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Articles & publications
30.04.2010
"I spent my bonus on buying Rostelecom shares", - interview with general director of Rostelecom Anton KolpakovRBC Daily
This summer the restructuring of Svyazinvest’s subsidiaries is set to begin, i.e. one of the largest transactions on the market in recent years. The state expects the new merged Rostelecom to become the national telecommunications leader, as is the case of France Telecom in France and Deutsche Telecom in Germany. The general director of Rostelecom Anton Kolpakov talks in an interview with RBC Daily Elizaveta Sergina about his view of this milestone event.
Grooming a champion
— At the beginning of April Vice Prime Minister Sergey Ivanov announced that it is still too early to term Rostelecom a “national champion” in the field of telecommunications. In addition, he spoke critically of the concept whereby this formula is set out. Perhaps Rostelecom’s strategy could be changed?
— Needless to say, at present Rostelecom is not prepared to contend for the status of a champion, but it could become one at a later time. I think that the merged company has great potential for development. This regards not only our traditional services or cellular telephony services which, without a doubt, are a priority for our development, but also the entire range of telecommunications services.
I would say that there is no point in talking about changes in the company’s overall approach and strategy. Various scenarios of our expansion may have an influence, but our core concept remains unchanged: the operator should be universal, possess the full range of technological and capabilities within the entire territory of Russia. Champions are not born, but rather achieve this status thanks to concerted and focused efforts. In order to become a champion, it is necessary to set out “champion challenges” and go through the “Olympic reserve school”, which means that we are an “Olympic reserve”.
— Nearly a year has gone by since you were appointed to head up the operator. What goals have the company’s shareholders set for you?
— First and foremost, the goal which has been set out before me is to prepare the company for reorganization. On the other hand, it would be more appropriate to sit and wait to see what shape the reorganization will take, given that my job duties include achieving business diversification by focusing on value-added services. Another key tasks is to work out good partnership relations with regional telecom operators, which means that we should not all go our separate ways, but, on the contrary, try our best to team up on joint projects.
— Do you think it is necessary to maintain the Rostelecom brand after the merger has been executed?
— In my opinion, the company’s name is fully in line with the overall European trend, since in British Telecom is the name of the giant which operates in the United Kingdom, which Deutsche Telekom does business in Germany. On the other hand, I would not rule out the establishment of an umbrella brand under which various types of services are branded, including Internet access and mobile telecommunications.
— The shareholders of Rostelecom include two large state banks. Do you think that they will have an influence on the company’s operating activity?
— At present, we do not feel this influence. But on May 29 at the initiative of the Deposit Insurance Agency and VEB a shareholders meeting is to be held at which the issue will be decided concerning the election of a new lineup of the board of directors, including the appointees of these lending institutions. At this point, their influence could become much more tangible.
— As part of the asset swap between AFK Sistema and the state, Rostelecom should acquire the equity stake which AFK holds in Svyazinvest. When do you think this could happen?
— This issue should be resolved by the competent authorities. Overall, the merger issue will be discussed at the annual general shareholders meeting of Rostelecom which is to be held this summer. However, needless to say, this will happen only if the regulatory authority gives its stamp of approval.
— This year, Svyazinvest entered into a partnership agreement with Rostekhnologii. How do you think this could affect Rostelecom?
— This collaboration could be multi-faceted. For example Rostekhnologhii has partnership relations with a number of large vendors, which could be useful to Rostelecom. On the other hand, Rostelecom could provide comprehensive telecommunications solutions to companies which are part of the Rostekhnologii group.
Cellular standard
— Is the frequency range allocated to Rostelecom sufficient to roll out a full-fledged LTE network? Perhaps for further development frequencies in a lower range would still be required?
— The frequency resources which Rostelecom has already received will be sufficient to build a full-fledged network. However, it’s another matter how much investments would be needed in addition to the existing resources, since the higher the frequency range the higher the density of base stations, which means that the scope of capital expenses goes up. On the other hand, we are glad to have received licenses for the higher range, since it gives us a higher speed needed for datacom. Indeed, the 4G standard aims to fully supplement fixed networks in terms of transmission speed and also fully replace cellular networks of previous generations in terms of mobility.
— If tenders are announced for the provision of low-range services in the same regions do you intend to participate?
— Everything will depend on the terms of the tenders and the timeframe involved. We’ll decide this issue once details about the tenders are made public.
— The licenses which have been issued to Rostelecom to provide wireless network services require the network to be rolled out using domestic equipment. You have already announced that you won’t be able to roll out the WiMax standard, but that you’ll be focusing on LTE. However, at the present time there are no manufacturers which produce LTE networks. What’s more, the status of Russian manufacturers has yet to be defined. How will Rostelecom work out this problem? Would it be possible to set up a joint venture with some western vendors?
— Rostelecom is a telecommunications company and we have no plans to manufacture equipment. The only thing I can say is that we will try to encourage manufacturers to develop domestic products.
At present, Rostelecom is conducting negotiations with a number of vendors on how events could unfold going forward. The Telecommunications Ministry will also take an active role in this process, as the regulatory authority will act as the connecting link to determine whether or not a manufacturer can be assigned the status of domestic or not. In my opinion, it is not possible for a manufacturer to be classified as domestic if it provides ready-made technological solutions to Russia, and in Russia, if it is involved only in marking and packing. Evidently, actual production should take place in Russia.
— Would it be correct to say that you’re trying to attract partners to set up production facilities in Russia?
— I would say so. We make our potential partners aware of Rostelecom’s requirements, and they analyze the scale of production that would need to be launched. To date we have made no specific agreements on LTE equipment with any players, but I would not rule out that Rostelecom could team up with several partners in this sense to roll out its network.
