The TMT sector in Russia is heavily regulated, and is to a very large extent driven by political and lobbying efforts. Such unpredictability also contributes to the sometimes-controversial evolution of the regulatory landscape.
Thus, on the one hand, the governmental authorities work on reforming the TMT sector in Russia and introducing a set of new principles that could have a significant impact on all sectors of the communications market (including by way of simplification of the licensing regime, efficient allocation of frequencies, development of communication infrastructure and universal access to telecommunications services).
On the other hand, taking into account the current political context in Russia, the recent trends in the TMT market in Russia are mainly focused around increasing legislative pressure on the market players, restricting foreign investment and strengthening state control over the operators, media companies as well as customers.
i The regulators
The main regulator in the TMT sector in Russia is the Ministry of Communication and Mass Media of the Russian Federation (Mincomsvyaz).
Broadly, the Mincomsvyaz is in charge of elaborating and implementing the state policy in the TMT sector. It also participates in the legislative process (namely, by submitting bills to the government), and adopts secondary legislation in the area, etc.
Furthermore, there are three state agencies that fall under the auspices of the Mincomsvyaz:
- a the Federal Service for Control over Communications, IT and Mass Media (Roscomnadzor) is the main licensing authority in the telecommunication sector and is in charge of mass media registrations. It also monitors the compliance of telecom operators with the established regulatory requirements;
- b the Federal Print and Mass Media Agency; and
- c the Federal Communications Agency, which is in charge of certification in the telecom area.
From a legal perspective, the TMT sector in Russia is strongly regulated. The main regulatory acts in the field of telecommunications are the following (this list is not exhaustive):
- a Federal Law No. 126-FZ ‘On communication’, dated 7 July 2003 (Communication Law) is the key legislation in the telecommunication sector.
- The Communication Law provides for quite detailed regulation in the area of communication networks and interconnection between them, licensing of telecommunication activities, allocation of frequencies, etc.
- b Federal Law No. 128-FZ ‘On licensing of particular types of activities’, dated 8 August 2001, provides a general legal framework for the licensing of various types of business activities in Russia, including the provision of telecommunication, TV and radio broadcasting services;
- c Federal Law No. 184-FZ ‘On technical regulation’, dated 27 December 2002, provides a general legal framework for the standardisation and certification of various equipment, including telecommunication equipment, being subject to specific regulation provided by secondary legislation;
- d Federal Law No. 144-FZ ‘Law On Investigative and Search Activities’, dated 12 August 1995, is the main legal act that governs the obligations imposed on network operators in the area of monitoring and interception of communications;
- e Federal Law No. 149-FZ ‘On Information, Information Technologies and Data Protection’ dated 27 July 2006;
- f Federal Law No. 152-FZ ‘On Personal Data’ dated 27 July 2006; and
- g other resolutions and orders of the government, acts of the Mincomsvyaz, etc.
The media sector, being traditionally subject to a separate area of regulation under Russia’s laws, is governed by the following main legal acts:
- a Law of the Russian Federation No. 2124-1 ‘On Mass Media’ dated 27 December 1991 (Mass Media Law) is the core legislation in the media sector.
- The Mass Media Law, inter alia, governs in detail the activities of mass media companies and organisations, mass media registration procedures, broadcasting licensing issues, limitations on foreign participation in mass media companies (for more detail, see Section II.iii, infra);
- b Federal Law No. 436-FZ ‘On Protection of Children from Information that may be Harmful to Their Health and Development’, dated 29 December
2010, introduces additional requirements and restrictions on mass media aimed at protecting children from any kind of destructive and inappropriate information; and
- c Federal Law No. 57-FZ dated 29 April 2008 ‘On the Procedure for making foreign investments in companies which are of strategic importance for ensuring the country’s defence and state security’ (Strategic Law).
- It is important that in terms of the Strategic Law certain types of TV and radio broadcasting activities are viewed as ‘strategic’ and, therefore, certain transactions involving the shares and assets of the companies involved in such types of activities are subject to control by state authorities and additional clearance requirements (for more detail, see Section II.iv, infra).
ii Regulated activities
As regards the telecommunication sector, further to the Communication Law, a licence is a necessary prerequisite for providing telecommunication services in Russia.
