology information exchanges. Where once the Soviet science and technology community was physically isolated from the world, in 2025 teleeducation from Academgorodok and technology spillover from Zelenograd have breached the physical isolation, thereby raising the level of global scientific and technological understanding. Through these international projects, the Russian Federation has promoted itself as a leader in both the theoretical and applied sciences.
Just as Tsar Peter the Great reinvigorated the lost imperialism of the Russian Empire through technology transfer with Western Europe, President Chubais of the Russian Federation has reinstated the lost prestige of the Slavic peoples through technology transfer in the telecommunications industry. However, this time Russia's imperialism will not be founded upon a modern military but upon an armada of electrons and digital bytes. The Double-Headed Eagle has once again awakened from its deep slumber… this time not as soldier but as a communicator.
EXECUTIVE SUMMARY
While the previous scenario may seem far-fetched when compared to present-day Russia, the potential for it to achieve this level of technological sophistication exists. But in order to reach the critical mass for achieving this potential, Russia must first face a number of challenges. The Russian Federation and the New Independent States (NIS) of the Former Soviet Union (FSU) have inherited a number of structural and technical problems from the Soviet regime. Although the Soviet Union was an international superpower, for political, economic and social reasons it strictly controlled, ignored and neglected the development of a modern communications infrastructure. At the time of economic and political transition, the Russian Federation inherited a vertically-configured communications network. In addition to structural problems, there are many other obstacles burdening the newborn government. Geographical hurdles, inconsistent regulation policies, budgetary problems, and a restless consumer base demanding value-added services are hindering domestic development and thereby jeopardizing the eventual construction of a universally compatible telecommunication network. Despite the political and economic challenges, the present telecommunication infrastructure is also extremely outdated and incompatible with modern communication exchanges. In order to catch up with the West technologically, the Russian Federation must implement sector reorganization, modernize/digitalize the network, expand the use of fiber optics, improve switching stations, rapidly expand the use of cellular networks, and develop and launch a new generation of communications satellites.
With all these political, economic, geographical and technical challenges, at one time the prospects for a rapid modernization and reformation of the telecommunications industry seemed dismal. The dichotomy of necessary expansion and desired modernization has created fundamental problems for telecom planners. However, since 1991 there have been astonishing improvements throughout the telecom industry which have opened up the floodgates to foreign investment and technological development. Whereas the Russian telecommunications industry was once as desolate as Eastern Siberia, today buzz words such as telemedicine and teleeducation are realistic possibilities. Although the Russian Federation still has many winters of reform before it can present a suitable telecom dowry to domestic and international markets, as of 1996 this dowry has grown quite large with many potential suitors now finding themselves braving the Russian winters in order to court the domestic commercial and private sectors.
The first section of this paper analyzes the development and maintenance
of the Soviet telecommunication network from a political and socio-economic
perspective. The factors of authoritarian control, the command
economy, the military-industrial complex and the international
environment heavily influenced the direction of Soviet telecommunications
development. The second section summarizes many of the obstacles
preventing a smooth transition towards a modern telecom environment.
Existing Soviet legacies, the infrastructure enigma, geographical
factors and regulation obstacles are severely stifling the pace
of reform within the sector. The third section proposes possible
solutions for hurdling the obstacles to expansion and modernization.
Some of these solutions include new telecommunication overlays,
the adaptation of the closed internal networks, the application
of new technologies and the presence of direct foreign investment.
Finally, the last section forecasts how a Russian Information
Infrastructure could reap tremendous rewards for Russia and the
NIS. Technological geopolitical advantage in communication, commercial
and financial teleeducation services and scientific and technological
spillover could help solve many of the socio-economic problems
encumbering the populace of the Russian Federation.
SOVIET TELECOM INFRASTRUCTURE
As noted above, the Soviet political and economic structure had a tremendous impact on development and maintenance of the telecommunications sector. The Soviet Communist Party penetrated the economy, politics and society more deeply than any other regime in the history of the world. Through total control of politics and the economy, the Communist Party succeeded in maintaining national security and political suppression for over 70 years-- becoming the Soviet Big Brother, watcher of all personal activities, guardian of the Slavic race and protector of Communist ideals. The requirements for this absolute political and economic penetration into "civil society" eventually warped the Soviet socio-economic foundation, including the organization of the telecommunications sector. This section examines the roles of the political structure, the command economy, the military-industrial complex and the international environment in influencing the development, organization and maintenance of the telecommunication sector.
Political structure
The Communist Party was an authoritarian, one-party regime which depended on the central control over all sectors in society. The technological control over public and private communication systems was the political instrument for achieving this authoritarian stability. The Communist Party succeeded in mastering communication technologies for suppressing the population, dispersing propaganda and operating the daily affairs of the government; however, more surprisingly, the Communist leadership also succeeded in preventing these same technologies from becoming subversive within civil society. The ideological and political necessity to communicate information easily yet strictly control the content influenced the development and employment of Soviet communications systems. The best example of this political influence is the implementation of vertical communication technologies over horizontal communication technologies.
Such devices as radios, movies, televisions, and first generation computing applications are vertical technologies which were quickly exploited by the Communist Party apparatus because of their easy controllability, installation and broadcast features. The Soviet adoption of these vertical technologies was mainly for the purpose of point-to-multipoint communication, or public broadcasting. Public communication for the Soviet nomenklatura was merely a bull horn for dispersing propaganda-a downstream information flow which vertically informed the masses yet sufficiently separated them horizontally. However, vertical technologies were also easy to centralize and command. Almost all the radios had hard-wired antenna receivers, and the televisions had a limited number of stations. For political reasons, civilian communications needed to be centrally controlled and quickly suppressed if necessary. Since these vertical technologies depended on one central, physical location for broadcasting (such as a radio tower or television station), they could be easily located in times of emergency, and if necessary, the government could seize and cut off the central source of communication-as was done in the Baltic revolts in early 1989 and the attempted coup in 1991.
Besides controlling broadcast communications, the Communist Party
succeeded in regulating some horizontal communication technologies.
The Soviet regime needed a reliable, point-to-point network for
internal administrative communication. But the upper echelons
of the Communist Party were ideologically and politically opposed
to condoning ungovernable information flows, even within their
own administration. To avoid the loss of centralized control while
still capitalizing on point-to-point communication, the Communist
Party created an amazingly complex internal telephone network
for the many state enterprises, government agencies and state
sectors. The vertushka idea was a closed network of dial
telephones designed for vertical information distribution with
limited external accessibility. Each ministry had their own closed
system with only a few telephone lines to other ministries or
higher-up organizations. In a sense, the Soviet Minister sat as
his desk with ten differently colored phones to communicate both
internally and externally. (The number of telephones on a desk
was a sign of status and power because it symbolized the ability
to communicate horizontally.) From these enterprises, larger and
more complex "vertushka networks" eventually
evolved on municipal, regional and national levels. Whereas each
ministry or industry had their own closed communications system,
each district, municipality, and region had their own vertsushka
to communicate with all the entities along the command hierarchy.
Therefore, the Soviet communication infrastructure was similar
to a wheel with the center being Moscow and the spokes stretching
to smaller vertushka systems.
The employment of these vertically controlled communications-from hard-wired radios to the vertushka-- aided the Soviet state in retaining domestic and national security by allowing the leaders to control and manipulate the internal information flows. Yet this political need for centralized communications stymied the development of an advanced communication network. After the development of the vertushka systems, civilian telecommunications became a lower priority for national investment. The only investments in the development of non-governmental, inter-city or national telecommunication systems resulted from left-over resources, and usually these scarce resources were applied to upgrading antiquated equipment instead of expanding and installing more high-technological equipment on the network.
Command economy
The Soviet command economy was an efficient mobilizer of resources
within the economy. The best example of this was Stalin's rapid
industrialization of the economy during and right after World
War II. But besides this advantage of rapid industrialization,
the Soviet teleological approach to planning solved many equity
issues, reduced socio-economic uncertainty and established the
foundations for an international political superpower. However,
over its 70 year economic stampede, the Soviet Union depended
upon the "classical growth model." Modern economic models
relying on dynamic efficiency theory were not practiced and even
ideologically opposed by the Communist Party leadership. From
Leonid Brezhnev to Mikhail Gorbachev, the Soviet Union rapidly
declined in dynamic efficiency and technological advancement.
