CJSC RASCOM General Director's interview on 30.08.2007 for Internet portal ComNews.ru

Recently, Russian carriers' carrier "RASCOM" has made public its exiting outside the country, after having connected, with its own channels, Central region of Russia to the countries of Central Europe through Scandinavia. Now, the company is intending to move further - to London and Frankfurt. V.I.Kireev, General Director of RASCOM, has told us what the situation looks like at the backbone communications market place of the segment Moscow - Stockholm and how the relationships are shaped with the company's main shareholder "Golden Telekom" (it owns 54% of the shares; the second shareholder is the OAO "RZhD" owning 46% shares of the company).
Q. - Vitaly Ivanovich, what is RASCOM network now?
A. - The basic network of RASCOM is built on the basis of the SDH (synchronous digital hierarchy) equipment manufactured by the company Nortel PLC and is more than 1.5 thou km long as of today. The network connects Moscow and Saint-Petersburg, then it crosses the Finnish-Russian Border and goes to Helsinki and Stockholm. Rascom backbone network basis is STM-64 transmission system built upon the CPL-platform equipment. The basic network capacity equals to a banbdwidth of 720 Gbps. Our main product is the lease of international and Russian domestic channels of big capacity: 155 Mbps - 10 Gbps. Beside this, RASCOM is operating a modern IP network (its trade name is GIGANET) offering services to the operators in the North-West and Central region of Russia.

Q. - RASCOM has been present at the backbone communications market since 1994.  When your company entered the market, only Rostelekom was working at the route Moscow - Saint-Petersburg. What is the market siutuation now?
A.- The market segment "carriers' carrier" where the company has been wiorking since 1994 is the most competitive sector of the telecomm market. Now, at the direction Moscow - Saint-Petersburg, four companies are mostly seen. Rostelekom enered this market in 1993. The following year, Rascom started offering channels for lease between Saint-Petersburg and Moscow. In 1998, the operator "Sonera Rus" came (at that time, it was an affiliate of then-Finnish Sonera Telecom. - note by ComNews), that built a FOCL on this route. The last to come to the market was the company TransTeleKom (TTK).

Q. - How many carriers work at the direction Finnish-Russian Border - Stockholm?
A. - At this direction, six backbone operators are working. Swedish-Finnish company  TeliaSonera (Telia has been on this market since the late 90th) Russian "Rostelekom and  ; about three years ago, "EuroTel" came there to place optic cables on the power lines, anbd the youngest operator in this segment is "Eltel".  and  "EuroTel" operate on the whole territory of Russia , TeliaSonera is offering its channel capacities throughout the world.
Q.- Recently, your company has completed network construction at the section Finnish-Russian Border - Helsinki - Stockholm. Whgat difficulties did you face? What was unexpectedly easy?
A.- We completed construction of our own netwrk section from Russian Border to Stokholm in April 2007. This project has been ripening since long time ago, as our expenditures for leasing foreign capacity were growing rapidly, together with customer base growth.  And it was really easy to show our shareholders that it is reasonable  to invest into building this networtk segment.

Q. - What does the complertion of this construction mean for the company?
A.- A network of our own has permitted to drastically reduce our current costs. Beside that, as we have a powerful capacity resource (510 Gbps) our capability of providing services to Rascom's customers do not depend on the rewsources of our providers. We have become more independent while both evaluating setvice delivery terms and operating our network.
Q. - Do other operators, Russian olr foreign, own a similar capacity?
A. - By what we know,  at the route Moscow - Stockholm, ony two companies possess their own networks: Scandinavian  "TeliaSonera" and Russian "Rostekekom".
Q. - Rascom has repeatedly declared that the company acts basing upon a long-term development strategy according to which it is intending to connect, within a network, Russian and European cities-traffic hubs at the directions mostly in demand with operators. What stage will follow in developing international network?
A. - We see and analyze the needs of our customers and compare those with our potential. Global trends are determined by total prevailing of IP traffic on the networks. In  1996-2000, one of the most popular routes while ordering international capacity was New-York. It was explained by the simple fact that "big Internet" was exactly in America. Over recent five years, the siotuation changed and the "European" Internet has become almost self-sufficient. Russian operators do not need American conectivity any longer. Now, our customers order big capacities to European cities.  And Rascom is answering tothese demands by developing its own network in Central and Western Europe. This here is our long-term strategy. Key directions are now Frankfurt, Stockholm and London. To implement this strategy, Rascom has, in 2003, built access nodes in Stockholm and Frankfurt, this year a node was added in Helsinki. We are, still, to build an access node in London and build our own network from Stockholm to Frankfurt and London.
We consider London, Frankfurt and Stockholm to be the most significant traffic concentration centers. Thus, Stockholm is, and we are observing the process, becoming a powerful switching node, mainly thanks to being close to Russia. Over recent three years, in this city, practically all leading players of the world-level backbone Internet access have established their PoPs.
Q. - Who did Rascom lease channels from before building its own network at the section Finnish-Russian Border - Stockholm? How much profit did the sections leased bring as compared to the company's own channels?
A. - By the end of 2006, total volume of capacity lease at the route from Finnish-Russian Border to Stockholm was equal to 3x10 Gbps. Rascom has co-operated in leasing capacities with leading Finnish operators: Elisa  and TDC Song. We, still, are co-operating with them, but as a provider of capacity from Finland to Russia.
If we evaluate the share of selling foreign capacity in Rascom's profits, this value equals to 40% of company's total profit. But, beside IPL (international private line) services, we use  the foreign capacity, too, for arranging Internet access services for operators. In Rascom's profits, the share of Internet and IPL equals to 63%.

