Russian government makes an effort to help domestic telecom equipment makers.

Manufacturers of telecom products in Russia have come to enjoy better relations with major mobile and fixed-line carriers in the country. Russian government officials are now convinced that the country’s communications sector stands on an equal footing with telecom industries in Western European states. The government intends to commit large funds for spurring the growth in the domestic telecom equipment market. Requirements for using domestically-produced technology in implementing both wireline and wireless networks have already been established. Daughter companies of the state-owned holding Svyazinvest have agreed to allocate as much as 60 percent of their investment programs for Russian manufacturers.   

Even though the Ministry of Mass Media and Communication has expressed interest to back Russian equipment makers, a wholesale reinvigoration of the country’s producers will take several years. Russian equipment makers are not fully ready to compete with foreign suppliers. While the quality of basic telecom equipment produced in Russia is good, domestic producers are not able to offer the most innovative technologies for the service providers’ ambitious projects. Another factor in today’s Russian telecom equipment sector is that foreign producers that have set up production facilities in Russia and taken a large percentage of the market are now positioning themselves as domestic equipment makers. Such a strategy would allow these producers to take advantage of the government’s spending program.   

Available equipment

Telecom manufacturers in Russia supply to the market dense wavelength division multiplexing (DWDM) equipment, which is used for fiber optics lines, equipment for wireless broadband communications, PBX (private branch exchange) systems, and equipment for data transfer networks. The leading manufacturers of this technology are Agat-RT, Cronyx Telecom, InfiNet Wireless, Informtekhnika, IRE Polus, MFI Soft, Nateks, Spetsstroi-Svyaz, TELROS, and Zelax. Russian companies also produce fiber optic and copper cables and digital microwave radio equipment. The products available from Russian manufacturers can allow major network operators in the country to develop communications networks, facilitate a conversion to packet-based NGNs (next-generation networks), integrate traditional and IP networks, and construct radio-access networks.

The daughter companies of the state-owned holding Svyazinvest that specialize primarily on providing wireline services will be greatly interested in working with domestic producers. Equipment produced domestically, such as phone switchboards, is more compatible with existing networks in Russia. 

The subsidiaries of Svyazinvest are already following through with the government’s plan to support domestic producers. CenterTelecom, for example, has begun using the equipment produced by ALS & TEC to lay out its broadband networks in rural locations. Systems developed by the Russian Telephone Company are used to link remote locations with the service provider’s fixed-line networks.

More than 38 percent of CenterTelecom’s capital outlays for equipment purchases went to Russian manufacturers in 2009. In 2010, the company expects the share of purchases from domestic producers to increase to 59 percent.

Another company, Sibirtelecom has invested RUR 740 million in purchasing the technology of local manufacturers. This figure represents 40 percent of the company’s budget for the purchase of equipment and software in 2009.

Before receiving government support, Russian manufacturers had a hard time competing against foreign companies that acquired a dominant position on the market. The full-scale reinvigoration of the Russian telecom equipment industry is estimated to take several years. During the transition to a market economy in the 1990s, Russia’s innovative production was dealt a serious blow.

Russian producers are able to compete against foreign manufacturers only for some types of equipment. For instance, Russian manufacturers cannot produce high-quality DWDM systems because the innovative solution to making that technology has not been found yet. At the same time, Russian switchboards and cables are very much competitive. 

Also, Russian manufacturers lack a technological foundation for making equipment that would be used by consumers.

While the state of WiMAX equipment technology manufactured in Russia is not as advanced as that of foreign systems, requirements for the use of Russian equipment in setting up WiMAX networks are included in tenders in 40 Russian regions that will take place in February and March of 2010.

While Russian domestic producers assure that the cost of WiMAX systems manufactured domestically would not be higher than the expenses associated with using imported devices, the imposition of artificial restrains on the market notoriously decreases competition and results in greater costs for the end user. The compatibility of Russian WiMAX and foreign-made equipment has not yet been tested, leaving open questions as to the integrity of the new networks.

Analysts say that the effect of the regulation to use Russian-produced equipment will contribute to the expansion of WiMAX manufacturers and intensify domestic production. An alternative less optimistic scenario is that foreign manufacturers would come to Russia to set up their own production facilities, claiming the status of domestic producers. Foreign producers might also be interested in setting up joint ventures with local manufacturers, sharing the latest technologies with their Russian counterparts.

Setting up production facilities in Russia is the best way for international telecom equipment makers to enter the Russian market. The telecommunications sector is not the first sector of the Russian economy that witnessed such state-sponsored programs to encourage production.

Big foreign suppliers have already started producing telecom equipment in Russia. The Chinese company Huawei started a production line in Ufa, qualifying it as a Russian producer, according to the company’s spokeswoman Yulia Koldicheva. The company is engaged in the production of wireless communications equipment and 3G mobile networks.