Although the Soviet Union continued to compare equally with other
nations in overall economic growth, the Soviet Union drastically
differed on how this growth was achieved (see chart A).
Chart A: Labor and Capital Utilization
United States Soviet Union
Labor 35% 75%
Capital 65% 25%
As the Soviet Union "laboriously" attempted to feed this classical growth, the Communist Party had to ignore capital-intensive, low-investment-return sectors like telecommunications. For example, a mere 0.15 percent of the total GNP (roughly around 175 million dollars) was annually devoted to the telecom infrastructure investment prior to 1991. And most of this share was channeled into building additional closed internal networks for the political and military-industrial complex. Thus, as these high technology sectors became more important in modern economies, the Soviet Union slowly found itself lagging behind and out of breath in the technological foot race.
Another factor hindering telecommunication development was the scarcity of private technological innovation. The organizational structure of the Soviet command economy was one where governmental agencies were responsible for providing enterprises with their production strategies and cost-analysis profiles . The techpromfinplan determined resource allocation, economic indices, state orders, economic limits and industrial normatives for every enterprise across all industries. The enterprise's sole job was to concentrate on meeting the targeted projections of techpromfinplan; therefore, firms concentrated heavily on searching for ways to minimize the risks of supply-side shortages. Managerial agents often avoided the implementation of new innovative production processes or other high capital ventures-- such as investing in internal research and development. This ensuing lack of private innovation or entrepreneurial participation in research and development compelled the state to decide on technological improvements, and more often than not, higher macroeconomic priorities, such as meeting the economic plans, forced the government to neglect microeconomic necessities like capital investment, research and development and technological innovation.
The Soviet fixed-priced system was another factor hindering the innovation of new products and processes. In the West, new products and prices could reap huge rewards for companies which could capture monopolistic prices on new innovations. But in the Soviet Union, since prices did not reflect consumer demand or free-market forces, there was no incentive to innovate because the social and financial benefits from research and development did not outweigh the financial and political risks of failure. Therefore, the social and financial returns from developing new telecom products such as digital switches or fiber optic lines were both politically unfeasible and financially unrealistic and thus were not included in the techpromfinplan.
The classical growth style of production also created a time-trade off incentive for the Soviet government. The Soviet planners increased present output at the expense of the future proper structure of the economy. Many capital-intensive investment sectors were neglected, such as transportation, construction and telecommunication services. Since these services had low short-term payoffs, they were given less attention than strategic industries, such as manufacturing, energy and the military-industrial complex. Unfortunately, as Western Europe and the United States speedily drove onto the onramp of the "information superhighway," the inefficiencies of an inadequate and unbalanced economic structure caught up with the gas-guzzling Soviet Chevy.
Military-industrial complex
The Soviet emphasis on building and maintaining a first-rate military required the allocation of tremendous amounts of resources from both the state and civilian sectors. This heavy emphasis created an unbalanced economy where the strategic and military industries were financially supported at the expense of less "productive" and less "strategic" sectors. Although public telecommunication was disregarded for both political and economic considerations, the Soviet political and military-industrial complex possessed the most advanced communication vertushkas in the country. The military-industrial complex controlled about 55 percent of trunk line capacity, 18 percent of the central exchanges, and the majority of equipment production capacity. Also, the military, the Ministry of Defense, the KGB, and other organizations each developed and operated specialized internal communication networks. These special, high-priority secret communication networks contained a variety of "extensive terrestrial facilities but also included four separate comstat systems: a subset of Molniia satellites; some transponders on the geosynchronous satellites; a system of randomly orbiting low-altitude store-and-dump satellites; and a system of higher-altitude satellites." Along with the space communications systems, these military vertushkas utilized modern networks of wireless microwave and sometimes fiber optic backbones for ground-based communication.
Western technologies, such as mobile communications, only appeared in the hands of the KGB, high ranking party officials and the military. Having a walkie-talkie was a clear sign of belonging to the high echelons of the political and military-industrial complex. One such two-way radio system was a less advanced network of radio-telephones based on radial systems and broadcasting on the 300-350 MegaHertz frequency. The political fear of point-to-point communication forced the Communist Party to limit the use of this mobile communications network through a single switch in Ostankino Tower located in Moscow. Connections were made manually by an operator with no direct access to international lines. In this manner, the Communist regime was able to suppress a naturally uncontrollable form of communication, even within its own political and military-industrial complex.
International Environment
The Soviet Union was not just plagued with internal factors preventing the development of a modern telecommunications infrastructure. The international environment, which was extremely antagonistic to the Communist movement, was an important factor which stymied Soviet investment in technological growth. The flagship of this Western armada was CoCom (Coordinating Committee). CoCom was a economic version of NATO which sought to contain Communism by severing the technological and other investment supply lines from the West. It created numerous export controls, ranging from encryption technology to certain manufacturing processes. Communication technologies, such as fiber optic cables, cellular transformers and digital exchanges, were some of the major products under the export jurisdiction of CoCom.
The Russian telecommunications industry suffered badly from the lack of technology transfer and access to more advanced Western technologies. CoCom forced the Soviet Union to purchase lower quality equipment from neighboring Eastern European states or settle for out-of-date Western technology. Moreover, this lack of technology transfer drastically curtailed the efforts of Soviet research and development from developing (or at least replicating) the communication technologies needed for modernization. Therefore, CoCom succeeded in stifling the modernization of Soviet telecommunications by redirecting the flows of technology transfer and limiting the information sources needed by the Soviet research and development community to rebuild the infrastructure.
TRANSITION TO A MODERN TELECOM INFRASTRUCTURE
As can be seen from the previous section, the transition to a modern telecommunications infrastructure is a major undertaking. There is an outdated and practically nonexistent infrastructure which is impractical for modern communication exchanges. Besides technical problems, the transition process suffers from many other burdens. The Soviet legacies of centralization and neglect, geographical constraints, rising consumer demand and regulation and certification problems are all slowing down the modernization process. This section outlines these two ghosts-the Ghost of Soviet Past and the Ghost of the Russian Present-which are slowing down the expansion and modernization process.
The Ghost of Soviet Past
The 1966-1970 Five Year Plan was the Soviet Union's first endeavor at revamping the aging telecommunications infrastructure. The plan outlined the creation of a unified automated network with the bandwidth capacity to carry voice, video and data traffic. But like so many of the Soviet plans, the goals never left the realm of propaganda. In 1985 the Central Committee and the Soviet Communist Party again initiated a program to bolster technological growth in the communications industry while at the same time politically restructuring the administering body-MinSviaz. This Five Year Plan (1986-1990) "sought to incorporate 12.1 million new lines, initiate a move to quasi-electronic exchanges, and introduce optical fiber and digital technology… with 75% of the new installations to be residential lines…with a 90 to 100 percent urban penetration and 50 percent rural penetration by the turn of the century." Although this plan succeeded in installing one million new lines from 1986 to 1990, many of the other targets were not matched, and thus the plan did very little to remedy the fundamental deficiencies in the telecommunications network. By 1991 the telecom sector was extremely congested, radically antiquated and quickly deteriorating.
SOVIET LEGACIES
Today, the aggregate network of the Russian Federation and the NIS still possesses many legacies of the Soviet command economy, such as better usability from the center outward and lack of interregional and inter-city communications. As mentioned before, the political and economic structure of the Soviet Union created a communication network pattern which resembled a wheel with 15 spokes originating from Moscow and terminating in each of the republican capitals. Furthermore, the republican capitals mimicked this national pattern for their intraregional communication networks. Each of these spoked-wheel networks serviced the local, regional and ultimately national needs of the Communist Party located in Moscow. As a political instrument, this spoked wheel network functioned as it was designed- to maintain political control and vertical integration while minimizing horizontal information flows. However, with Russia's entrance into a global economy, the communications network should resemble a spider web with a mesh of vertical and horizontal communication flows in order to take advantage of free market forces.
