Rostelecom

Country

Russia, connection of Europe – Asia, Armenia

Year of entry

1993 in Moscow, 1993-2013, 2012

Industry/ business area

telecommunication

Entry mode

Rostelecom has a representative office in Geneva, but in general, the company concentrates on Russia, rather than on foreign markets. Between 1995 – 1996 the world’s longest digital radio link from Moscow to Khabarovsk was built. Additionally, the company built a fiber-optic transmission network between Nakhodka (Russia) - Naoetsu (Japan) - Busan (South Korea) and fiber-optic "Nakhodka - Khabarovsk." Palermo (Italy) - Istanbul (Turkey) - Odessa (Ukraine) was put

into service, as well as fiber-optic "Moscow - Rostov-on-Don - Novorossiysk”. From 1998 to 2000, the Group entered into the program to ensure a modern digital communication remote and inaccessible regions of Russia. By 2001, The Company had 200 000 kilometers of digital and analogue lines. It had direct connections with 74 countries, and was linked up to 25 international cable systems and the development continued. Amongst other constructions and modernizations of trunk lines, a 200-kilometer international fiber-optic line from Russia to Azerbaijan was completed in 2003. After demonopolization in 2006 the company had losses, however, it managed to redirect its efforts to new services, which brought in the main income to the company.

In 2009, Rostelecom signed a master service agreement with OTEGlobe, international division of Greek national carrier OTE. Thus, the company got access to OTEGlobe's network infrastructure in the Balkans and the Mediterranean.

In June 2011, Rostelecom together with three companies, British Cable & Wireless Worldwide, Iranian operator Telecommunications Infrastructure Company (TCI), and Omantel (Omani) signed an agreement to provide a new high-capacity low-latency cable system linking Frankfurt in Germany to Oman via Russia and Iran. It is called Europe Persia Express Gateway (EPEG) system. They began to build it in April 2011.

Motives

In 2000, Rostelecom had become a solid player all across the Russian Federation. The core business of Rostelecom in that time was domestic long-distance communication services. Another sector was International outgoing long-distance traffic, contributing about 20% to the company’s total revenue. They saw great chances for further development internationalization due to their geographic position combined with their technical capabilities (annual report 2000). In particular, they assessed the provision of transit routes between Europe and South Asia across the Russian territory as very promising. Rostelecom was at that time the only Russian operator licensed to carry both outgoing and incoming international traffic.

In the end of 2012, Rostelecom started to provide services in Armenia.

Firm specific advantages used on the foreign market

The company’s possession of one of the world’s largest trunk networks is the basis for its competitive advantage. Today, Rostelecom has contracts with more than 150 operators, which provide services in 70 different countries. It is also taking part in 25 international cable systems and interacts with 600 international and national operators of fixed-line and mobile services. Rostelecoms competitive advantage is based on their widespread construction of fiber-optic cable lines. Starting with the region around Moscow, the company expanded its cable network from Europe to East Asia, while successfully defending its leading position as one of the largest companies in Russia’s telecom sector.

First mover or follower

first mover – (natural) monopolist in the beginning

Type of state involvement in the process of internationalization

The state owned holding OJSC Svyazinvest owns 45,29% of the company’s voting shares. Svyazinvest including several subsidiaries and associates, which altogether own more than 80% of the telecommunications infrastructure of the Russian Federation. In 2012, the government ordered a merger between Svyazinvest and Rostelecom within a year, which was published at pravo.gov.ru state legal website. Due to this article, the Russian government and the country's national development bank Vnesheconombank (VEB) will maintain a holding of over 50 percent to keep control of the new company, which will work under the Rostelecom brand name.

Evaluation of the success of the internationalization

As Rostelecom develops its mobile data networks, its position as a major mobile operator is growing with over 13 million currently subscribed to Rostelecom’s mobile voice services. Recently, Mikhail Magrilov (vice-president for strategic development) announced, that Rostelecom wants to increase mobile market penetration of Russia by 6 percent to 9 percent. The company plans to launch mobile networks in Moscow, St Peterburg, Krasnodar, Novosibirsk and Samara this year, with five regions to be added in 2014. So far, Rostelecoms strategy has been successful. It represents a “carrier’s carrier” and a leading player in the Russian market, also because of their intensive interconnection and contracts with other firms