More specifically, Regulation of the Russian Government No. 87 dated 18 February 2005 sets out an exhaustive list of communication service licences that must be obtained by communication service providers wishing to conduct business in Russia. This list includes the following 20 types of communication services:
- a local phone services;
- b intercity and international phone services;
- c phone services in a dedicated network;
- d intrazone phone services;
- e local phone services via payphone unit;
- f local phone services via public access point;
- g telegraph services;
- h personal radio call services;
- i mobile radio communication services in a public communication network;
- j mobile radio communication services in a dedicated communication network;
- k mobile radiotelephone service;
- l mobile satellite services;
- m provision of communication channels;
- n data transfer (excluding voice data);
- o transfer of voice data;
- p telematics services (including internet services);
- q cable broadcasting services;
- r on-air broadcasting services;
- s wired broadcasting services; and
- t postal services.
In accordance with the current legislation, the licensing authority for the above-mentioned communication licences is the Roscomnadzor.
A communication service licence may be granted on the basis of an application or as a result of auction or tender proceedings. An auction or tender is held where:
- a the provision of a given communication service involves the use of radio frequencies and the competent state authority establishes that the required radio frequency allows for only a limited number of network operators to be active within the relevant territory; or
- b the public communication network on the territory has limited resources and Mincomsvyaz establishes that the number of network operators active within this territory should be limited.
Furthermore, additional authorisations are applicable to undertakings active in the media sector.
First, media broadcasting programmes or channels are subject to registration as ‘mass media’ carried out by the Roscomnadzor.
Secondly, a broadcasting licence is required to distribute (broadcast) mass media products in Russia. Such licence may be held either by the holder of the mass media registration itself, or by the licensed operator acting on the basis of the broadcasting agreement with the holder of the mass media registration provided that the mass media product is broadcast by the operator without any changes to the broadcast content.
There are two main types of broadcasting licences provided by the Mass Media Law:
- a a universal broadcasting licence (introduced in 2011) that may be obtained by broadcasters registered as an ‘editor’ of a TV channel or a radio channel. Licence holders are entitled to conduct different types of broadcasting in various environments (satellite, cable, on-air, etc.) on the whole territory of the Russian Federation; and
- b a licence that allows holders to broadcast in a particular broadcasting environment only.
Normally, broadcasting licences are issued for a term of 10 years (unless an applicant indicates a shorter term in the application form) with a possibility of renewal.
Should the provision of the services or broadcasting of mass media products also imply the use of the radio frequency spectrum, it is also necessary to obtain specific approval on the allocation of a frequency band (for more detail, see Section IV, infra).
iii Ownership and market access restrictions
Communication licences are only granted to Russian entities, and a foreign company cannot itself apply for a licence.
The main restrictions and limitations in the TMT area in Russia relate to foreign participation and investments.
In accordance with the Mass Media Law, foreign investors cannot hold more than 20 per cent in a mass media company (i.e., a company holding a mass media registration, or a broadcasting company).
This limitation, in force since 1 January 2016, has resulted in a number of reorganisations of media groups active on the Russian market. For instance, following the imposed restrictions Axel Springer sold its Russian assets to the Russian media group Artcom Media.
Furthermore, additional restrictions on foreign participation have been imposed in the area of audience measurement for the TV sector. Thus, in terms of the Mass Media Law, as amended in July 2016, foreign participation in the company being in charge of audience research and survey (to be appointed by the state authorities) is also limited to 20 per cent.
iv Transfers of control and assignments
As regards the transfer of licences, it is noteworthy that the Communication Law explicitly prohibits any full or partial transfer of a communication service licence to another legal entity or individual.
M&A transactions involving media and telecommunication companies are subject to general merger control requirements and thresholds set forth by the Russian antimonopoly (competition) legislation (namely, Federal Law No. 135-FZ ‘On Protection of Competition’ dated 26 July 2006). If the respective transaction is subject to merger control in Russia, an application must be filed by the acquirer to the Federal Antimonopoly Service (FAS). It normally takes from one to three months to receive an FAS clearance decision.