PROBLEMS WITH THE INFRASTRUCTURE
It is an understatement to say that the public communication network is inadequate for business and private needs of the 20th Century. For both political and capital investment reasons, the public networks are characterized by insufficient bandwidth, low telephone line penetration, low call completion rates and lack of value-added telecommunications services. The public networks have weak inter-city and inter-regional connectivity-remnants of the authoritarian political system. As a result of the lack of capital investment and the technology transfer constraints of COCOM, in 1991 the existing telecommunication network contained equipment which predated World War II technology applications. Because of this antiquated infrastructure, recently-introduced technologies have merely served to supplement older equipment rather than replace it or expand the services. Therefore, today expansion must always be coupled with modernization of the existing infrastructure, making the reform process more complicated, slower and more costly.
How antiquated is Soviet telecom? The technological sophistication of the telecommunication exchanges drastically lags far behind Western standards. Today over 50 percent of the equipment network is over 20 years old. The oldest switches, dating back to the 1880's, are Strowger exchanges which rely on manually operated step-by-step technology. The rest of the switching equipment is mostly of second-generation technology (i.e. crossbar technology). In technological sophistication, these crossbar switches vary from manual to quasi-electronic to fully-electronic. The major models in use today are the French MT-20, the Finnish EATS-200 and the Yugoslavian Metaconta 10C. But as a result of CoCom, these foreign models comprise only 10.5 percent of the exchanges, and thus most of the electronically controlled crossbar systems are the less sophisticated Eastern European ITT Pentaconta system. On a whole the local telephone network survived on only 35,500 local switching exchanges. Crossbar electromechanical switches today still make up about 70 percent of the total network capacity in Russia. The remaining 30 percent are manually operated switches or the electronic Strowger exchanges-- with the majority of these being located in rural or medium-sized urban areas.
An interesting side note is the lack of signal processing technology. Despite knowledge of multiplexing technology, Soviet authorities still discouraged and prohibited the application because of national and public security implications. The Soviet authorities wanted reliable transmission without such technical difficulties of cross talk, delay distortions or signaling attenuation. Therefore, without multiple signal processing devices, the present network had to be hardwired on a one-to-one format. The use of PBX's for large buildings was practically nonexistent since every office had their own wire line. Although this offered reliability and security, the lack of signal processing technology and the ensuing absence of PBX's now makes the modernization and expansion process extremely costly, especially since the majority of contemporary communications systems depend on frequency or time multiplexing devices.
Concerning inter-city communications, exchange connections relied on a mixture of cable and radio relay (microwave) media. The radio-relay lines accounted for 25 percent of the telephone channels in the late 1980's while the rest of the transmissions mainly relied on cable transmission. About two-thirds of the transmissions along the interzonal network depended on the lower-bandwidth, lower-quality twisted-pair cabled. Concerning wireless technologies, the satellite network, Comstat, comprised only 5 percent of all the interzonal circuit-kilometers. Therefore, the Soviet Union's public telephone network mainly relied on the less-efficient twisted pair cable-not utilizing satellite, fiber optic and even the less-sophisticate coaxial cable for their interzonal communications.
The international public telephone network also suffered from an inadequate infrastructure. In 1991 75% of the international trunk lines were symmetrical coaxial cables, making carrying capacity about 272,600 channels. Furthermore, for political purposes, these trunk lines were only connected to 1000-2000 external channels via a single international gateway in Moscow. Therefore, as a result of the small number of international gateways and channels , today the Russian Federation suffers from congested channels and transmission bottlenecks for international communications. For example, about 1.2 billion long-distance phone calls were made on trunk lines in 1991 and 1.6 billion in 1994. But only a small percentage of these long-distance calls placed through the Moscow's international provider, Rostelcom Joint Stock Company, are completed successfully because of the limited number of international lines, the low bandwidth capacity of coaxial cables and the bottlenecked gateways. Thus, as early as 1993, as few as 1 in 30 phone calls were completed through this Moscow international gateway.
As can be seen, the telecommunications infrastructures is in shambles. World War II generation switches and exchanges, the lack of signal processing technologies, the low-quality of transmission lines, and the lack of overlay for interzonal and international communications are major obstacles to overcome. Unfortunately, the lack of technical sophistication in the infrastructure hinders the telecom expansion process since the already existing infrastructure needs so much updating and modernizing. In one sense, there exists a dichotomy between necessary expansion and desired modernization. This dichotomy creates not only technical difficulties but
The Ghost of Russian Present
In addition to the problems of the past, there are problems which have developed since the collapse of the Soviet Unions. Conquering geographical obstacles, quelling consumer demand, and simplifying the muddled regulation and licensing process are problems which the Russian government and telecom planners must face today. This subsection discusses these problems in further detail.
GEOGRAPHICAL OBSTACLES
The Russian Federation is the largest country in the world, spanning 11 time zones and covering 17,075,400 square kilometers (1/8 of the world's land mass). Across these eleven time zones, there are a few heavily concentrated urban centers, such as Moscow, St. Petersburg and Novosibirsk, but surrounding these huge metropolises are thousands of small rural establishments. Russia's sheer size is thinly populated with a population of 147 million people, most of that concentrated in the Northwest and Southwest parts of Russia. For instance, the largest two regions of Russia-- Siberia and the Far East-- contain only 8 million inhabitants. Many of these inhabitants are engineers, scientists, researchers and other highly educated people who work in the isolated scientific and technological centers; therefore, communication with this small number of citizens is extremely important.
These spread-out population concentrations have created some interesting differences between rural and urban penetration rates. Moscow shares three percent of Russia's population but 11 percent of the total telephone lines. Beyond Moscow, regional disparities are enormous: about 60 per 100 Moscovites have access to a phone but in more remote areas only 1 in 1000+ have access. For example, in Moscow there are 47.1 telephones per 100 inhabitants (roughly 96 telephones per 100 households). However, in the Novosibirsk region there are only 10.8 phones per 100 inhabitants (roughly 21 phones per 100 households) with over 396,000 citizens on the waiting lists. And in some regions, these comparison ratios can not be even calculated because of an absence of infrastructure. The International Telecommunication Union (ITU) estimated that in 1992 there were over 36,000 rural settlements without access to a single telephone line.
The large geographical scope with physically isolated pockets of concentrated population centers unevenly distributed throughout the country creates many technical and organizational issues for telecom developers and planners. Which technologies to install, how to organize the communication routes and how much to invest are all major considerations when wiring underdeveloped and rural regions. The decades of neglect and lack of investment have not helped with the decision and planning process since many regions lack any sort of infrastructure at all. Since many of these rural areas were not considered strategic to the economic performance of the Soviet Union, they are some of the most technologically backward areas in the country--- at times lacking roads and electricity and let alone basic telephone service. Because of the large scope of the Russian Federation, these rural populations are geographically scattered across hilly mountains, expansive plains, harsh tundras, and arid lands. Sometimes even huge mountain ranges or expansive large land masses separate them from other cities or towns.
The lack of infrastructure in these rural communities makes the expansion and modernization process even more difficult. And because of the geographical scope and extreme environmental changes, the installation of these technologies is more costly and time consuming than just wiring a Moscow apartment complex. Having to run coaxial or fiber optic trunk lines across Siberia would necessitate tremendous financial outlays as well as huge costs in maintenance of equipment. Nevertheless, modern wireless technologies as well as utilizing the vast public transportation routes may help to advance the telecom reform process among the rural areas; however, within the rural communities themselves, there will still exist huge expansion and modernization dilemmas.
CONSUMER DEMAND
The rapid increases in demand for basic and value-added communication services is becoming a growing problem for the modernization process. Today for the first time many Russians are realizing the economic opportunities of pursuing and maintaining close contacts with fellow Russians and international personages. The seven-decade political suppression has generated an overwhelming curiosity and drive to establish personal and professional relationships across the world, but presently infrastructure deficiencies are hindering the realization of these demands. In order to better understand what is fueling this consumer demand bonfire, some statistics and technical details need to be further outlined.
In 1991 Russia's basic wired telecommunications system had about 23 million main telephone lines, about 18 million of which were urban lines. This figure places the Russian Federation sixth in the world for installed main lines. But this ranking is extremely deceptive because of Russia's population and geographical size. For comparison purposes, in 1985 the United States possessed roughly 122.2 million main lines. This fivefold and sixfold difference is even more striking since the population of the Soviet Union was about 18 percent larger than the U.S.
