chapter  7
19 Pages

Acquiring the customer: the telecom industry

Worldwide telecoms and Russian telecommunications In its beginnings, the telecommunications sector was run as a monopoly. There are several reasons for this. First, it is a natural monopoly: the installation of a telecom network involves fixed costs, and the installation of two networks costs twice as much, more or less. Second, there is the ‘cream-skimming effect’. During the opening of the market to competition, competitors will head into the segments where greater profit beckons (urban telecoms is more profitable than rural telephony). To keep non-urban areas supplied, a subsidy is required. A monopoly is best at cross-subsidising to create an equitable system. Third, there is strategy. Telecommunications carry important security and national strategic connotations. Government monopolies were therefore often entrusted with the initial roll-out of telecom services.