As the Russian telecommunications environment has been evolving over the past decade, U.S. telecom companies and investors have been taking a closer look at this growing market. The message Russian companies are now conveying to the U.S. telecom industry is that the sector in Russia is currently on a dynamic rise, so it is a very good time for both U.S. telecom manufacturers and investors to examine the Russian telecom sector more closely.

This enthusiasm is based on the fact that in 2001 the volume of communications services in Russia grew more than 30 percent. Analysts' forecasts show that the unprecedented growth should continue for at least another four years. There are three basic factors for the tendency: tariff hikes for local services, booming development of cellular networks (especially in the regions) and growth of the Internet and data market. Russian officials are also finalizing the direction of the 10-year, multi-billion dollar federal e-Russia program designed to boost e-commerce, technology and the Internet. The program could ultimately include support such as tax benefits for the Russian IT-sector in 2003 and 2004.

Restructuring and consolidating the Russian fixed-line telecoms sector by creating seven pan-regional companies is also proving to be a very successful move, which made Russian local operators more attractive to foreign investors. The last two weeks saw Russian telecom companies become growth leaders on the domestic stock market with their share prices leaping up 40 to 60 percent.

The experts are split when it comes to estimating future growth. According to J'son & Partners, at the end of 2004 the volume of communications services in Russia will reach $11 billion. The Boston Consulting Group foresees $8 billion. Such forecast differences can be attributed to the unpredictability of Russia's economic development, on which the growth of communications services largely depends.

In the last few years there have been several investment success stories to bolster confidence in the sector. Recent large transactions: American firm Metromedia International purchased a 50 percent stake of Comstar-Telecommunications for a reported $60 million in 2000, Telenor acquired a controling stake in alternative operator Combelga in 2000, and a consortium led by Alfa Capital bought 50 percent of Golden Telecom for $125 million last year.

Yet foreign investment in Russian telecommunications has a much longer history. U.S. companies such as Motorola, Cisco Systems, Lucent Technologies, Golden Telecom and Corning have already proved their long-term commitment to the Russian telecom scene. TIA is currently encouraging its small- and medium-sized member companies to follow suit.

At the same time, market newcomers should be aware of the obstacles they may encounter on their way to the Russian market. Among those hurdles are a lack of proper telecommunications legislation, certification and licensing procedures that do not reflect the market dynamics, as well as some potential restrictions on foreign ownership.

On a positive note, Russian telecom officials are becoming more responsive to making the domestic market more attractive to foreign investors. In a blueprint for the development of Russia's telecom industry until the year 2010 introduced by the Communications Ministry in 2000, it is stated that the sector will need $33 billion to fulfill its goals — a considerable investment that will doubtless require substantial foreign investment.

This will be one of the main topics of discussion during Communications Minister Leonid Reiman's upcoming official visit to the United States. Both Russian and U.S. telecom communities look forward to the minister's meetings with industry representatives and investors. Together with the U.S. Department of Commerce, TIA is planning to organize an industry roundtable with members of the Russian delegation to brief U.S. telecom representatives on current trends in Russian telecommunications, tell them about major projects and players in the sector, as well as discuss further investment opportunities. We hope that this will be a breakthrough meeting for many U.S. companies considering international expansions.

(The author is Managing Director of Telecommunications & Electronics Consortium in the Newly Independent States (TEC-NIS).)