However, this 6th place ranking is misleading for other reasons when analyzing the number of main lines compared to population size. In the Russian Federation as a whole, as of 1994, the the national average penetration rate was 16 telephones per 100 hundred inhabitants (about 25 phones per 100 households). This figure is more accurate in comparing the domestic telecommunication infrastructures and thus lowers Russia's original 6th place rank in main telephone lines to 30th in the world and 21st in Europe.
Concerning public access to telephones, in 1993 public pay phones represented about one percent of all the telephones within NIS network. In 1989, there were roughly 400,000 pay phones scattered throughout the country. But as noted in the first section, the political and economic establishments sought to keep this number low. The suppression of horizontal communication flows required limited public access to communication, and thus, public telephones were installed sporadically and only in certain locations, such as in Moscow's elite residential area (where there were about 3.7 pay phones per 1000 residents). In recent years, little improvements have been done to the public pay phone network because of accelerated inflation rates and lack of coinage, making the use of public telephones impractical for many purposes.
The expansion and modernization difficulties are creating a restless consumer base. The residential phone systems are of poor quality-with many potential subscribers served by party lines with limited accessibility, poor connections and low quality transmissions. For example, even today most of Moscow's suburb high-rise residential buildings often lack basic telephone service, except for a single connection on the first floor. And the low number of public pay phones does not aid in relieving this problem. Where capitalism has erased the queuing for most consumer products, today a new communication queue arises-one where basic communication is in such high demand that the babushka finds herself waiting to use a single phone to call her grandchildren.
The evidence of waiting lists for basic telephone service epitomizes this communication queuing. Waiting lists for residential phone service can vary from 1 to 12 years depending upon the location and type of service. In 1987, Russia had over 8,737,000 requisitions for the installation of a phone. In 1991, this number had grown to 10,987,700 requisitions (a growth of 5.92 percent). In 1991, the former Soviet Union as a whole witnessed over 18,466,900 requisitions partaking in this communication queuing. In other words, throughout the entire former Soviet Union, roughly 50 to 60 million citizens are awaiting the installation of basic phone service for their households. Today, as more Russians demand communication services for commercial and financial purposes, Russia must find quick fix solutions to avoid communication queuing, especially since most Russians do not have fond memories of the bread lines.
After examining these consumer demand statistics, it easy to see the huge expansion and modernization tasks for the telecommunication service providers. For the needs of the emerging entrepreneurial firms, telecom manufacturers and providers must provide high-quality modern services for communicating with external markets, foreign businesses and institutions, international tourists, and other domestic entities. However, for residential communities, the consumer demands more basic, cheap service packages which provide access, reasonable convenience, and reliability. This extreme variance between commercial and residential demands encumbers the development process while slowing the pace of reform. Once again the dichotomy of necessary expansion yet desired modernization emerges-- this time not as a technical challenge but as destabilizing effect on the equilibrium between telecommunication supply and demand. These telecom manufacturers and providers must keep pace with the surging demands for high quality equipment capable of connecting to an modern and international network while also satisfying the fundamental demands of impatient residential communities. In some areas of the Russian Federation, satisfying both of these demands will require the doubling and even tripling of the size of the basic telephone network within the next decade.
REGULATION AND LICENSING
There are many bureaucratic problems concerning the regulation and licensing of the telecommunication equipment. Unlike many industrialized countries whose standards and procedures are clearly enumerated, Russia's "homologation [sic] procedures, testing organizations, and standards are not widely disseminated or systematically followed." The regulation, licensing and certification obstacles are tremendous. Unfortunately, usually the Ministry of Communications takes advantage of the regulation and certification procedures in order to better understand Western communication technologies, in a sense a bureaucratic technology transfer. The Licensing and certification obstacles are also a bureaucratic procedure to protect the young domestic telecom manufactures and providers from foreign competition. However, for the purposes of this paper, the muddle of regulation, certification and licensing processes will not be closely examined, but there is one case study which can best exemplify present confusion over regulation and licensing-- the role of spectrum management and allocation.
Spectrum management and allocation is hindering the rapidly growing cellular communications network. Despite all the different standards from which to choose, there are still huge problems in spectrum regulation and allocation of frequencies, especially since the former military-industrial complex still retains over 90 percent of the available spectrum. Because of the former political relationship between the military and civilian government as well as other remaining socio-economic structural problems, it is very difficult to convert and license these frequencies for civilian use. The amount of time, equipment and costs would be extremely intensive. These difficulties in regulating and licensing spectrum are preventing one frequency from dominating the cellular market; therefore, different standards are being implemented depending upon the available frequencies in each region. For example, MOC has come up with the "Conception of the Use of Spectrum in Russia" to organize the AMPS-800 cellular standard on a regional basis and the GSM-900 standard on a federal basis. Unfortunately, the differences in frequency and equipment standards will prevent a domestically compatible, universal cellular network from being fully developed. And furthermore, public use of these bands will be limited for at least the next six years due to conversion and regulation difficulties, thereby hindering the rapid development of a cellular communications market.
Spectrum management and allocation is just one example of the many problems facing the telecom sector. At times, telecom appears to lack any consistency in regulation and licensing; however, at other times the environment is one of stringent regulation, confusing licenses, and extensive certification. Regulation and licensing will be major factors either hindering or promoting the development of a modern telecommunications infrastructure, especially in wireless technologies such as radio relay, cellular, and satellite communications.
OVERCOMING THE OBSTACLES
The legacies of Soviet telecom, the geographical scope of the nation, the rising consumer demand, and the regulation and licensing confusion cast a dark shadow on the prospects for quickly reforming and modernizing the telecommunications infrastructure. However, despite these obstacles, there is hope for the modernization plans. Telecommunications projects have garnered support from a vast number of foreign companies and investment organizations. New technology overlay projects and the restructuring of the vertushka networks into limited-license overlay networks have accelerated the modernization process. The implementation of satellite and other wireless technologies will eventually solve the rising consumer demands and geographical obstacles. And foreign investment and technology transfer has opened up the possibilities for truly creating a modern telecom environment with packet-switched networks, videotext, electronic mail, and multimedia transmissions. This foreign technology transfer aids not only in quelling the increasing demands of both the commercial and residential consumers but also in overcoming the domestic financial and investment limitations. This section will closely analyze these four transition trends-- new technology overlay, the adaptation of limited-licensed overlays, new transmission technologies, and direct foreign investment-and then discuss their role in the Russian dichotomy of necessary expansion and desired modernization.
New technology overlay
Since 1991, the public phone network has been growing by an average of five percent per year; however, future average growth rates will have to be more than 7.4 percent in order to bring Russia's average penetration rate up to 23 lines per 100 inhabitants by the year 2000. Some governmental projections estimate an yearly installation of 5-6 million lines per year (compared to the present 900,000 line yearly increments). This drastic increase would bring overall rural and urban penetration rates to 36 per 100 inhabitants and 45-50 per 100 inhabitants respectively by 2010.
The fate of Russia's public telecommunications network resides in the hands of a program called the Russian Digital Overlay Network (RDON), commonly known as the 50x50 Telecommunications Project, which hopes to accomplish the amazing feat of both modernizing and expanding the present telecom infrastructure. Vladimir Bulgak, the Russian Minister of Communications, has stated that the 50x50 Project "will approach Russia as a whole and not by region…[in order to] to start initially with the most profitable regions and services and then expanding to reinvest in other areas." Through RDON, the Russian government hopes to satisfy both residential demand for basic service and commercial demand for high-quality, modern connections, eventually connecting 20 million new subscribers at an estimated cost of $40 billion over ten years.
The project plans to install digital transmission exchanges in 50 Russian cities, which would be linked by 50,000 kilometers of fiber optic cable. The financial investment for the project will be 50 percent domestic, and 50 percent of the telecom equipment will come from Russian manufacturers. RDON will have two phases of operation. The first phase involves three Western companies investing over $600 million to construct the national telecom overlay network while Russian partners will contribute fixed assets, buildings, equipment, and operating licenses. The second phase will also involve foreign companies investing over $500 million, raising foreign ownership to roughly 40 percent of RDON.
