The rapidly developing telecom industry badly lacks a fitting legislative surrounding. The existing law "On Communications" was adopted in 1995 and fails to reflect present-day realities. The telecom market's development program for the period up to the year 2010, which was prepared by the Ministry of Communications and Information, provides for introducing a number of amendments and appendices in the law that would clarify issues of relations between telecom operators with each other, with the government and with investors, simplify licensing procedures and optimize market regulation.

A new edition of the law "On Communications" has been through a number of hearings, was considered by a panel meeting of the Ministry of Communications and discussed with representatives of more than 140 communication companies currently operating on the market. Although the draft got preliminary approvals from a total of 19 federal ministries and departments, its consideration in the State Duma, scheduled for late 2001, has been once again postponed.

The new edition of the law represents a number of fundamental changes and well deserves to be called a new draft law "On Communications." If adopted, it will drastically affect the business, relations and regulations in the whole sector.

Although the government is obviously seeking to bring Russian telecom legislation as close to Western standards as possible, they still have to take a number of peculiarities of the domestic market's development into consideration. First of all, there is a huge gap in development between the mobile and landline segments of the industry. The latter are at best operating with zero-profit, and if they set sail on the rough seas of the free market in their present shape, they might well drown. At the same time, Russia's mobile telecoms are already present and active on the European market.

The draft law provides for some tariff regulation on local and long-distance landline communication services, some protection for them and some anti-monopoly measures.

By and large, the draft law is obviously aimed at protecting the conventional communications operators and contains a number of obvious flaws which have aroused strong criticism from the Ministry of Anti-Monopoly Policies and the media. Critics of the draft law point out that in all European countries, the function of regulating the market does not belong to the Ministry of Communications, but to a specially formed independent structure. Although a number of provisions in the draft are nearly in line with European practice, the Ministry of Communications still remains in charge of regulatory functions. Sometimes, this regulation acquires rather strange forms. Suffice it to recall the story of allocating frequencies to Sonic Duo, or that of recognizing the CDMA standard as unpromising.

Furthermore, the very important question of foreign investment is not given due attention in the draft. The clause setting a 49 percent limit on foreign stakes in a Russian telecom looks rather strange. Of course, such a limit is understandable when applied to the landline communications operators, but it is hardly appropriate for mobile telecoms, especially since in many of them foreign stakes already exceed 49 percent. It is precisely foreign investments that have helped Russian mobile telecoms to become what they are today, and telecommunications represent one of the few industries in Russia that have seen a strategic influx of capital. Here it is appropriate to ask the question, "Where are the $33 billion [which, according to ministry's program are to be invested in the industry by 2010] expected to come from?"

Meanwhile, Minister of Communications and Information Leonid Reiman said that no limits will be imposed on foreign capital's participation in Russia's communications sector in 2001, which can be viewed as a good sign and a kind of invitation for foreign financiers. Judging by the recent statements made by the telecom authorities, the role of foreign investments in Russia's telecom sector may increase in the near future.

As long as the draft remains a draft, Russia's telecoms market will be governed by "local-scale agreements" and administrative decisions, while its participants can only dream of fair, clear-cut and transparent legislation. According to the most optimistic forecasts, the draft law will be adopted no sooner than in June 2002.

(The author is a Moscow-based freelancer who specializes in telecom issues.)