New Reforms Will Leave Some Areas of Russia without Internet, Internet Providers Warn

The Association of Small Telecom Operators of the Regions of Russia (AMOR) has sent a letter to Vladimir Putin, Prime Minister Mikhail Mishustin, and Prosecutor General Alexander Gutsan demanding that they abandon the Internet service provider market reform recently proposed by the Russian Ministry of Digital Development. A copy of the letter is at the disposal of IStories, and its authenticity has been confirmed by market sources.

The association members requested a legal, prosecutorial, and antitrust examination of the initiatives as well as postponing their adoption and investigating the Ministry of Digital Development’s activities to ensure the anti-corruption legislation compliance.

The initiatives

Last week, it was reported that the Ministry of Digital Development is discussing toughening the licensing rules for Russian Internet providers. Essentially, this will result in a total elimination of small and medium-sized providers. As a result, only the state-controlled telecom companies will remain on the market.

The ministry wants to introduce three new types of licenses, with a cost ranging from 1 to 50 million rubles (from $13,000 to $665,000 approx.), which will not be issued to individual entrepreneurs.

The Ministry of Digital Development also wants to start revoking the providers’ licenses for repeated “major violations” and to introduce a 10-year ban on licensing the beneficiaries of the offending companies.

In addition, a minimum amount requirement for the providers' authorized capital will be established, ranging from 5 to 100 million rubles (depending on the type of license).

The Ministry of Digital Development stated that the proposals “have been received positively by the industry.” According to officials, their goal is to ensure that only the “reliable operators” remain as well as "to guarantee effective compliance with the law".

Earlier, the digital development minister Maksut Shadayev had claimed regional Internet providers were failing to comply with the obligatory installation of the TPSU tools (traffic filtering tools used by Roskomnadzor, Russia’s executive body responsible for censoring media, telecommunications, and internet content — Ed.) and the SORM system (interception interfaces used for surveillance — Ed.).

As part of this reform, the Ministry of Digital Development also plans to lift the moratorium on telcos inspections, which was set to last until 2030, RBC Russia reported. The sources explained that the moratorium is making it hard for authorities to verify whether the companies have installed the SORM system.

The companies reaction

The AMOR association has demanded that the Ministry of Digital Development be tasked with developing alternative mechanisms for modernizing the telecommunications sector which “would enable the government to achieve its objectives without destroying small and regional telecom businesses,” and has requested that its representatives be included in the process.

Not only will the reforms hinder the operations of small and regional telecom businesses, but will make them impossible, AMOR claims.

Consequences: from unemployment to price growth

According to the AMOR letter, the total number of employees of all the Russian telecom companies whose annual revenue amounts to 50 million rubles ($665,000 approx) and below is 15,200 people. The companies generating 50 to 500 million rubles ($665,000 and $7 million approx.) in revenue employ 21,800 people in the country. Therefore, tens of thousands of telecom industry employees might suddenly find themselves out of work.

Other consequences will include Internet cost growth. It is difficult to say precisely how much the prices will change, the telco sources interviewed by IStories say.

“I think the costs could change dramatically, even outrageously, since there won’t be any competition even in the long run,” says one of the Moscow oblast providers' owners.

In addition, the Ministry of Digital Development’s proposal could potentially leave some people without Internet at all, because major players haven’t entered some areas due to unprofitability, AMOR points out.

“The regional and municipal providers will suffer the most, especially those operating in the private housing areas and places where the requirements tied to the coverage rate of apartment buildings are basically impossible to meet,” the statement says.

This will cause the providers who have historically ensured Internet access in remote villages, hard-to-reach areas, and rural communities to quit , the association asserts. 

“The simultaneous layoff of tens of thousands of workers, the price growth and declining service quality will inevitably lead to increased social tension at the time when stability is the absolute priority for the state,” AMOR notes.

In addition, the reforms will negatively impact equipment suppliers and manufacturers, television service providers and broadcasters as well as software developers for billing, video surveillance and intercom systems, and so on. 

“Less independent providers means less customers, deployments and growth opportunities for the entire ecosystem. This means less orders, investments, and jobs far beyond the telecommunications industry. Additionally, it will lower the demand for Russian hardware and software,” the letter reads.

An AMOR source interviewed by IStories considers there is no ground for claiming that the independent providers are ignoring the requirements regarding the SORM and TSPU systems.

He notes that the FSB (Russian Federal Security Service — Ed.) frequently imposes massive fines on the non-compliant providers, including the numerous subsidiaries of major providers. A Leningrad oblast provider owner IStories have spoken to also confirms that the regulations are strict.

“It’s practically impossible to avoid setting the TSPU, and doing so would be very risky. They monitor it very closely and have everything they need to verify our compliance,” he asserts. 

The state Internet

AMOR states that the reforms are being pursued in the interests of the five biggest internet providers in the country (Rostelecom, VimpelCom, ER-Telecom, MTS, and MegaFon). These changes essentially create an oligopoly, when the whole industry is completely controlled by just a few companies.

“We believe that the motivation behind this reform does not reflect the interests of the industry or the country as a whole, but rather serves the interests of a very limited circle of large commercial entities,” the statement reads.

The Leningrad oblast provider owner agrees.

“None of the companies had ever doubted that the consolidation would happen. It’s just a matter of time and approach – whether they’ll buy us or just take the business. My view is that they’ll buy the medium-sized ones and simply press the small ones. We live in a capitalist system, where the big ones feed on the small ones. The only question is how civilized is our capitalism,” he says.

According to his predictions, the complete takeover of the small and medium providers will occur within three years, as the big players won’t be able to secure the services for all the clients at once. 

The consequences for Russian cybersecurity

The provider owners IStories have spoken to have admitted that telecom consolidation has taken place in many countries around the world a long time ago. However, they say that the unique situation in Russia makes the country’s entire network more resilient to cyberattacks and external threats.

According to them, the larger the number of independent providers, data transmission routes, and network control centers in Russia is, the easier it is to cope with the consequences of any crash, error, or attack, and the lower the importance of each single point of failure is to the system.

“The decentralized architecture of the Russian Internet segment is its fundamental advantage from a security standpoint. [...] Concentrating infrastructure management in the hands of five providers will sharply increase our vulnerability to DDoS attacks and targeted cyberattacks by unfriendly countries (Russia officially maintains a so-called "Unfriendly countries" list — Ed.). For a country with a vast territory and widely distributed infrastructure, decentralization is a factor of resilience, not a development obstacle,” the AMOR statement reads.