The heart of the 50x50 project is the system of tariffs and fees which will generate revenue for future telecom development. This revenue from the trunk line networks will allow local-service providers to increase coverage at the local level. As digital overlay networks are established on a local level, and telecom providers eventually find clients among the business and financial communities, the freed up lines will then be available to the population. Thus, the RDON project plans a continuous reinvestment of its revenue to improve service and eventually meet the MOC targeted goal of 35 lines per 100 people. In a sense, the 50x50 project theoretically relies on an investment spillover and trickle-down effects for future financing of telecom expansion and modernization.
Limited-license overlay networks
The presence of Soviet legacies within the Russian Federation
is not all together negative. The existence of the many closed
telecommunication networks offers many potentials for telecommunication
planners. Some of these vertushka networks can be readily
converted into limited-license overlay networks which can redirect
certain communications around the bottlenecked and congested areas,
especially on the Moscow City Line Network. In Moscow, many telecom
providers have obtained their market niche by taking advantage
of the many vertushka networks left behind by the political
and military-industrial complexes. Thus these "bypass operators"
have aided in creating a healthier communication environment,
especially in the congested and overpopulated cities such as Moscow,
by absorbing some of the present consumer demand for expansion
and modernization. These limited overlay networks are basically
a quick fix to the surging demands for reliable and high quality
service. Because of the existence of modern equipment, fast transmission
capabilities and high quality connections within in these former
military-industrial close networks, these converted communication
systems can provide the value-added services demanded by many
of the new financial and commercial entities. Depending on the
bypass operator, these value-added services range from direct-international
satellite linkups to Internet access. Examples of some of the
Moscow bypass operators and their services are listed below.
Sovintel-- The venture provides switched access service for international communications to hotels and
foreign companies in Moscow. (Global Telesystems Group, GTE Spacenet, and Main Trunk Line
Control Center of Moscow)
Comstar-- Provides higher-quality digital service and satellite channels nationally and internationally to a
limited number of Moscow entities.(British Telecom)
IDB Communications-- Operates a domestic and international communications network providing
customers with radio and television transmission
services, international private line voice services, facsimile,
and data connections.
DirectNet Telecommunications (DNT)-- Provides private-line dedicated U.S. telephone services and high-
speed data via ground stations in Moscow
These new and existing closed networks have the potential to be easily converted to more modern networks because of the already existing high-tech equipment. For example, the ISKRA network was the political communication network for of the Soviet nomenklatura. At one time it served over 50,000 enterprises in 425 cities of the Former Soviet Union. Today much of the infrastructure is still in place, and therefore ISKRA has the potential to be transformed into a packet-switched network for data transmission. The adaptation and eventual conversion of these military and governmental closed networks can make the modernization process a little more fluid by satisfying the existing demands for value-added services and redirecting some of the congested communication flows. Thus, limited overlay networks can be a temporary solution to the surging demands and can fill the infrastructure vortex by introducing such modern technologies as packet-switching and digital transmission.
Application of New Technologies
The greatest potential for improving the Russian telecommunication sector is the introduction of modern technologies. Higher bandwidth cables such as fiber optics, computer-aided digital switching devices, and wireless communication systems can offer many short-term and long-term solutions to the problems discussed in the preceding sections. This subsection will examines the role of modern technologies in reorganizing the concept of communications in Russia.
FIBER OPTICS
Fiberization of Russia renders tremendous opportunities for both commercial and residential telecom consumers. In 1990, there was only one fiber optic line between Minsk and Leningrad. In 1992, fiber optics in trunk lines was still a Western myth (over 75 percent of transmissions occurred over coaxial trunk lines). However, today the installation of coaxial and copper telecommunication networks are being rapidly cast aside because their bandwidth capacity cannot adequately support the high demands for modern value-added services. The strong probability for high volumes of data and voice transmission across Russia's communication network makes the installation of fiber optic cables more cost-effective than coaxial or copper trunk lines.
An interesting use of fiberization in Russia is for intra-city, residential communication. Soviet urbanization and city planning was centered around the communal apartment complex. More than 50 percent of the Russian population lives in either high-rise apartments or condominium style complexes. The concentrated density of residential populations in small areas necessitates the installation of high capacity communication lines. In such situations, it is easier to share cable lines and electronic equipment between subscriber centers than to "pull wire" for each individual subscriber. Thus, fiber optic cables are the most cost-effective solution for carrying these communal subscriber communications. For example, the Integrated Telecommunication Network (ITN) is developing a "fiber-to-the-curb" network in the Nizhny Novgorod district to provide telephone, data and cable TV services to hundred of thousands of residents via communal fiber optic lines. Another interesting factor is the laying of fiber optics along transportation routes. One of Russia's major fiber optic networks was established in 1995 by installing the lines along the Oktyabrskaya railroad system, through the St. Petersburg metro system, and then throughout the surrounding regions along the tramvai routes. The use of the extensive public transportation systems as communication avenues has greatly reduced the overhead costs as well as increased the pace of reform. Similar strategies are being established in most other major cities.
For inter-city and international communications, current Russian
plans anticipate the creation of a national communication backbone
consisting of international fiber optic submarine feeder lines
and terrestrial extensions in both the northwest and southwest
and in the Russian Far East. These Southern, Northern,
and Far Eastern projects will eventually be interconnected through
a Central project, such as the TransSiberian Line. Once all these
projects are completed, Russia will have an immense fiber optic
network which covers 11 times zones and 1/8th of the
world's land mass. It will be on the largest communication networks
in the world.
- The Northern Project initiated the construction of the Denmark/FSU submarine fiber optic link. A lot of modernization and fiber optic installation within St. Petersburg and Moscow has occurred in recent years. There are now numerous international fiber optic links from St. Petersburg and Northwest Russia.
- The Southern project will connect Southern Russia with Italy via a submarine/terrestrial fiber optic cable. The cable will traverse both the Mediterranean and Black Seas. The first fiber optic leg will be a PDH submarine link operating at 565 Mbs and running from Palermo, Italy, through Istanbul, Turkey, to Novorossiysk, Russia. From Novorossiysk, there will be terrestrial fiber optic links to Rostov and Moscow which will use SDH equipment and transmit at 622 Mbs. A second fiber optic cable running from Istanbul to Odessa, Ukraine, would eventually increase the international channel capacity by 7,680 circuits. The entire investment needed for the project is over $160 million.
- Current projects and future plans for the Russian Far East include for a Russian, Japanese, and Korean fiber optic submarine and terrestrial network which would link Vladivostok and Khabarovsk with the Asian Pacific telecom cable grid. Intertelecom, the major Russian telecom provider in the Russian Far East, hopes to create an overlay network with a channel capacity of 7,000 and with transmission speeds over 560 Mbs. The entire project is estimated at over $120 million.
- The final stage in this fiber optic backbone is the TransSiberian Line (which is presently in halt phase) connecting Moscow and Khabarovsk. The TSL would be an 8,000 kilometer fiber optic link bridging the Russian Far East networks with the Southern and Northwest backbones. TSL investment is estimated at over $160 million.
CELLULAR
Cellular telephony in less than a decade has revolutionized the world markets. In 1994-5, the number of cellular phone lines grew by 58% connecting over 52 million subscribers throughout the world. Although cellular telephony resembles a fad in the developed world, for developing countries it can solve a lot of the infrastructure development problems. Cellular systems can be constructed quite quickly; equipment installation costs are low; maintenance costs compared to wireline networks are even lower; and after installation cellular telephony avoids the bureaucratic registration process of procuring wire-line phones. Therefore, despite the high end-user cost, cellular telephony provides a quick fix to developing regions and especially the Former Soviet Union.
