FOCUS: Looming data law may discourage investors, raise tariffs, boost data centers

By Yekaterina Yezhova

MOSCOW, May 3 (PRIME) -- The Russian government has specified the order and terms of implementing the controversial data retention law two months before its coming in force. Some operators say it is a consensus solution, while others complain of a lack of certified equipment. Analysts say the initiative will likely raise mobile connection prices for subscribers by 10–15% in 2019.

The government has ordered connection operators, both mobile and fixed-line, to store voice information and text messages for six months from July 1. Connection operators providing telematics services and data transfer services must fully keep users’ messages for 30 days from October 1.

The requirements seem a compromise to MegaFon, one of the country’s leading mobile operators. “Their draft was earlier discussed with the industry. MegaFon confirms an earlier estimate of the company’s costs on the law’s implementation at 35–40 billion rubles over five years,” head of the operator’s press service Yulia Dorokhina told PRIME.

Investment company Finam analyst Leonid Delitsyn said, “Costs will account for 0.5% of revenue of big operators in the first year and then grow to 2–3% of revenue. They won’t bankrupt the operators, but will cut their profit seriously.”

Brokerage BCS said the explanations are generally in line with how the market understood the law, however, capital expenditures of operators could rise in the mid-term.

Such spending is feasible, but still heavy for big operators, said Natalya Milchakova, deputy director of the analytical department at investment company Alpari. Expenses of small providers will also rise, but less since they do not render telephony services, meaning they will not have to store voice traffic. “Besides, they will be able to contract bigger connection operators or providers to keep traffic on their facilities,” the analyst said.

“Operators will certainly shift their burden to subscribers, and, by different estimates, mobile connection prices could increase 10–15% already in 2019.”

The law will hit not only operators’ profit, but also their dividends. “Many individual investors have purchased shares of connection operators thanks to their transparent and clear dividend policy. Now they’re perplexed about the shares because they do not know what dividend they will get,” Milchakova said.

The initiative cuts expenses of connection operators on Internet traffic storage as compared to the previous version of the law, which ordered to store traffic for up to six months. Conditions for small Internet providers improved, but work will get harder for big operators, like Rostelecom, since they will have to invest more in upgrade of data storage facilities.

State-controlled Rostelecom’s spokesperson Andrei Polyakov said, “Due to the lack of certified equipment on the market and in view of the scale of the company’s infrastructure, Rostelecom will find it hard to fulfil the approved requirements.”

Rostelecom President Mikhail Oseyevsky said the company had not calculated expenses on fulfilment of the law into its budget yet, because requirements to equipment should be approved first by the government.

So far, the requirements oblige connection operators to expand storage capacities by 15% annually during five years since putting such facilities in operation, which is the date of signing an agreement by carriers with the communications authority and the Federal Security Service.

“The 15% annual growth of storage capacities could be explained by expectations of a traffic rise in the next few years,” investment company Freedom Finance senior analyst Bogdan Zvarich said.

Connection operators must protect technical facilities of information storage from any unsanctioned intrusion. They must store text messages, voice information, images, sound and other messages exchanged between subscribers on its own storage facilities in Russia. Upon an approval of the Federal Security Service, operators can share their storage capacities with others.

UralSib Capital said the date of law coming in force is overly optimistic, despite the delay of data traffic storage until October 1, because of a lack of time to prepare infrastructure.

The bright side could be the fact that the law could boost development of data processing centers in the country.

“The biggest data processing centers are located in the U.S., China and Europe. Their colossal scale from 200,000 to 400,000 square meters and capacity from 200 to 1,000 megawatts reduce costs of cloud hosting and improve its reliability,” Delitsyn at Finam told PRIME.

“It was not by accident that during the raid of the communications service on (messenger) Telegram, it transpired that Russian business often keeps data and services on Amazon and Google clouds, which is simpler and cheaper. Russia will have to develop data processing centers at a high speed, and the data retention law can serve as an incentive.”

The requirements also say that the Communications and Mass Media Ministry will jointly with the Federal Security Service provide the government by December 1, 2022 with suggestions to specify the order, terms and volumes of data to be stored by connection operators further.

(61.9997 rubles – U.S. $1)

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