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Russian Telecoms Await Mussolini

How can Italy help Telecoms get a grip of the “new economy”?

August 7, 2000

How can Italy help Telecoms get a grip of the "new economy"?

Russian trains could warm the heart of any railroad buff. The rail system is easily the world’s longest, stretching across eleven time zones from the Baltic Sea to the Pacific Ocean. But with the exception of the overnight express from Moscow to St. Petersburg, which has comfortable first-class compartments, you would need the boundless patience of a Russian peasant to enjoy riding them.

Trains are slow, filthy and crammed with the huddled masses. Train stations are magnets for undesirables and frequently double as transit hotels for long-distance travelers. But you wouldn’t know this from watching the TV commercial produced by Russian Railways, which is Russia’s train monopoly.

The agency seems to have taken a few tips from Madison Avenue, circa 1950s. The spot features what looks like your typical middle-class American family — Mom, Dad, little Ivan and little Natasha — riding off to vacation in a Russian train. They drink tea, admire beautiful vistas from the window of their compartment and get ready to turn in onto snow-white, starched sheets. Clearly it would be foolish to use any other means of transportation.

These days, however, Russian Railways is not just about moving people — it’s about moving data. TransTeleKom, a fully owned subsidiary of the railway monopoly, has just launched a massive $1 billion project to upgrade its communications network. It wants to lay some 25,000 miles of fiber-optic cable across Russia’s vast expanse, creating the world’s longest fiber-optic network.

On paper, it makes a lot of sense. The system could carry international traffic between Western Europe and Japan and compete with another Russian monopoly — Rostelekom. Russia’s telecom sector can use a dose of competition, since its land-based telephony is even more backward than its transportation infrastructure.

The Railway Ministry has put up some $300 million of its own money, and has already laid more than half of the network. It is now looking to sell a 49% stake in TransTeleKom to a foreign investor.

On possible partner has already emerged — Telecom Italia. And it is not surprising that the Italians are among the first to express an interest. After the Germans, the Italians have been the largest investors in Russia — both during the Soviet era and since the collapse of communism in 1991.

Italians seem to have an enduring sentimental spot for Russia, dating back to the days of the defunct Italian Communist Party, at one time the largest in Western Europe. The Volga Automotive Plant, the infamous Avtovaz where oligarch Boris Berezovsky made his first kopek, was built by FIAT in the late 1960s.

There is, however, a more contemporary reason why Italians love to deal with Russians. Although many of Italy’s state-owned conglomerates have been broken up and partially sold off in recent years, Italy remains a bastion of state-sponsored capitalism.

While its small, family-owned companies are global leaders in the fashion, accessories, food processing and engineering industries, the “official” economy is still dominated by a few, bureaucratic, centralized behemoths. They do business the old-fashioned way — by rubbing shoulders with politicians in Rome.

After all, the corporatist tradition in Italian business dates back to the time of fascist dictator Benito Mussolini, who as we know got Italian trains run on time.