Whereas in 1992 cellular communications was a Western rumor, today the Russian government is actively pursuing the installation of cellular equipment as a short-term solution to the rising demand for reliable telecom services. The Ministry of Communications has implemented the "Conception of the Development of Cellular Communications in Russia Until 2010." According to this plan, the MOC will eventually develop cellular networks in 60 regions and cities throughout Russia. The cellular overlay networks will allow the commercial demands to be temporarily satisfied by quickly and efficiently connecting these institutions to the international market over a fairly modern and reliable wireless transmission medium. Moreover, cellular communications has the potential to generate huge sources of revenue, which will eventually through "trickle-down economics" help finance other telecom ventures in residential areas and less-developed rural areas.
Cellular telephony today is mainly used in Russia as a technological substitute to the inefficient local and long-distance networks. Presently, there are only 200,000 subscribers in just 42 cities. Most of these subscribers are in St. Petersburg, where subscription is roughly around 23,000. Although these numbers may appear small, the amount of cellular use is one of the highest in the world. Because of the poor wire networks, the typical subscriber uses over 400-500 minutes per month (more than double most developed countries). The heavy cellular use and high demand create exorbitant subscription fees, at times as high as $4,000. For the cellular market, these high profit returns are attracting both foreign and domestic investment, which will hopefully diffuse the development and use of cellular telephony; nevertheless, these high fees are also unfortunately preventing the development of a critical mass since the average Russian's disposable income is not large enough to cover the subscriber fees. But even with these high fees, cellular subscriptions are still continuing to grow 40% annually, and by 2003 over 2.3 million Russians will be communicating over cellular networks.(see chart below)
Hopefully, as competition increases in the cellular network, the subscriber costs will decrease, enabling more of the Russian population to tap into the wireless communication systems. In that manner, cellular communications can absorb some of the social demands for value-added services presently unavailable through the ground-based wireline systems. For instance, in St. Petersburg, Peterstar's customer mix is already based on 60 percent cellular-dedicated lines and 40% fixed wire lines with both functioning on a digital overlay network. So, at least in St. Petersburg, there is a trend to utilizing wireless communication as a temporary solution to its infrastructure deficiencies. (see chart below)
For commercial and residential subscribers, the portability of cellular telephony can resolve many of issues stemming from an absence of infrastructure. Cellular telephony is a quick fix to the surging demands of small and medium sized enterprises "unconnected" to the international marketplace. The Soviet legacies of centralization, the absence of infrastructure, the geographical obstacles, and investment constraints become less-influencing factors in a "wireless" environment. The only constraint on extensive diffusion is spectrum allocation and high subscribers costs, which overtime will hopefully be resolved.
SATELLITE
Satellite communication is another modern, wireless technology which can revolutionize rural communications in Russia. Before 1991, satellite communications was practically nonexistent in civilian and public communications, except mainly for television broadcasting. The comstat satellite network constituted only 6 percent of the civilian long-distance channel capacity whereas in other countries, such as in the United States, it constitutes anywhere from 20 to 30 percent. For inter-regional communication, satellites carried even less capacity--- 3 percent of all transmission traffic. Despite the low utilization in civilian communication, satellite technology is not a new concept for the Russian Federation. The Russians have a great deal of experience in producing and operating satellite communication technologies. The Soviet military-industrial complex depended upon a vast array of satellites. The KGB elite satellite systems could handle high-capacity voice and data traffic. The Soviet space agency utilized a diverse system of satellite linkups to communicate with the Cosmonauts on the Mir space station as well as to transfer all sorts of scientific data, real-time video, and automated tasks for their onboard computer systems.
The development of satellite communications is essential in order to efficiently utilize the existing international and interregional networks. Satellite technologies are a cost-effective solution for overcoming the geographical obstacles within the Russian Federation. Remote areas, such as the Urals, Siberia and the Far East, will have to depend upon wireless communications because of their harsh climates and geographical isolation. These regions are extremely difficult to access by means of cable, radio relay and even cellular facilities; therefore, satellite technologies are the more cost effective technology in terms of installation and operation.
Nevertheless, there are still many problems with the present Russian satellite network. The capacities of satellites and their operational ability are still below world standards. Although the military-industrial complex had numerous satellites, defense conversion for civilian use would still require huge amounts of financial and technical investment. For example, there are over 140 defense and 46 civilian satellites (the latter including 10 MOC satellites for pure communication) orbiting the Siberian region of the Russian Federation. These satellites could dramatically assist telecommunication development there; however, unfortunately, there is an absence of earth ground stations which are necessary for receiving satellite transmissions. Before satellite communications can benefit the eastern parts of Russia, Russia must erect many more earth ground stations.
In order to increase the role of satellites in civilian communications, the MOC has a number of overall goals. The quickest and most cost-effective strategy is the immediate conversion of the existing military and state satellites so that they can provide data, facsimile and voice links for domestic and international sources. These converted satellites could then be auctioned off to various operators who would only have to supply the necessary ground equipment (i.e. earth stations) for uplinking to the satellites. The MOC has already initiated the creation and installation of modern satellite systems, such as Mayak and Arkos, which would provide long distance connections for mobile subscribers on ships, aircraft and railroads within and outside Russia. MOC has also started placing into orbit the Express and Express M satellites which will eventually cover earth stations aimed at providing interregional and international communications for public and commercial use in remote areas.
Direct Foreign Investment
All this technology overlay, infrastructure improvement and advanced technology installation requires an immense amount of investment. In order to achieve a modern telecommunications infrastructure, the Russian authorities have called for investment in telecommunication to double over the next five years. Despite the government rhetoric, Russia lacks hard currency for many of the development projects. Problems with currency convertibility, underdeveloped capital markets and the lack of an adequate banking structure continue to plague financial investment possibilities. According to MOC, the funds from the Russian Federal Budget which are available for government investment projects have decreased over the years. During the last three years, the share of state investments in the telecom industry has decreased from 40 percent to less than one percent. However, direct foreign investment has dramatically increased from zero to over 40 percent. Also, private funds raised from the domestic market have increased in recent years. The budgetary constraints and tight fiscal policies have forced Russians to turn towards foreign companies as the major fuel source for the modernization and expansion engine.
The needed financial investment for updating the network is mind-boggling. Since the Soviet Union neglected telecommunications, the industry requires close to the same amount of investment as a developing country. The dichotomy of necessary expansion and desired modernization only increases the amount of investment. The legacies of centralized communication networks as well as World War II technology calls for not only restructuring but also for replacement, expansion, and modernization of the sector. A rough comparison for the needed financial investment was the reunification of Germany and the subsequent telecommunication reformation. West Germany invested over $30 billion to modernize the telecommunications infrastructure in East Germany. East Germany, with 16 million citizens, is 1/16 the population size of the Former Soviet Union. Applying simple arithmetic and excluding such factors as geographical and infrastructure differences, financial outlays would require $480 billion dollars in order to modernize the FSU telecommunications sector.
The role of joint-ventures and direct foreign investment is the best solution for Russian investment problems. Joint-ventures can not only finance the expansion needs but also modernize by importing valuable high-tech skills and modern equipment. Many of these joint-ventures today include U.S. firms which are investing millions of dollars into the Russian infrastructure. AT&T has signed numerous Memoranda of Understandings with MOC for developing and operating international gateways, channels and circuits. The Academy of Sciences and MCI have been researching videoconferencing systems between Russia and the United States. GTE Spacenet Corp, under joint-venture with Sovintel, will increase the number of international lines by 50 percent through ground-based and wireless networks. Other joint-ventures with USWest in St. Petersburg, Motorola in the Far East and Sprint in Moscow have imported valuable technologies and skills into the Russian telecom market. This technology transfer coupled with the financial investment from foreign companies has created profitable opportunities for the West as well as generated tremendous social and economic benefits throughout Russia.
FUTURE OF THE DOUBLE HEADED EAGLE
Universal communications has created a modern world of electronic commerce. The central nervous system of this global economic growth is the information and communications infrastructure. Before advancements in transportation, the "town square" was the economic center of a community. As transportation improved, the nation-state emerged as the new center for economic activity. The enlargement of markets necessitated larger overhead costs, greater financial investments and larger operations in order to meet national demands. But now, communications is replacing transportation as the foundation for economic success. As a result of universal communications, the telecommunications network is becoming the national and international backbone to all financial, commercial, public, and private activities. Today, domestic and multinational corporations heavily rely on extensive communication networks.
