The Board of Executives of the Federal Tariffs Service (FTS) reviewed an application by North West Telecom on August 31, 2004 to amend the operator’s local tariffs at all of its branches.  By decision of FTS, the company’s new tariffs will take effect on October 1, 2004.

Under the proposal by NWT, while retaining its current ILD tariffs for households and businesses (at all branches except for Elektrosvyaz, Republic of Karelia) and introducing new tariffs on October 1, 2004, the overall average y-o-y increase in tariffs is expected to be 13%.

In line with the decision adopted by FTS, the average-weighted tariff hike in local household tariffs will be 30% and 29% for businesses.

Including the change in current tariffs (at Elektrosvyaz, Republicof Karelia) the average-weighed increase in LD traffic and tariffs introduced as of October 1, 2004stood at 10% on the whole for local traffic and LD traffic.

NWT’s application and the decision of FTS are based on the statutory requirements of Resolution # 715 of the RF government dated October 11, 2001in accordance with which the grounds for tariff revision include:

• bringing tariffs in line with economically feasible expenses in view of compensation for inflationary expenses;

• the need to cover investment expenses by modernizing the development of telecom equipment and the development of line and cable facilities;

• the reduction of cross subsidization between tariffs for the provision of local telephone connection to businesses and households.

Revenues derived by NWT from the tariff increase will be allocated to network upgrade, which will allow the company to solve its telephony problems in the region, help cut the waiting list for phone installation, as well as expand the range and enhance the quality of services provided.

In 2003, as in previous years, local telephone services proved to be a loss-making activity for NWT.  Expenses to provide this service were offset from other services, including non-regulated and non-social services (Internet, data transmission, etc.). However, as a result of this practice, NWT does not earn enough profit to develop and upgrade its network, which, in turn, does not allow the operator to cut the current waiting list, raise the quality of services or cut the expenses to provide them. 

Despite the fact that providing household telecom services is economically unviable, NWT is actively engaged in operations aimed at rolling out and upgrading its local telephone network.  In 2004 there are plans to spend 31% more funds for these purposes than in 2003. Meanwhile, the tariff hike will not do much to the amount of telecom expenses in annual family budgets (from 3.2 to 3.3%), while business expenses are projected to go up even less, since telecom outlays account for less than 1% of overall company expenditures.

The average-weighted annual change in average local telephone rates is 1.21, which is lower than growth in pro-capita revenue, which stands at 22.2% y-o-y in 1H 2004.  NWT’s overall average-weighted tariff revision index for local and LD traffic is 1.10, which is only 50% of the CPI during the period which elapsed from the previous rate hike (August 1, 2003).

In addition, the new tariffs are designed to ensure the financial stability of the company’s operations and allow it to enter 317,000 lines into service, of which 77,000 will be part of an effort to eliminate the waiting list for special discount subscribers.  As of January 1, 2004the waiting list stood at 211,000.

Provision of local telephone connection (subscriber fee) per household*, Rub/ month, VAT-inclusive:

Naryan-Mar as part of Artelecom, Arkhangelskregion – 180

Artelecom of Arkhangelsk region – 180

Murmanskelektrosvyaz – 180

Elektrosvyaz of the Republicof Karelia– 160

Novgorodtelecom – 160

Elektrosvyaz of the Kaliningradregion – 160

Elektrosvyaz of the Vologdaregion – 160

PetersburgTelephone Network – 170 

* The above figures show the fees charged for providing local telephone connection (monthly subscriber fee) for personal use of a fixed line. Separate rates are effective for time-based billing, party lines or parallel lines.

Provision of local telephone connection (subscriber fee) per business organization*, Rub/ month, VAT-exclusive:

Naryan-Mar as part of Artelecom, Arkhangelskregion – 390

Artelecom of Arkhangelsk region – 230

Murmanskelektrosvyaz – 230

Elektrosvyaz of the Republicof Karelia– 230

Novgorodtelecom – 200

Elektrosvyaz of the Kaliningradregion – 200

Elektrosvyaz of the Vologdaregion – 200

PetersburgTelephoneNetwork– 250

* The above figures show the fees charged for providing local telephone connection (monthly subscriber fee) for use of a fixed line. Separate rates are effective for time-based billing, party lines, parallel lines, collective lines, and mini-telephone exchanges with access to public networks.

Provision of LD telephone connection:

Local rates for households and businesses reflect NWT’s proposal for its branch Elektrosvyaz of the Republicof Kareliaas the maximum with the operator holding the right to independently lower tariffs depending on days of the week, hours of the day or volume of services provided.