By IPS Correspondents
MOSCOW, Feb 16 2000 (IPS)

The Internet industry continues to flourish in Russia as more and more businesses, web designers and service providers recognise cyberspace as being potentially lucrative.

Since the Internet boom hit the country five years ago, the number of users is estimated at about 3,1 million. Experts agree that Russia offers enormous opportunities for the development of networking services.

With an estimated 25 million computer users, the demand for Internet access is fast growing.

However, they say, an obsolete telephone system and possible restrictive regulations poses a serious challenge to further growth.

Last December Internet experts met with Vladimir Putin, then prime minister and now also acting president, to asked for a review of two draft decrees. One that would regulate the registration of Internet addresses for Russian websites and the other to qualify them as ‘mass media’ subject to licensing.

The final decision on licensing has yet to be made – however, there are some worrying signs for web surfers.

Analysts are concerned about SORM-2 the acronym for ‘Sistema Operativno-Rozysknykh Meropriyatii’, or System for Operational- Investigative Activities, introduced by the Federal Security Service, FSB, two years ago.

Apparently this stipulates that all internet service providers install, at their own expense, technology to link their computers to those at FSB headquarters. This reportedly allows the agency to monitor select electronic transmissions.

However, neither the authorities nor service providers publicly admit to the existence of SORM-2.

On the business side, however, the industry is flourishing. Pavel Bushmelyov, head of Back Design Studio, a web-design company, told IPS that companies are taking advantage of the boom to tap into the lucrative web-design market.

He said clients were now moving towards a culture of surfing the Internet for solutions in the areas of advertising, marketing and promotion.

At the present there are approximately 20,000 Russian websites. Analysts say the rapid growth of the industry can be attributed to the relatively high level of education and computer literacy, as well as the rapid transformation of a totalitarian regime into an open society.

Even Russia’s Defense Ministry, which was shrouded in secrecy for decades, has launched its own Internet website.

Some 300 licenses to provide Internet access services have been issued so far by the licensing department, Russia’s Ministry of Communications. However, officials say some companies are operating without licences.

There are no official statistics on finance, but economists estimate that the industry has an annual turnover of approximately US Dollars 100 million dollars.

As competition grows companies are coming up with different market strategies aimed as grabbing the limited clientele.

MTU-Inform, a Moscow-based ISP, offers its clients consumer credit. A potential client just has to dial an access number to get 25 hours of access time in credit – a risky offer in a country with a poor record of reimbursing even formally registered loans among companies.

“Of course, we are taking a sort of a gamble, realising that some of our clients could refrain from reimbursing the credit,” Alexei Sadchikov, head of MTU-Inform’s Internet department, told IPS.

“However, we do believe in our ability to create a sustainable client base due to high quality standards of Internet access,” he said.

Declining prices have also contributed to the growing popularity of Internet in Russia.

Analysts say the price war between ISP companies has turned out to be a boon for less affluent individual clients, as cheaper Internet access is becoming increasingly affordable.

Only a couple of years ago Russian ISPs were selling unlimited Internet monthly access for 250-300 US Dollars – an exorbitant figure for a country with an average monthly wage of below 100 US Dollars. Now it is possible to get access for as little as 50 US Dollars.

Nonetheless, the service providers are pushing ahead with Internet improvements in Russia despite the dismal state of the public network infrastructure over which it rides. Entrepreneurs also complain that improvements are also being strangled by red tape, as getting license could take up to eight months.

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