Upgrades Drive Phone Rate Increase

Monthly residential telephone charges in Moscow go up by two-thirds Tuesday as the city's phone operator seeks additional revenue to modernize aging equipment.


The standard residential service fee will rise from 12,000 rubles to 20,000 rubles -- still in the middle ranks of Russian cities and far below a typical charge elsewhere in the world of $15 a month, analysts say. The increase, approved by the city government, is the first since August 1995, and the first of two expected this year.


For their money, Moscow's phone customers must contend with notoriously crackly lines and erratic connections over outdated infrastructure, some of which dates back to the 1940s. A spokeswoman for Moscow City Telephone Systems, or MGTS, said the rate increase was part of an investment program launched last year to upgrade 35 switching stations and improve lines throughout the capital.


The spokeswoman could not say when the modernization would be completed, but said service to some customers already has improved.


MGTS also is planning to introduce metered calling charges next year, once the proper equipment is fully installed and tested. The system would end the practice of free local calls.


Analysts say higher charges for individuals -- a trend common across Russia -- are necessary for phone companies to improve their infrastructure. With some 3 million residential customers in the capital, MGTS could expect a revenue boost of more than $4 million from this rate hike.


"Of course it's not pleasant, but it's inevitable," said Konstantin Chernyshev, senior analyst at Rinaco-Plus brokerage in Moscow. "Companies have to raise tariffs, otherwise they will lose revenues and other investment opportunities."


Individuals make up about 80 percent of MGTS' customer base, but only 30 percent of its revenues, Chernyshev said. The aim is to narrow the gap between individual rates and business rates, he said.


Business customers will see a modest reduction in their monthly charge starting April 1, from 121,000 rubles a month to 110,100 rubles. The charge for state organizations -- among the most notorious nonpayers, since installations such as military bases often cannot be disconnected regardless of their debts -- will rise from 21,000 rubles to 55,000 rubles per month.


The line installation fee for individuals will rise from 700,000 rubles to 1 million rubles.


The gradual realignment of telephone tariffs is parallel to what analysts said is needed in other sectors of the economy. For example, the new government is expected to push for lower electricity rates for business customers while charges for residential users, now heavily subsidized, would rise sharply.