Foreign Companies Enter an Uncertain Environment
By Elie Cassorla
Napoleon's French army may have been turned back at the gates of Moscow, but not FRANCE TELECOM (FTE). Its Global One unit offers access to a seamless broadband capability that includes IP (Internet protocol), data and voice. Global One in Russia has over 14% of the Russian data services market and claims an increasing share of the market for voice services.
In Russia and the rest of the former Soviet Union, where telecom infrastructure is still problematic, Global One's services appeal to international corporate customers such as Mary Kay, CATERPILLAR (CAT) and COCA-COLA (KO). The unit designed and installed a system for COCA-COLA that links 20 Coke bottling sites throughout Russia using a satellite-based VSAT (very-small aperture terminal) service. The 24 VSATs necessary to achieve the geographic reach across 11 time zones were installed in cooperation with Moskovsky Teleport, a partner of DeTeSat, the wholly owned subsidiary of (former Global One joint venture partner) DEUTSCHE TELEKOM (DT) in Russia.
Due to continuing uncertainties in the Russian political and economic situation, indigenous Russian companies have difficulties funding the build-out of the infrastructure required for the Internet economy. The capital requirements have already strained the credit resources of Russia's largest internationally traded firm, ROSTELECOM (ROS). The company, which has a market capitalization of $1.6 billion, has had to cutback its planned capital spending to $100 million in 2000, less than one-third the rate of the past five years.
This provides a golden opportunity for companies such as METROMEDIA INTERNATIONAL GROUP (MMG), a company that owns and operates communications and media businesses in emerging markets, and GOLDEN TELECOM (GLDN), a facilities-based provider of telecom services to businesses and carriers in Russia. The two companies are busy consolidating telecom properties and bringing both capital and outside management to bear on the Russian market. The opportunity for growth lies in an under-served population of 150 million with only 1 million Internet users.
In December, MMG bought the former PLD Telekom business, which includes a fiber-optic digital network in the business center of St. Petersburg. PLD's Moscow-based Teleport subsidiary operates a pan-Russian satellite-based telecom service and provides connectivity at Moscow for 27 international telecom operators in 24 countries. MMG is currently acquiring a 50% interest in Comstar, the third largest digital overlay operator in Moscow, from Britain's MARCONI (MNI). Comstar owns a 756-mile fiber-optic network in the city, which uses MARCONI's technology to establish a platform for VoIP (voice over Internet protocol), as well as a total package of Internet services. Moscow City Telephone Network, the other partner in Comstar, provides interconnect to its 4.5 million customers in Moscow.
GOLDEN has been acquiring Russian Internet properties at a blistering pace, since its initial public offering in September 1999. Its portfolio now includes ISPs in St. Petersburg and Nizhny Novgorod — the second- and third-ranked business centers in Russia — a highly regarded Moscow-based Web design firm, and several portal properties. All of these are being combined into its TeleRoss holding company for Russian properties and its Russia-On-Line brand, which includes dial-up access packages.
Connectivity and operational capacity were rounded out with a 15-year lease to use up to 2.4 gigabits per second on former Finnish incumbent SONERA's (SNRA) fiber-optic network from Moscow to Stockholm. GOLDEN also has an equipment supply agreement with CISCO SYSTEMS (CSCO) for Cisco Gigabit switch routers, the top devices in their class. The firm has also partnered with ROSTELECOM in a joint venture called SovIntel. SovIntel operates as an independent telecom provider to provide advanced voice, data, IP and video services over its own Sonet fiber-optic network, to large multinationals. GOLDEN is 66% owned subsidiary by GLOBAL TELESYSTEMS (GTS), a $2.3-billion market cap company listed on the Big Board.
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