With these globalization trends in electronic commerce, Russia has a major commercial and financial stake in developing an advanced telecommunications infrastructure. Russia has the potential to technologically leapfrog over many of the industrialized nations of the world by overlaying its 1l times zones with state-of-the-art satellite, wireless and fiber optic communication networks. With these modern overlays, the possibilities are endless for attracting foreign investment as well as increasing domestic economic performance. First, teleeducation projects could benefit the young Russian enterprises struggling to survive in the competitive global marketplace. Second, technology transfer and technology spillover could raise the sophistication level of the manufacturing and high-technology sectors of the former military-industrial complex as well as benefit the research and development communities. Finally, the Russia Federation could technologically leapfrog ahead of other nations and become the communications link for the global economy. This last section discusses these future possibilities for the Russian Federation by analyzing a few present "telecom case studies"-Nizhny Novogorod, Zelenograd and Academgorodok (Novosibirsk).
Teleeducation: Zelenograd
Modern communication networks, such as the Internet, enable Russia's newly privatized enterprises to grow nationally and internationally. The ability to access global scientific and technical research, to market their products and ideas, and to form international contacts with potential investors, prospective partners, suppliers and customer increases the economic stability and eventual success of these young enterprises. Besides just commercial opportunities, programs for remote learning over Wide Area Networks and information sharing over Local Area Networks offers cost-effective ways to lower transaction and opportunity costs in both doing business and research and development.
The presence of numerous satellite towns was one of the Soviet legacies left to the Russian Federation. These satellite towns are the remains of the Soviet military-industrial complex, with many suffering from lack of funds or capital/labor outflight. But, these satellite towns have great potential for becoming high-technological centers by their unique structures. Since these complexes were often physically and electronically networked to surrounding technical universities as well as research and scientific institutes, they had close working relationships with the surrounding institutes and universities. With correct transition strategies, these satellite towns could become high-tech hotbeds similar to Silicon Valley. The inherent technology spillover advantages from having close proximity to scientific and technical institutes is a gigantic incubator for economic success.
In order to gain comparative advantages via technology spillover, the old and new spin-off companies in these satellite towns must change their management schemes, sources of finance, marketing strategies, accounting systems and production processes. Meanwhile, the Russian academicians and scientists in the nearby institutes must learn how to successfully present their chalkboard drawings as potentially viable commercial products. However, the managers and directors in these satellite towns do not possess the "free market" experience necessary to make these transitions. As mentioned in the first section, the Soviet command economy created so much stability and security that the managerial agents never worried about increasing efficiency, minimizing average costs or profit maximization. Therefore, these young capitalist enterprises must look beyond the factory walls for assistance. The advise from Western business consultants and the knowledge from scientific exchanges are quick solutions to this problem, but there still remains one underlying concern. These satellite towns unfortunately do not possess the funds to invite large numbers of business teachers into Russia nor send their managers abroad for training.
But there is a more efficient and reasonable solution. Using the most advanced information technologies can provide teleeducation opportunities for these satellite towns. Fiber optics, satellite, the Internet and computer networks can electronically and digitally link these "high-tech consultants" with the satellite towns. Russian enterprises would in fact be importing information, high-tech skills and advice electronically. However, to gain from this distant education network, the enterprises and institutes must depend upon a modern telecommunications infrastructure.
In recent years the Russian government has recognized the strategic and economic importance of these high-tech satellite towns. For example, Zelenograd (USSR Silicon Valley) is the home of the powerful defense microelectronics industries and also the home of the Moscow Microelectronics Technical University with its multiple scientific and technical institutes. Despite the heavy concentration of microelectronics, Zelenograd only has one telephone per 50 workplaces, with most of these lines being incompatible with modern communication networks. Nevertheless, a Russian company Elvis+ has proposed to create a fiber optic bridge connecting Zelenograd with the Moscow communication network while also installing a wireless Wide Are Network for internal communications with the Zelenograd commercial and educational districts. The necessary technology would draw upon Zelenograds expertise in the microelectronics field as well as convert many of the military and intelligence technologies for civilian and commercial use.
Zelenograd represents one of the major satellite towns presently undergoing a communication revolution. By applying distance education and teleeducation projects, these dying high-tech sectors hope to reinvigorate their industries by learning from Western expertise as well as enter the international marketplace as worthwhile competitors. Building such projects within these satellite towns will not only provide a sound economic base for Russia but hopefully establish a leading role in the emerging global high-tech marketplace.
Zelenograd is only one of numerous examples of economically struggling cities and towns. The need for developing a distance education system which can teach capitalistic strategy planning should be a high priority for the Russian government. Teleeducation projects would not only benefit these young enterprises but also endow Russia with a international comparative advantage in the emerging global market for expertise in distance education services. Teleedcuation is one of the fastest growing fields in the information technology industry, and the Russian Federation could both domestically and international benefit by becoming experts in this field.
Remote technology spillover : Academgorodok
Today the most advanced method for information exchange between scientists and researchers is based on computer networking. Today modern science greatly depends on the provision of communication between the various research and academic institutes across the world. The information and technology spillover effects from scientific communication and research exchange has had major social and economic benefits for many nations. Modern communication systems in the Western world, such as ARPANET and the present Internet, have been excellent tools for capturing technology spillover through scientific discourse without physical proximity. However, the Communist regime, not wanting to create a modern communications network among the educational and scientific communities, created whole cities devoted to research and development. In this manner, these scientific cities could benefit from information and technology spillover via physical proximity. But unfortunately, in building these cities, the many scientific and educational institutes have been isolated from today's global information flows. The total lack of modern communication services prevents these highly educated and motivated scientists and engineers from realizing their own potentials. Therefore, like the modernization of the satellite towns, the research and educational institutes are revamping their communication infrastructures.
Novosibirsk Scientific Center (NSC) is one of these isolated research and development centers in Siberia. The NSC is the main center of the Siberian Branch of the Russian Academy of Sciences and comprises over 40 scientific and research institutes ranging from archeology to high energy physics disciplines. The NSC is also located near the Novosibirsk State University along with numerous technical institutes, museums, schools, and cultural exhibitions. Therefore, this scientific and educational center is commonly referred to as Academgorodok. Academgorodok has always closely cooperated with other centers of scientific and educational centers throughout the former Soviet Union. Numerous conferences and scientific exchanges were held both at Academgorodok and at the National Academy of Sciences in Moscow. However, today with budgetary constraints and lack of investment in the research and development disciplines, Academgorodok is looking to expand its scientific and educational cooperation along electronic means, both domestically and internationally. The main goal of this "Academgorodok Internet Project" is to provide fair and equal access to worldwide Internet services for scientific, educational, and cultural communities in Novosibirsk.
The Academgorodok Internet Project (AIP) is a interesting case study for remote technology spillover. Due to the very high concentration of scientific and educational organizations in a very small area (not exceeding a diameter of three kilometers), the installation of a modern communications environment will provide Internet access for about 15,000 researchers and over 5,000 students in one stroke and at a very low cost. The benefits of this technology spillover among the various institutes as well as between the international scientific community and Academgorodok will far outweigh the initial financial investment in a modern communications network.
The ensuing access to databases and file servers, real-time connectivity over multimedia links, and text and video communications will increase the knowledge base of the Academgorodok community. The file sharing abilities of over the Akademgorodok intranet will hopefully increase worker productivity and scientific cooperation, and the eventual external connectivity will provide these Russian scientists with access to valuable international data and records for the first time. This mutual sharing of information between Russian and international scientists can increase the global levels of scientific understanding and cooperation, benefiting the economic future of both Russia and the world.
Technological leapfrogging: Nizhny Novogorod
The laying down of modern telecommunication infrastructure has tremendous opportunities for Russia. One of them is the ability to leapfrog technologically ahead of the rest of world in the application of communication technologies. For many industrialized countries, over the years telecommunication companies have invested tremendous amounts of money and resources into the existing technologies such as coaxial and copper cables. To completely rewire these networks for either fiber optic or digital communications is extremely costly; therefore, the Western telecom providers search for other technological solutions such as ATM switches, better compression technologies, etc. in order to retain their initial investments. However, within Russia, since there is in most parts an absence of infrastructure, these telecom providers can start from scratch with state-of-the-art communication technologies. Unlike in the West, these telecom providers do not have to worry about the financial losses from prior hardware investments, thereby enabling them to concentrate on installing the most cost-effective, modern hardware available. Thus, the Russian Federation, with the correct telecom strategy, can technologically leapfrog ahead of the industrialized world, eventually creating a comparative advantage by directing the global financial and commercial information flows.