In addition, under the Strategic Law, certain TV and radio broadcasting companies are viewed as ‘strategic’. Therefore, transactions aimed at the acquisition by foreign investors (including Russian companies controlled by foreign investors) of control over such broadcasting companies or more than 25 per cent of their assets are subject to the prior approval of a governmental commission chaired by the Prime Minister (Commission).
The procedure for review of applications under the Strategic Law is rather cumbersome and time-consuming, as the Commission only holds sessions two to three times per year.
Furthermore, in terms of the Strategic Law, foreign investors are required to inform the Russian authorities on any acquisition of 5 per cent or more in strategic companies.
As regards the telecommunications sector, the Strategic Law applies to the operators (holders of communication licences) that are dominant (and included in a specific register held by the FAS) in certain Russian telecommunication markets (for instance, the all-Russian communication market; the fixed phone services market covering more than five Russian regions or all Russian federal cities).
III TELECOMMUNICATIONS AND INTERNET ACCESS
i Internet and internet protocol regulation
From the regulatory perspective, there is no specific regulation for internet services as such under Russia’s laws.
Communication services provided over the internet are normally subject to telecommunications licences, such as a telematics services licence or a data transfer services licence (excluding or including transfer of voice data), for provision of communication channels.
The government adopts further rules regarding the provision of specific services so that each licence holder must provide its services under the licence according to such rules. For instance, the government has adopted specific rules for data transfer services (contained in Regulation No. 32 dated 23 January 2006) and telematics services (contained in Regulation No. 575 dated 10 September 2007). However, these rules do not provide for very detailed regulation of internet services that would significantly distance them from the existing regulations for other types of communication services.
ii Universal service
The principle of universal access to communication services was incorporated in the Russian legislation (and, namely, in the Communication Law) in 2003. Encouraging universal access to communication services is one of the paramount priorities of the government’s policy in the TMT area, and is mainly aimed at ensuring access to communication services in rural area and hard-to-reach regions of Russia (which are quite numerous due to the vastness of the Russian territory).
Currently, in terms of the Communication Law, universal service includes the following types of telecommunication services: telephone services accessible via public payphones (coin stations), interactive kiosks, etc., and data transfer services and access to the internet via public access points.
Initially, the concept of universal service covered telephone services (via public payphones) only and was focused on residential areas with more than 500,000 inhabitants. However, following the 2014 reform, internet access services are now also included in the universal service, with the aim being to ensure internet access (at 10Mbit/s speed) in all residential areas with more than 250,000 inhabitants. One of the biggest Russian telecoms operators, JSC ‘Rostelecom’, is in charge of this project, which is currently ongoing and involves the construction of more than 200,000km of fibre optic lines. It is expected that the project should be completed by the end of 2018.
iii Restrictions on the provision of service
Under the general rule set forth by the Communication Law, operators are free to determine the prices for their telecommunication services.
That said, prices for certain types of telecommunication services are subject to state regulation, such as:
- a under Federal Law No. 147 ‘On natural monopolies’ dated 17 August 1995 as well as Government Order No. 637 dated 24 October 2005 ‘On rate regulations in public telecommunication and mail services’, the rates for public telecommunication and mail services are subject to state regulation;
- b universal communication services are subject to state regulation on the basis of Government Order No. 242 dated 21 April 2005; and
- c following Article 20 of the Communication Law as well as Government Order No. 627 dated 19 October 2005, prices for accession services and traffic transit services rendered by operators occupying an important position in the public communication network are also subject to state regulation.
As regards customer terms and conditions, it is noteworthy that general terms and conditions for certain types of services are set forth by the government and should be complied with by service providers. For instance, the following governmental acts provide for such general terms and conditions: Government Resolution No. 575 dated 10 September 2007 sets forth general terms and conditions for providing telematics services, including mandatory provisions to be incorporated into the customer agreements; and Government Resolution No. 32 dated 23 January 2006 relates, inter alia, to data transfer services.
Restrictions on the content accessed by customers (network users) are mainly based on security considerations (see below).
