Telecom operators may raise tariffs due to network upgrades

The largest telecom operators believe that the modernization of networks to ensure their stable operation requires an increase in tariffs annually by 5% above inflation. The FAS recommendation is now in force to limit the increase in prices for communication by the level of inflation. Investments of companies in the network are declining against the backdrop of high debt load and social burden, the degradation of the quality of services has already begun, the government admits. However, the authorities are ready to meet business halfway only on the condition of a gradual increase in prices, maintaining a differentiated approach in setting tariffs for different groups of the population, as well as guarantees of investments in the development and modernization of networks.

According to Kommersant sources close to the government, during a discussion of the development of the communications industry until 2035 at a session held on June 20 by Prime Minister Mikhail Mishustin, operators said that upgrading networks to ensure their stable operation would require an increase in tariffs annually at a level exceeding inflation by 5%. Formally, communication tariffs in the Russian Federation are not regulated. But in April 2022, the FAS, with the participation of the Ministry of Digital Development, developed recommendations for operators to raise prices by no more than inflation accumulated since the beginning of the year, notifying the service two weeks in advance (see Kommersant dated April 28, 2022).

Officials monitored the implementation of the recommendations. So, in October, the FAS ordered MTS to reduce tariffs. In December, the service began checking the validity of the increase in tariffs for Tele2 and MegaFon, which had already been ordered to reduce prices to an “economically justified level”. At the end of December 2022, the FAS established that MegaFon illegally increased prices for communication services in May by an average of 12% for more than 16.5 million subscribers. According to the FAS, MTS increased rates for 28 million subscribers by more than 20% in 2022. According to TelecomDaily estimates, in the first half of 2022, communication services in Russia rose by an average of 10%. Inflation for the year amounted to 11.94%.

In the office of Deputy Prime Minister Dmitry Chernyshenko, Kommersant specified that the initiative to increase tariffs was put forward by a working group on fixed communications. The Ministry of Digital Transformation reported to Kommersant that they had read the forecast of operators on the growth of tariffs for communication services by 5% per year to the level of inflation: significant social obligations.

But, they emphasized in the Ministry of Digital Development, indexation is possible only if a number of conditions are met. “Firstly, it is necessary to ensure a differentiated approach that guarantees the economic accessibility of modern communication services for all groups of the population, including the mandatory continuation of the free accessible Internet program. Secondly, growth should be smooth and gradual. And thirdly, it is necessary to agree on a mechanism that guarantees the fulfillment of obligations on investments in updating the communications infrastructure,” the Ministry of Digital Development said. Kommersant’s interlocutor, who is familiar with the industry’s proposal, adds that the ministry may require the signing of binding investment agreements. Mikhail Mishustin’s office declined to comment. The FAS did not answer “Kommersant”.

Last year, the government abandoned additional measures to support operators in the form of a preferential income tax rate, a moratorium on contributions to the universal service reserve and soft loans for the purchase of equipment (see Kommersant of June 6). In the industry development strategy until 2035, it was noted that the Russian Federation is lagging behind in the world ratings in terms of the speed of fixed networks, the income of providers is stagnating, and “the lack of investment attractiveness of the industry, combined with high capital intensity, creates threats of degradation of the telecom infrastructure” (see “Kommersant” from May, 23rd).

MegaFon said that even if this initiative is adopted, “none of the operators will be able to raise tariffs higher than justified by current costs,” since competition in the market is high. The company noted that the final price of communication depends on the level of the operator’s expenses for the provision of services: “We maintain tariffs at the maximum affordable level for subscribers who are looking for the best deals themselves.” VimpelCom (Beeline brand), MTS and Tele2 declined to comment.

The government can fix 5% of the annual tariff growth to inflation, but after the market recovers, cancel this decision, says Alexei Slukin, editor of the Telekommunalka Telegram channel. In his opinion, the operators will be interested in the initiative being adopted: “In this case, among the companies, those who have additional offers that will be able to attract customers, taking into account increased tariffs, will win.”

According to Rosstat, in May 2023, annual inflation in Russia accelerated to 2.51% from 2.31% at the end of April. Prices for mobile and broadband services, taking into account the fixed level of growth against inflation in 2023, may increase by 12–15%, and up to 20% in 2024, TelecomDaily CEO Denis Kuskov predicts: “Now operators are reducing infrastructure costs in order to save profitability”.

Julia Silence, Vadim Krasnikov, Nikita Korolev