Rostelecom proposes to collect funds for Yarovaya law from Google

Rostelecom proposes to collect funds for Yarovaya law from Google
Mikhail Oseevsky Photo: RBC

Rostelecom proposed to abolish the principle of network neutrality so that Russian operators could shift part of the expenditures on the execution of the Yarovaya law to Internet companies. This will adversely affect the industry, analysts say.

Rostelecom's President Mikhail Oseevsky, speaking at the St. Petersburg International Economic Forum (SPIEF-2018), proposed to abolish the principle of network neutrality, according to which access to all resources on the Internet is available without any limitations if they contain legal content.

The Head of one of the largest Russian telecom companies justified his proposal by the fact that Russian communications providers invest in the development of telecommunications infrastructure, while large foreign companies such as Google and its subsidiary YouTube, Facebook, etc. – do not; however they receive substantial income thanks to Russian users. "This situation seems abnormal to me. I would suggest opening a discussion on the ways, primarily economic, with the help of which we need to deal with the situation," Oseevsky said.

In particular, according to the Head of Rostelecom, the leader of the Russian market of broadband Internet and co-owner of cellular network Tele2, operators should be able to adjust traffic depending on its priority and in accordance with the interests of the state and society, transferring the traffic of those companies that paid for it faster. "This problem is even more challenging given the requirements of the Yarovaya law, because a significant amount of traffic we will have to store, is accounted for by videos that users will download," - said Oseevsky.

A Google spokesperson declined to comment on the topic. Facebook did not respond to RBC's request.

According to the requirements of the Yarovaya law, operators must keep records of conversations and SMS-correspondence of subscribers for six months since July 1 of this year, and since October 1, providers and Internet companies must store all user traffic for the last 30 days.

Earlier, a source of RBC, close to one of the operators, told that the idea of canceling the requirements of the Yarovaya law for Internet companies was being discussed. "The main traffic falls on large foreign companies, which are unlikely to comply with the provisions of the law. Communications providers can store information instead of them, but Internet companies will have to pay for this service," the source said, specifying that in this case, it is necessary to abandon the principle of network neutrality in order to be able to influence foreign Internet companies.

Unwanted inequality

Alexander Popovsky, Executive Vice President for Strategy and Business Development of VimpelCom (Beeline’s brand), agrees that the Yarovaya package has aggravated the problem of network neutrality. "Now operators not only invest their incomes in the development of networks for the transfer of traffic of Internet players (mostly foreign ones) but also in the storage of this traffic," he said. According to Popovsky, many countries are reviewing the principle of network neutrality to boost the investment attractiveness of telecom firms necessary to accelerate the development of 5th-generation networks (5G).

MTS refused to comment, MegaFon left RBC's request unanswered.

MTS previously estimated the costs of executing the Yarovaya law at 60 billion rubles ($963.5m) in the next five years, VimpelCom – at 45 billion rubles ($722.9). MegaFon stated that this year alone the expenditures on the implementation of the law provisions would amount to 8 billion rubles ($128.5m).

Currently, the principle of network neutrality is not enshrined in the Russian industry-specific legislation, recalled the chief analyst of the Russian Association of Electronic Communications, Karen Kazaryan. "But there is an opinion of the working group under the Federal Antimonopoly Service based on an analysis of the rules for the provision of telecommunications services and other regulations that paid traffic prioritization is impossible," he said.

In January, members of the Media Communication Union (MKS, includes representatives of the largest telecom operators and media holdings) discussed the possibility of abolishing network neutrality as part of the preparation of the Information and Communication Code - a document (possibly in the status of a federal law) that is to replace the existing legislation in the field of communications, IT and media. As the MKS Head, Pavel Stepanov, told RBC on the sidelines of the SPIEF, "there is no consolidated position on approaches to network neutrality, the issue is being discussed." He informed that now the concept of medium-term regulation of the media communication industry is being developed. "According to our idea, the development of a concept agreed upon between business and the state is of key importance. Formation of the text of the law or the code on its basis is already a technical task," the Head of the MKS said.

Unregulated Flow

If the initiative to abolish network neutrality is approved, it may alert the Federal Antimonopoly Service, since under certain conditions traffic prioritization can have signs of discrimination, says a senior lawyer with Bryan Cave Leighton Paisner (Russia) LLP, Alexander Muravin.

"It is right to encourage domestic players, but apart from network priorities, there are other measures, such as tax preferences," says General Director of TMT Consulting Konstantin Ankilov. According to him, this idea is rational only if all providers are required to limit the speed of access to certain resources. If some operators slow down access to YouTube, while others do not, then users will simply use the provider that does not cut down the speed of access to their preferred sites. "Of course, it is unjust that telecom companies will bear the costs of the Yarovaya law, but it is even worse to strong-arm Internet companies. This may simply make them shut down their business in Russia," Kazaryan asserts.

Google and Facebook do not unveil how their revenues are distributed among countries. According to SPARK, the income of Google's Russian division, Google LLC, amounted to 29.9 billion rubles ($481.3m) in 2016 (the latest available data). Since 2017, Google and other foreign companies that sell digital content in Russia are required to pay VAT. According to the Federal Tax Service, for a year of "Google tax" being in place the Russian budget received about 7 billion rubles ($112.6m). However, some foreign companies, such as Apple, have included VAT in the cost of services for users.

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