Overall, the right to privacy of correspondence, and telephone and other messages and communications is based on Article 23(2) of the Russian Constitution, further to which the limitation of this right is admissible only based on a court decision, or if expressly provided for in federal laws.
To this end, the principles regarding data privacy restrictions are stipulated in the Communication Law, Federal Law No. 144-FZ ‘On Investigative and Search Activities’, the Code of Criminal Procedure, other statutes containing the necessary prerequisites, and numerous government and administrative regulations that deal with the technical aspects of lawful interception monitoring (LIM).
In terms of these regulations, network operators must cooperate with the law enforcement agencies and ensure their access to data transferred via the network. It is important to note that the current LIM regulations, known as the ‘system of investigative and search operations’ (SORM), allow the Russian law enforcement agencies access to almost all types of information transmitted via a communication network. Thus, SORM covers ‘wire-tapping’ on telephone lines, including mobile communications, internet traffic, as well as the collection, long-term storage, analysis and processing of customers’ and statistical data. From a technical perspective, the LIM standards imply a passive role of the operator, who is not supposed to know which customers are being controlled at any given time.
In addition, Federal Law No. 149-FZ ‘On Information, Information Technologies and Data Protection’ dated 27 July 2006 (the Information Law) provides for specific rules and restrictions aimed to minimise anonymity on the internet.
Thus, in terms of the Information Law Roscomnadzor enjoys considerable powers in the area of bloggers’ activities: it monitors bloggers’ activities on the internet, runs a register of bloggers and requests data enabling their identification from hosting providers.
The Information Law introduced a broad definition of ‘organisers of dissemination of information over the internet’ (organisers) that covers all persons responsible for the functioning of information systems and software designed and used for the receipt, transmission, delivery and processing of electronic messages via the internet. Persons falling under the category of organisers are required to comply with significant regulatory obligations. The main obligation imposed on such organisers is the requirement to store users’ data (as regards receipt, transmission, delivery and processing of voice data, texts, pictures, sound information or other electronic messages, as well as information on the users) in Russia within one year as from the termination of such actions, and provide such data to the law enforcement and public security bodies, if necessary. Furthermore, since 1 July 2018 the organisers will have to store the actual content of the text messages, voice data, pictures, videos, sound information and other electronic messages within six months as from the processing of their data.
In addition, it is noteworthy that in July 2016 a package of bills has been adopted that increases the liability for crimes of a terrorist or extremist nature. In particular, amendments have been made to the anti-terrorist law and legislation governing the telecommunications industry, including the Communication Law and the Information Law. As a result of these amendments, telecom operators will have to store the metadata on the receipt and transmission of calls, text messages, photos, sounds and videos for three years in Russia. From 1 July 2018 the actual content of the conversations or messages will have to be kept for six months.
In addition, the operators are required to provide, at the request of the law-enforcement agencies, the information they have on their users and the telecom services supplied to them. When using message encryption and encoding, the owners of internet resources will be required to provide the Federal Security Service with the keys for decoding them.
Also, it is important to note that in terms of Federal Law No. 152-FZ ‘On Personal Data’ dated 27 July 2006, when collecting personal data (including via the internet), an operator of personal data will be required to ensure that the recording, systematisation, accumulation, storage, clarification (updating, modification) and retrieval of Russian citizens’ personal data is conducted in databases located within Russia.
There is also specific regulation aimed at the protection of children from destructive and inappropriate information provided by Federal Law No. 436-FZ ‘On Protection of Children from Information that may be Harmful to Their Health and Development’ dated 29 December 2010. This Law introduces additional requirements and restriction on mass media (for instance, to classify mass media products and place specific marks on them carrying information on any potential child-restricted content, etc.) and applies to any telecommunication network.
IV SPECTRUM POLICY
The allocation of frequency bands and frequencies in Russia is based on the following principles:
- a the use of specific frequency spectrum is granted by licence;
- b there is a gradual move towards bringing Russian regulations on frequency allocation into line with international regulations on frequency allocation;
- c the state shall have priority in terms of frequency allocation;
- d the use of the frequency spectrum shall be provided on a commercial basis (i.e., for a fee); and
- e frequency bands, frequencies and radio frequency channels may only be allocated for a fixed period of time.