A case study for the technological leapfrogging potential is the city of Nizhny Novogord. One of the telecommunication firms in this region hopes to transform Nizhny Novogord into a northern Singapore. Under the auspices of a $4 million dollar modernization program, Nizhny Novogord Information Networks (NNIN) laid down over 100 kilometers of new fiber-optic cables last year. This fiber optic network will eventually link regional public offices with the savings institution Sverbank. Next year, an additional 120 kilometers of fiber optic cable would be added to the fiber optic loop and the existing city coaxial cables. Although the present fiber optic loop only currently serves 35 major subscribers, after more additional hookups from colleges, offices and other institutions, that figure is supposed to exceed 160 subscribers (and with continued modernization into the next year dramatically rise into the high hundreds). Moreover, in addition to city wiring, a number of the satellite towns and regions surrounding Nizhny Novgorod have the basic infrastructure to support fiber optic communications. Thus, the fiber optic loop could eventually expand beyond the city limits and interconnect a vast region of the Russian Federation.
If NNIN successfully completes this fiber optic network, Nizhny
Novgorod would become one of the world's first cities where the
whole city information network is united into a single system.
With such a modern communication network, Nizhny Novogorod could
become a central information exchange for the Russian Federation,
the New Independent States and Eastern Europe. This communication
routing could accrue huge financial resources for Nizhny Novgorod
and the Russian Federation as international commercial and financial
entities tap into the information flows. This ability to control
and earn profits from the global information flows could ultimately
transform into a geopolitical trump card for the Russian Federation
since international entities would depend on the Russian networks
for their economic survival.
CONCLUSION
The Russian Federation has undergone tremendous changes in the last century. From the outlandish Tsars of the Russian Empire to the didactic General Secretaries of the Soviet Union, in one form or another "Russia" has been a powerful player in international politics. Today, the Russian Federation is not any different. Although presently the economic and political transition process has weakened the once powerful empire, in due time the double-headed eagle will majestically reemerge from the ashes of the Soviet Union and once again return as a major figure in the international chess game. One of the major factors determining Russia's reemergence will be the successful expansion and modernization of the telecommunications sector. However, unfortunately, the communication revolution will have to overcome many obstacles ranging from organizational and structural inadequacies to geographical and bureaucratic constraints. Nevertheless, despite the present shape of Russian telecommunications, there are tremendous possibilities for hurdling over these obstacles.
In order to catch up with the West technologically, the Russian Federation must implement sector reorganization, modernize/digitize the network, expand the use of fiber optics, improve switching stations, rapidly expand the use of cellular networks, and develop and launch a new generation of communications satellites. But despite all these necessary improvements, the best course for this expansion and modernization is the application of advanced technologies, especially concerning wireless communication systems. The "wirelessness" of cellular and satellite communications can overcome many of the infrastructure inadequacies. These networks can easily avoid the bottlenecked international gateways and congested wireline channels. Cellular and satellite telephony are also quick fixes to the surging demands of small and medium sized enterprises "unconnected" to the international marketplace. Satellite communications coupled with cellular telephony can provide instant access for many consumers who have been on 12 year waiting lists. Another "wireless advantage" is that the large territory and extreme natural environment of Russia do not dramatically influence these types of technology. For satellite communications, the sophistication of the technology in carrying both voice and data and in carrying high capacity loads can satisfy both the commercial and residential demands of any region. Finally, because of the high returns on cellular telephony, direct foreign investment is quite high, thereby aiding in the rapid diffusion of cellular services throughout the major cities of Russia. Therefore, cellular communication networks combined with extensive satellite systems can be reasonable solutions to many of the problems found in today's telecom environment. The Soviet legacies of centralization, the absence of infrastructure, the geographical obstacles and investment constraints become less-influencing factors with wireless technologies. In the next few decades, satellite and cellular communication will most likely become the saviors for solving the expansion and modernization problems , especially in the less-developed regions of Russia. Thus, with satellite communications closely linked to cellular networks, many of the above-mentioned problems can be quickly and efficiently corrected and modernization can freely flow with universal expansion.
Once these reforms are realized, the social and financial benefits
of technology spillover, foreign technology transfer and teleeducation
projects will propel the economic success of the Russian Federation
farther than traditional transition strategies. Finally, if the
modernization process goes extremely well, Russia will have the
ability to technologically leapfrog ahead of most industrialized
nations and not only establish itself as a leading provider of
communication services but also return to the international arena
as a technological superpower.
APPENDIX A: RUSSIAN DECISION-MAKERS
Ministry of Communications (MOC)
Before 1991, the Ministry of Communications was the regulator and service provider for the 15 republics. Today it has assumed many of the same duties, except only within the scope of Russia' telecommunications infrastructure. It licenses enterprises and inspects facilities as well as technical and strategic development.
Rostelcom Joint Stock Company
Rostelcom is the successor to Sovtelecom which owned and operated the facilities of the Soviet domestic infrastructure. Its stockholders include a majority of state organizations, especially the Ministry of Communications; however, there are many foreign investors, such as US West, Deutsche Bundespost, and France Telecom. Rostelcom's stated prioriy goals include outlining the order of funding for the digitalization of the inner-city telephone network up to 2005 and the development of international tlecommunication lines in the eastern and southern regions of Russia.
Regional Authorities
There about one hundred administrative regions in Russia, and each of these owns their own communication enterprise which administrates all postal, radio, telephone, and telegraphic services. Each authority procures the necessary equipment for its own network (under the specification guidelines of the MOC). For example, the Mosocw Regional council administers the installation and operation of all transmission and switching equipment in the Greater Moscow area. (This by chance includes over 72 towns, some with populations as large as 200,000 residents).
City Authorities
In addition to the federal and regional organization, there also exist city administrative bodies, especially in the largest cities. After 1991, the most telecommunications development was occurring in the three largest cities-Moscow, St. Petersburg, and Novgorod.
The Moscow City Telephone Network(MGTS)
MGTS is the largest service provider in Russia and serves local phones through a network of terminal and district PABX's. Inter-district bridges are connected to nine intercity bridges under Rostelcom through satellite, microwave, and ground cable. In 1995, there were 3.8 million phones connected to MGTS with a waiting list of about 100,000. Service is erratic depending because of the mixture of antiquate and modern equipment.
The St. Petersburg Telephone Company(LGTS)
LGTS services the second largest city in Russia. The St. Petersburg's
PTSN is less than 20% digital and has a tremendous backlog of
telephone orders. However, the close proximity of St. Petersburg
to Western Europe has enables LGTS to set-up a joint venture stock
company Petersburg Long Distance (PLD/Peterstar) to offer local,
long-distance, and international phone service as well as modernize
the existing network infrastructure.
Interviews and Conversations
Carl Cargill, Sun MicroSystems, author of Information Technology Standardization:
Theory, Process, and Organization, (Boston, MA: Digital
Press, 1989).
Dr. Daniel Kahn, Professor of Economics, Georgetown University
Specialty: Soviet and Post-Soviet Economics
Prof. Linda Garcia, Project Director at the former Office of Technology and Assessment.
Presently Adjunct Professor at Georgetown University and John
Hopkins University.
Dr. Trevor Gunn, Deputy Director of the Business Information Service for the Newly Independent States, Market Access and Compliance, Department of Commerce
Specialty: Telecommunications
Dr. Thane Gustafson, Professor of Government, Georgetown University
Specialty: Russian Politics, energy and technology issues
Professor William McHenry, Professor of Business, Georgetown University
Specialty: Soviet and Russian technology issues
Erwin Thomas, Corporate Regional Manager, General Electric Company.
Notice:
Addresses, telephones, and e-mail accounts have been withheld
to protect the privacy of these individuals. E-mail the author
at pushkin@the-hermes.net
to request for their personal information.
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