— How do expect Rostelecom to develop on the Moscow market? Right now your main niche here is services associated with DLD and ILD traffic.
— The Moscow market is an important one for us and we intend to devote serious attention to bolstering our positions on it. This will be a separate project in line with the implementation of the holding’s restructuring strategy.
As regards the Moscow frequency range for the provision of cellular telephony services, Rostelecom is ready and willing to participate in all tenders which could enable the company to gain a presence on this market.
— How do you plan to get started?
— So far there are a number of different scenarios, although Svyazinvest is mainly in charge of working out this project. Rostelecom will most likely play a role as the connecting link. The main goal is to enter this market with a universal package of services. For this purpose, the assets of CenterTelecom or Central Telegraph could be used.
Network rollout
— Speaking of the future outlook, what was the level of Rostelcom’s capital expenses in 2009 and what will it be like going forward?
— Our capex amounted to about RUR 8 bln in 2009 and this year we expect to invest about RUR 12 bln in development. More than 9 out of 12 bln will be used to roll out Rostelecom’s backbone network (new facilities), and part of this amount could be allocated to enlarge and expand the existing infrastructure.
An upgrade was required even disregarding plans to reorganize the holding. At a certain point Rostelecom’s networks began to lag behind in their development, and this was a real problem which we have been gradually tackling.
— What is your revenue target in 2010?
— In 2009 this metric stood at RUR 60 bln. In 2010 we expect revenue to be nearly as much or perhaps a little less. Our revenue breakdown has been undergoing quite a few serious changes. We have see a decrease in volumes of DLD/ILD traffic as well as smaller revenue from this segment.
On the other hand, we have see some positive trends in value-added services: backbone Internet has been generating increasingly large cash flows, first and foremost those from leasing Internet channels which we offer our partners both in Russia and abroad, and also the construction of virtual private networks. In other words, it would be safe to say that these services are gradually becoming drivers for new growth.
— One of the largest projects which Rostelecom is in charge of is the “Electronic Government”. The implementation of this program has been surrounded with numerous discussions and a lot of criticism.
— Yes, there have been quite a lot of discussions about this program. But Rostelecom has always fulfilled and continues to fulfill its obligations. Needless to say, there are bound to be some glitches in some of the various units given the sheer size of this new and extremely complicated project. For this reason, anybody that accepted to take up this project was simply doomed to criticism.
— What is the current status of the implementation of the program?
— Everything is moving ahead in line with the schedule prescribed by the government. At the end of last year the portal for state services was launched. Right from the start it has played the role of a general online information resource. But at the beginning of April the Personal Desk service became operational. As a result, it is now possible to perform actions on this portal more in an interactive than a personal way.
An interactive system between government agencies is in the process of being worked out and a growing number of agencies is getting involved in the project. The Personal Desk service has been launched, for example, in close contact with the Pension Fund of Russia, since a user authorization system has been built to check not only TIN numbers, but also certified pension numbers.
The portal itself is constantly being upgraded and as soon as we find bugs we fix them.
This year the portal will also become available to those which have no direct access to the Internet. All across Russia a program is underway to install special IT terminals which can be used not only to receive information but also to pay for the various state services.
— What amount of funds are to be spent on M&A this year? And what companies is Rostelecom interested in taking over?
— Rostelecom will not disclose the specific numbers and names of companies. All I can say is that we’re interested in federal level networks and companies that possess unique infrastructure or can offer unique solutions.
— The board of directors of Rostelecom recently approved a transaction to acquire a stake in the NVision group of companies. What functions will this company perform as part of Rostelecom’s overall strategy?
— Yes, it’s true that this transaction has been approved. NVision is to be assigned the functions of creating and developing new products and services. In my opinion, the company has all the know-how and experience required to meet this challenge. That said, it would not be correct to expect full business integration in this case. That company will have Rostelecom as a strategic client, while we will have NVision as a strategic contractor. Both companies should interact on market principles and be self-sufficient, for example, the same way that T-Service, a subsidiary of Deutsche Telekom is self-sufficient, as the former earns only 30% of the revenue on services provided to the parent company.
CEO investor
— Some time ago there were rumors about Rostelecom’s intention to invest in Internet projects, including the formation of a national search engine and also the purchase of social networks. How interesting is this niche to you?
— We had no such designs until the negotiations for similar projects got under way. However, we make no secret of the fact that our goal is to diversify business. And in this case, it seems to us that the development of the content segment, including Internet projects, search engines, and entertainment portals are one way to achieve such diversification. Among the new services which are also of interest to us are IPTV. This is a separate area of business which we have already begun to develop.
— Not too long ago you became a shareholder of Rostelecom, and you also held an equity stake in Far East Telecom. Why did you acquire holdings in these companies and do you intend to purchase shares in some other Svyazinvest subsidiaries?
— I’m not longer a shareholder of Far East Telecom. Originally I bought into this company for the sole purpose of showing that as the general director of this company I was taking upon myself additional responsibility for the results of its activities. This year I I have bought a small number of Rostelecom’s preferred shares (Anton Kolpakov holds 0.0026% of this company’s preferred shares – RBC Daily) for the same purpose. So far I have no plans to raise my equity stake in the company.
Furthermore, in order to prevent any possibility of using insider information I have complied with all the necessary restrictions. For example, I have acquired shares only at specially designated times, giving preliminary notice to the company of my intention to buy shares.
— Is there any limit for the managers of Svyazinvest when it comes to buying shares?
— Technically speaking, there is no such limit. But as a matter of fact, I could spend all of my earnings of buying up the company’s shares. And to tell you the truth, I spent all of my bonuses on buying into these shares.
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