The Communication Law establishes that electromagnetic spectrum shall be allocated by the State Commission for Radiofrequencies (Frequency Commission), subject to the approval of the government.
The frequency allocation table adopted by the government further specifies which frequencies are intended for fixed satellite service (FSS), broadcasting satellite service (BSS) and mobile satellite services (MSS); and which frequencies shall be used for government purposes or civil purposes, or which are intended for shared use.
Radio frequency bands are assigned for 10 years or for a shorter term. At the request of the user of the radio frequency spectrum, this term may be extended or reduced.
Under the general rule, the following permissions must be obtained to use frequency bands in Russia: an individual decision of the Frequency Commission regarding the allocation of a frequency band; a telecommunication service licence (or licences, as the case may be); and a permit from Roscomnadzor to use specific frequencies within the allocated frequency band.
The regulatory landscape in this area has not changed much during the past few years. However, there have been some simplifications made in respect to allocation of certain frequency bands (see below).
ii Flexible spectrum use
Although Russian laws and regulations in this area are rather strict and do not provide for much flexibility, the frequency allocation procedure has been simplified in certain ways.
For instance, very small aperture terminal stations operating in the Ka-band and Ku-band do not require individual decisions of the Frequency Commission provided that certain technical requirements and limitations are met (Decrees of the Frequency Commission No. 10-06-01-3 dated 19 February 2010 and No. 10-06-01-2 dated 19 February 2014).
However, despite the above, this area is quite heavily regulated and does not provide much room for manoeuvre.
iii Broadband and next-generation mobile spectrum use
General rules apply to the allocation of spectrum for next-generation mobile services, and all necessary authorisations for such services are normally granted via tenders.
For instance, while deploying 4G infrastructure in Russia, several major mobile communication network operators and state-owned telecommunication companies have expressed strong interest in building their own 4G networks, which resulted in a strong conflict of interests in the Russian telecom market that involved communication authorities at all levels, the FAS and top state officials.
As a result, four Russian telecommunication operators have been granted authorisations for 4G services in Russia, and are in charge of the construction and development of the required infrastructure.
5G services in Russia are at the very beginning of their development. Thus, the Mincomsvyaz as well as major Russian communication operators are initiating research on the perspective of development of the 5G infrastructure. Although some of the communication operators aim at deploying 5G services by the 2018 FIFA World Cup, to be held in Russia, the business community does not expect that the 5G infrastructure will be in place before 2020.
iv Spectrum auctions and fees
Tenders are held when the required radio frequency allows for only a limited number of network operators to be active within the relevant territory.
The Russian legislative acts on communication also establish that users of frequency spectrum shall pay both a one-off fee and an annual fee for the use of frequencies. The level of the fees and the payment procedures are established by the government.
i Restrictions on the provision of service
Content restrictions imposed on the mass media are mainly driven by moral and security reasons. For instance, the following content is prohibited:
- a the calling for and promotion of violence, terrorism, any extremist activities and any type of criminal offences;
- b influencing the unconscious mind;
- c disclosing information and secrets protected by law; and
- d the promotion of narcotics, psychiatric substances and drug precursors, etc.
ii Internet-delivered video content
IPTV is a relatively new product on the Russian market that, for the time being, cannot be viewed as a proper substitute to broadcast video distribution.
There is no specific regulation in this area under Russian law and the applicable regulations.
VI THE YEAR IN REVIEW
The main trend and key legislation and policy developments in the TMT sector in Russia relate to further limitations of foreign investment in the industry and the amplification of state control in the communication sector: namely the 20 per cent limitation not only on foreign ownership in Russian media companies but also in the TV audience measurement area, as well as requirements regarding storage of metadata and the actual content of conversations, messages, texts, etc.
VII CONCLUSIONS AND OUTLOOK
The development of the TMT sector in Russia is to a very large extent driven by the political context and mostly aimed at strengthening state control over the communication sector. Therefore, a level of unpredictability and controversy surrounds developments and trends in the industry.
1 Maxim Boulba is a partner and Elena Andrianova is a senior associate at CMS.