FOCUS: Internet firms doomed to spend 70 bln rbl on data law over 5 yrs

By Yekaterina Yezhova

MOSCOW, Jul 9 (PRIME) -- Russia’s recently-introduced data retention law will make boil not only the blood of connection operators but also of Internet services, for which the government clarified the initiative just three days before it coming in force. Experts say local Internet companies, represented mainly by Yandex and Mail.Ru Group, will have to spend 10 billion rubles more than connection operators over the next five years with many questions still unanswered by the authorities.

“According to different estimates, capital expenditures of any company subject to the data retention law will rise by 15–20%. These are very significant amounts. For connection operators, for example, expenses are seen at 40–60 billion rubles over the five coming years. For Internet companies, spending could be at 50–70 billion rubles for the five years,” investment company Alpari senior analyst Anna Bodrova told PRIME.

“These are approximate figures and they depend on the volume of traffic stored. Both Yandex and Mail.Ru will be put to great expense to respect the law. All photo, audio, video materials must be stored under the data retention law if the user exploits a Russian IP address, documents or a phone number.”

The government specified the data retention law for Internet services just a couple of days before the rules took effect on July 1. Services also must record and store electronic correspondence of the users whose location in Russia is given to online services by law enforcement entities.

The rules for connection operators were clarified in April: they must keep talks and text messages of subscribers for six months from July 1, while Internet traffic must be stored for 30 days from October 1. Connection operators will also raise storage capacities by 15% annually during the five years to come.

Under the law, organizers of information distribution must store users’ text messages, voice information, images, sounds, video or other electronic messages and information about them on the country’s territory and hand it over to the authorized services.

“The requirement of long-term storage of masses of information will entail for organizers of information distribution in the Internet – the notion that can be applied in fact to any Internet resource – enormous expenses, for example, on construction or rent of data centers or other infrastructure, among others. Such spending could be unbearable for small Internet projects and big resources, handling a great deal of information,” the Russian Association for Electronic Communications (RAEC) said in an official statement.

The government does not explain how organizers of information distribution must deal with conflicts related to storage of messages with personal data, confidential information or objects of the author’s right. There are no clear rules how to protect such information, responsibility for leakage or rules to access data, RAEC said.

“During the two years since the adoption of the data retention law, the association has repeatedly pointed to the risks for business and households that would appear after the fulfilment of the rules. Made in haste, three days before the law’s coming in force and without public discussion or revision, the ruling does not smooth the problems of future application of the law or facilitate position of business, in particular online startups,” the association said.

“The fulfilment of the adopted data storage rules puts Russian companies in an unequal position, creates threats for safety and private lives of citizens, business, and national security of Russia.”

The situation with the law is even more unclear in view of the lack of certified equipment to store content of phone talks and correspondence of subscribers, according to the Federal Communications Agency.

Bodrova at Alpari said that quotes of Yandex and Mail.Ru Group will react to the law when the companies start releasing financial reports with costs of data storage, and “they will hardly bring something pleasant, which will send shares down on poor figures, which would be a natural response.”

So far, Yandex rocketed 17.5% since the beginning of the year to 2,226 rubles on July 5 in Moscow, while its American depositary receipts gained 11.2% to $36.20 in New York. Mail.Ru Group’s global depositary receipts added 1.2% to $29.04 in London.

(63.1216 rubles – U.S. $1)

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