Connections Transport & ICT Russia’s Ambitious Broadband Goal: Is the Progress Sustainable? Natalija Gelvanovska, Carlo Maria Rossotto, and Michael Lee Gunzburger 80% In 2012, the Russian Federation announced one of the world’s more ambitious broadband Internet development goals: providing 80% of Russian households with “ultrafast” connection speeds—at least 100 megabits per second (Mbps) by 2018.1 That goal exceeds the current targets in Germany and the European Union, and it is about equivalent to those Russia’s 2018 target currently being pursued by countries with ambitious for the share of strategic broadband connectivity goals, including households with Denmark, Sweden, and the United States. As part of the effort to reach its 2018 target, the Russian government Internet access of at recently tasked Rostelecom—a largely state-owned least 100 megabits per enterprise and the dominant firm in Russia’s broadband second market—with the responsibility of connecting 4 million people (about 2.8% of all households) in small, widely scattered settlements throughout Russia by installing 200,000 kilometers of fiber-optic cable providing speeds of at least 10 Mbps. The assignment is both a great opportunity and a huge challenge for Rostelecom and for the entire Russian broadband sector. What can Russia do to ensure Rostelecom’s successful completion of its specific task as well as the success of the broader 2018 target? Russia’s Recent Successes tion in the world (153 active subscriptions per 100 inhabitants). Russia has already achieved some notable success- • Russia’s overall average Internet connection es in providing both fixed and mobile broadband speed, 7.4 Mbps, is almost twice the global connectivity. average of 3.8 Mbps. • Russia is one of the world’s leaders in the af- • Russia’s mobile broadband penetration (60 ac- fordability of fixed broadband (that is, a wired tive subscriptions per 100 inhabitants) is close connection, as opposed to wireless), with sub- to average for advanced economies and offers scriber costs meeting the affordability criteria strong potential for growth, as Russia has one of the UN International Telecommunication of the highest rates of mobile phone penetra- Union for more than 90% of Russian house- holds.2 1 The goal translates to 40 million households—at least a six-fold increase in the share of households with such speeds given that, as of mid-2015, only about 13% of broadband connections exceeded 15 Mbps (Akamai, State of the Internet Report, https://content.akamai.com/PG3046-Q2- 2015-SOTI-Report.html). Broadband Internet is the successor to telephone dial-up technology (56 kilobits per second). Broadband Internet is an “always on” service delivering a download rate of at least 256 kbps through conventional telephone, coaxial cable, fiber-optic cable, and wireless modes. The newest of these modes have dramatically raised broadband speeds. For example, the U.S. Federal Communications Commission in early 2015 raised its definition of minimum broadband data speeds from 4 Mbps to 25 Mbps for download and from 1 Mbps to 3 Mbps for upload. 2 Relative to wireless, fixed broadband capability is currently a more significant factor in decisions of foreign direct investors. MARCH 2016 NOTE 2016 - 4 Currently, 57% of Russian households have access task of connecting 4 million people in 13,600 small to fixed broadband (compared with a 79% penetra- settlements. The project will ultimately cover a ter- tion for the European Union), but Russia’s prog- ritory of more than 33 million people when larger ress toward its 2018 goal by bringing “fiber to the communities connected en route are counted. To home” (FTTH) is encouraging. In the second half reach this formidable target for universal com- of 2012, Russia gained more FTTH subscribers (2.2 munication service by 2018, Rostelecom will likely million) than all 27 EU countries combined. Rus- need to involve local, private commercial opera- sia has been projected to achieve “fiber maturity” tors in delivering service to end users to ensure a (FTTH for at least 20% of households) by 2018, widespread commercial presence at the local level. ahead of France, Italy, and the United States, for Bringing in a diversity of providers will require an instance. efficient, open-access model for the sector that allows the maximum use of both existing and new The Digital Divide infrastructure (see, for example, Connections Note #7, “Key Pathways to High-Speed Internet in the These achievements aside, Russia faces a number Middle East and North Africa”). of challenges in the broadband sector, particu- larly in reaching both rural and remote areas. Only Strategic Challenges one-third of households in rural areas have broad- band access to the Internet, compared with nearly Rostelecom’s market share and the state’s role two-thirds in urban areas. Fixed broadband pen- as both policymaker and regulator creates con- etration is highest in Moscow (31%) and the lowest cerns about the health and competitiveness of in the Chechen Republic (0.1%). Russia’s immense the country’s broadband market. The worry is that size, difficult terrain, sparsely populated areas, and these issues of governance and competitive vitality low level of socioeconomic development in certain threaten the tremendous progress Russia has made regions contribute to this vast digital divide. over the past few years and its near-term potential to attain broadband coverage comparable or supe- Governance and Market Concerns rior to that of the current global leaders. Ultimately, the long-term sustainability of Russia’s effort will Russia’s broadband market is dominated by the depend on certain strategic and regulatory reforms 48% state-owned Rostelecom. It controls nearly and initiatives: all key elements of broadband architecture, from backbone access to international connectivity. It • Developing a national broadband plan that holds almost 45% of the retail fixed broadband improves governance and coordination mecha- market—a share nearly four times greater than that nisms, fosters competition, and facilitates of its closest competitor. Moreover, through acqui- infrastructure development in rural and remote sitions, Rostelecom has been increasing its market areas share in virtually all telecom market segments, • Implementing state policies through a new, in- including both fixed and mobile telephony and dependent regulatory body that would operate mobile broadband. with clear boundaries between policy formula- tion and policy implementation Rostelecom’s strong position in the market, com- • Setting standards and procedures to facilitate bined with the government’s control of both policy the shared use of infrastructure and regulations, tends to discourage needed • Fostering the development of an open-access private investment. It thus creates a legitimate model allowing efficient access to infrastruc- concern about the state’s ability to manage its ag- ture by private operators. gressive 2018 plan without a dysfunctional conflict of interest. More specifically, by inhibiting private These reforms will be essential to preserving investment, the absence of an independent telecom Russia’s previous broadband achievements and regulator may prove to be an obstacle to achieving ensuring it meets its ambitious and laudable 2018 greater competition in the broadband market. In broadband target. the long run, the market could shrivel, stalling much of Russia’s recent progress in the sector. For more information on this topic: The hobbling of competition thus also represents a World Bank, A Sector Assessment: Broadband in Russia, http:// potential barrier for Rostelecom and its immediate hdl.handle.net/10986/21709 Connections is a weekly series of knowledge notes from the World Bank Group’s Transport & Information and Communication Technology (ICT) Global Practice. Covering projects, experiences, and front-line developments, the series is produced by Nancy Vandycke and Shokraneh Minovi. The notes are available at http://www.worldbank.org/transport/connections. MARCH 2016 NOTE 2016 - 4