Broadband Internet – often considered the second phase of the digital revolution – has been a buzzword the past two years as Internet providers preached a "transformation of the consumer Internet experience."

Generally, the first task providers set themselves is to bring the Internet into the living rooms of the masses, something already accomplished in hundreds of markets around the world.

Second on providers' to-do list has been to deliver content at lightning-fast speeds once they had built up a critical mass.

But we're in Russia, where barely 2 percent of the population call themselves "once-a-week" Internet users, and where e-commerce still sits at ground zero. Who needs broadband Internet access when most people lack even a basic PC?

Take a closer look at Moscow, which, as Russia's most advanced market, accounts for the bulk of business transactions and has the country's highest per-capita income. If high-speed Internet access is ever to find its place in Russia, then Moscow is the place to start.

Sounds great. But are Muscovites looking for quality, real-time videos on their PCs or the freedom to instantly download their favorite songs?

The market is there, but it is not quite ripe for the picking, according to a six-month study by J'son & Partners consultancy. The study focused on Moscow's wealthiest residents – those households with income to spend on services like cable TV, high-speed Internet and wireless broadband applications. Research showed that although more than half of Moscow's wealthiest households own a personal computer, 40 percent of those PCs are not used for Internet access. Of those that do have home access, approximately 20 percent said they already have dedicated high-speed Internet access.

Keeping in mind that the J'son & Partners study refers to the prime residential segment of 150,000 households out of almost 4 million households within the ring road, the percentage of the market using broadband Internet is miniscule.

It would be an understatement to say the Moscow broadband market is still in its embryonic stages. Making the situation more daunting is that dial-up access remains the top consumer choice, even in the most developed markets. J'son & Partners research demonstrated that 7 percent of Moscow's well-to-do families would consider a "megabit" broadband connection as an alternative to 64 Kbit/sec, and approximately 30 percent would opt for unlimited dial-up. But that should come as no surprise, since most Muscovites stick to their painstakingly slow dial-up access, using their PCs as high-powered word processors or game stations.

If there are at least 30,000 of the richest households that would seriously consider an upgrade to some sort of dedicated connection, what keeps Muscovites away from broadband Internet access? For one, many of Moscow's most well-known communications providers do not even offer advanced Internet solutions to residential users. These providers do not want to touch the consumer segment. Period.

Recently J'son & Partners consultants called a few providers to see just how easy it is to get "hooked up" for super-fast Web access at home. Surprise, surprise: Either the prices were outrageously high for something as simple as a 128 Kbit/second connection (as much as $300 per month plus ludicrously high "installation" fees), or the companies do not even bother with offering retail broadband Internet services.

The reason is quite simple. Most providers are still not convinced that offering advanced IP solutions en masse is a valid business case. There is, however, a group of entrepreneurs/pioneers that do not subscribe to this point of view. The Moscow market is home to a unique phenomenon that further weakens the position of key Internet service providers. Fly-by-night ISPs are popping up in thousands of residential buildings in Moscow, providing dedicated access at very competitive prices, albeit without any guarantee for quality of service.

But who needs guaranteed quality and sophisticated customer-service pledges, when most Russian consumers will settle for whatever they have, including third-rate Internet access?

Armed with basic hardware set-up and very little capital investment, practically anyone can launch an ISP in his/her apartment building: Just pick up a relatively cheap server, lease out a dedicated link from one of the larger ISPs, do the cabling in your building, and you're in business. No one would have ever thought that the proliferation of simple "residential LANs" would be a direct threat to Internet service providers, but the harsh reality is that they do continue to eat up a significant chunk of the market (just check out www.mosnet.ru – there are over 220 "residential LANs" offering dedicated IP access). As the market becomes more fragmented, large operators will face the daunting task of trying to convince Russian consumers to change providers.

This is a case where "time to market" holds true, and the first operator to build and market service packages that address the wants and needs of average consumers – not just "techies" – will win a substantial market share. According to J'son & Partners estimates, once operators develop a cost-effective platform to reach out to the premium residential segment, they could be looking at a chance to grab a piece of a $400 million dollar IP access market for both residential and small- and medium-sized enterprises segments, with steady returns well into the future.

(Jason Fogaros is a consultant at J'sons and Partners Management Consultancy in Moscow.)