Q. - Is the company intending to fully refuse from leasing channels from other providers? Do thereremain any channels that are still being leased?
A. - To assure function of its international segment, Rascom is leasing capacity from Stocholm and further from a series of international carriers. We would not like to name them, but I will tell you that Rascom has agreements with majority of big carriers who have own networks in Europe.
At the same time, we are gradually leaving the oplicy of leasing communications channels from others. Next year, we will implement our l;ong-term strategy of reducig costs related to the lease of international capacity. We are planning to reduce those costs by 35%. We do not intend to fully refuse from leasing channels from other carriers.
Q.- What carriers areleasing channelks from you? What term are the agreements made for?
A. - The customer greements are usually made for a year or more. There are well known big companies and young developing operators among our customers. Big ones: "Komkor", "Sovintel", company group Sinterra, "Interregional TransitTelekom". Among our most dynamically developibng customners are Saint-Petersburg telecomm company "Obyedinenniye seti" and Moscow operator "Nauka-svyaz".
Q. - Does Rascom have enough transit resources on its network?
A. - Yes,  we have enough transit resources. The main point is to build a logistic chain in order to be able to perform equipment up-grades in due time as customer bandwidth demands grow. We manage to perform up-grades timely.

Q. - Who do you provide telematic services to? What is the geography of these services provision?
A. - Our company provides telematic services, i.e., Internet access, on the territories adjacent to all existing Rascom's access nodes. These are cities such as: Moscow, Saint-Petersburg, Vyborg, Novgorod, Chudovo, Bologoye, Frankfurt and  Stockholm, as well as the territories of Moscow, Tver, Novgorod and Leningrad Oblasts.

Q. - Rascom's services include telephony services that the company started to offer at the market as far back as 1999. What is the status of this project now?
A. - Local telephony services are not our main business, their volume is about 1% of all company's services. As a rule, this service is only an addition to the service package the customer gets. Our telephony customers are small business-centers, hotels, etc.

As far as the numbering resource is concerned, Rascom, while not considering this business to be a basic one, has a small number pool. In Sai-Petersburg, we have bought a total of 1 thousand numbers, first from the company "Petersburg telephone network" and then from the operator "North-West Telecom". Nolw only 500 of those are active. In Moscow, we buy number capacty from the company "Golden Telecom", as we need them. At the moment, we had bought not more than 100 of Moscow numbers. We are not intending to make any more investments in this field. Furthermore, we are only offering telephony services in places where there are no companies affiliated wth our shareholders.
Q. - Where and to who are the interfaces of Rascom's IP network that is known at the service market as Giganet?
A. - The network architecture special feature is the availability of high-speed IP backbone route between Moscow, Saint-Petersburg, Frankfurt and Stockholm. Actually, Giganet network node points are interconnected with each other by channels whose total capacity is in excess of 2 thousand Mbps organized as two independent optic cable systems.

The Giganet network is interfaced to Russian netrworks through the "Sovintel" network and to the foreign - through the networks such as Global Crossing, SprintLink Verizon (earlier  MCI). This set of up-streams assures, for our customers, the best connectivity to world and Russian networks.
By the end of 2007, our IP network will be up-graded thanks to migrating to 10 Gbps backbone channels at its whole length from Moscow to Stockholm. This will make it possible to use transmission rate corresponding to  nowaday's requirements to the backbone Internet transit.
Q. - Is it possible to assume that quite soon Moscow - Stockholm backbone channels will be in default?
A. - I do not think so. The capacity the backbone operators have now meets the market demand. It is a different story when resource lack can, from time to time, arise due to untimely up-grade of backbone network. For instance, a customer might request a big international capacity from several backbone operators at a time. Then, the operator that is better prepared has better chances to get the contract.
Q.- How are shaped Rascom's relationships with the new shareholder, "Golden Telecom"? Do they invest into thecoimpany's development or is Rascom buildingat its own expenses|
A. - "Golden Telecom" is our business partner. We invest only the company's own money into our development. As a rule, the net income obtained by Rascom is directed for the network development. Even during the time period 2001 - 2005 when the company was not  active in costruction, we have been yearly investing about 2 Mln USDollars in maintaining trhe network. By our preliminary calculations, this year we will invest abot 7 Mln USDollars  in network development, in 2008 - twice as much as this year.

Q. - Does Rascom continue to build network basing only on Nortel Networks equipment? Are not you planning to change your equipment vendor?
A. - We have been co-operating with Nortel since our company was born. The first request for equipment for Rascom, that was still in process of creation,was made in 1992. After the group of companies "Mir Telecom" (it included  "Rascom", "Macomnet", "Metrocom", "Magistral Telecom" and  " ". - note by ComNews) had broken up, all long-term agreements with  Nortel were assigned to Rascom as main user of this equipment.
Rascom signs long-term contracts with  Nortel.  Quite recently, we have signed a four-year contract for purchasing equipment for a sum of  $10 Mln. We do not intend to change the equipment vendor. 

Q. - What are the company's plans for the nearest future?

A. -  In 2007 we will finalkize up-grading our IP network between Moscow and Saint-Peterburg and all our node points. By the end of this year - beginning of the next year, we will up-grade Stockholm IP netrwork. Our backbone network will undergo an up-grade, too.
As far as Rascom's financial status iusd concerned, Rascom plans to attain about 25% growth in revenue by the end of 2007.


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