Telenor Xpress 3 - 2000

A look at how Comincom/Combellga became the third largest supplier of the Russian business market.

One-stop teleshopping
The Russian experience

Ten years ago, comrade Gorbachev was ruling the Soviet Union. Consumer goods were hard to find and a chronically unreliable phone service was one sign of the collapse of the Communist state. Today, the word comrade has a negative ring to it, and communications technology is a driving force behind Russia’s new market economy.

Swedish economists Nordstrøm and Ridderstråle may have hailed Lenin, Marx and the Communist Manifesto in their book Funky Business, claiming that the new economy has allowed the worker to control the means of production: the intellect. However, the digital revolution currently underway in Moscow isn’t anything like Karl Marx and Vladimir Lenin had envisioned. Now Lenin’s face is used to market “Prima Nostalgia”, a brand of 10-cent packs of filterless cigarettes.

If he could only see the surroundings of his Red Square mausoleum every time he has his rejuvenating acid-bath, he would see hordes of Russian teenagers embracing the new digital technology, talking and sending SMS-messages on their mobile phones, then accessing the Internet with their Combellga phone-cards. Forget western cold war prejudice and see Moscow – and St. Petersburg – as the economic spearheads of a nation where you can expect even your cabdriver to be an engineer. Russia is developing fast and its people and businesses are no longer satisfied taking a back seat to the west, least of all when it comes to telecommunications and technology. The new communication tools are no longer a toy for the rich elite; they are becoming an inherent part of the daily lives of working people. Sitting by the fountains of Alexandrov park, outside the Kremlin, or walking down Tverskaya street, an artery of Moscow business life and main thoroughfare, you’ll see a density of laptops and mobile phones that appears comparable to any western metropole. This may come as a surprise to some, knowing that in certain areas Russian society isn’t running as smoothly as it might. However, the Russian bear has entered the digital age with a fervour and momentum that might soon be the envy of the west. Indeed, Telenor’s new co-venture with the Comincom/Combellga Group seems well timed.

Market pioneers
The Comincom/Combellga Group was founded in 1990. With 25 people sharing one room, few could have predicted that the company would soon evolve into one of Russia’s leading communications service providers. At first, their mission was simple: to provide the business market in Moscow with high quality telephony. “It is universally known that the most important principles for success are ideas, management and finance – in that order. We had a good idea, and it was shared by others later,” says Alexander V. Kozhanov, General Director of the company both then and now. Kozhanov is a prime example of an old-school Soviet citizen whose business instinct was awakened by the ideological shift to capitalism that began a decade ago.

”When we started out there was no market for our product,” says Kozhanov. “Besides, we had no market experience. But we managed to create a good team that overcame the problems of mentality and whatever obstacles the government sent our way. We then carved out a market of our own among the embassies and foreign businesses attracted by our service.”

Frogs in the milk
Olga Gouskova, commercial director of Comincom/ Combellga, was one of the pioneers. She is a role model for the new Russian businesswoman: independent, energetic and well-educated. Back in 1991 she systematically mapped the downtown buildings in Moscow where she might find foreigners interested in more reliable telecom services with higher quality than those offered by the old Soviet monopoly. Then she went from door to door trying to convince each of them to switch service.

“We connected the first customer to a private network on 24 July 1991,” she says with pride. Gouskova is convinced that their early success was possible only because they fought hard to gain market share. “Most Russian parents tell their kids the story of two frogs that fell into a jug of milk,” she says. “One frog immediately gave up, sank and drowned. The other frog kept on struggling to keep its head above the milk. It didn’t rest till the milk had turned to butter, allowing the frog to leap to safety. Which frog do you think is the Comincom/Combellga Group?” she asks.

Move fast
Comincom/Combellga started searching for a strategic partner in early 1999. Among those interested were several major telecom operators. Telenor joined the competition in February 2000, and by 31 May the companies were able to reach an agreement.

”An important part of our winning formula is the Norwegian mentality,” explains William Svedberg, the Swede who is now COO of the Comincom/Combellga group. Svedberg previously led Ericsson’s operations in Norway. He thinks the secret is embedded in the Norwegian word “skippertak,” used to denote a swift, intense operation to solve a specific challenge. “In moving fast and working together, the Telenor system is able to out-perform most contenders. We can’t beat the sheer size of some competitors, but we can beat them with our dynamic system and manoeuvrability,” he says. Telenor will also place further management resources at the Comincom/Combellga Group’s disposal.

Hooking on
William Svedberg’s philosophy is: never seek perfection, always keep up the pace. Still, the need for speed alone does not explain Telenor’s investment strategy. Russia is not a place for games of trial and error. “We believe in the city-carrier strategy for the Russian market, and the Comincom/Combellga Group is an excellent place to start. Owning its own proprietary network and a solid business customer base, the company is well-positioned in the market and very strong on voice,” he says.

Telenor offers the technological competence necessary to develop this further into the realm of mobile, broadband, ADSL, e-commerce and Internet solutions. “Our services in the Moscow-region are being developed to make us a serious one-stop alternative. Then we will further develop our own transport network to conquer St. Petersburg and other selected cities and regions. We will hook them on, city by city,” says Svedberg. “It is important that the company and the investors share a vision of where we want to be in three years. Therefore we are in a very intense process of finding the road ahead,” adds Kozhanov.

Mature consumers
It is impossible to speak of business development in Russia without taking into consideration the vast regional differences. Russia as a whole consists of some 150 million people. In the cosmopolitan area of Moscow there are about 15 million. For hundreds of years of Russian history, Moscow has controlled 80–90 per cent of the economic resources. The last ten years are no exception, and the average Muscovite’s standard of living is now closing in on western levels. Still, consumer power is limited. Is the Russian market mature enough to absorb new technologies?

”That is a philosophical question,” says Kozhanov. “Growth in the telecom sector comes with economic growth. But telecommunications also stimulate the development of the economy. That is why we stimulate the regions where there is economic growth.”

A second element of market maturity is the consumer’s ability to absorb new technological solutions. Kozhanov claims that new technology is being put into use in Russia faster than in the west. “We are in demand for our brains, we are renowned for our technical schools, and the number of students is higher than in the west, so we should be well equipped to absorb this information,” he says.

Olga Gouskova claims this is aptly illustrated by a series of phone-cards that were an unexpected success. The phone-cards could be used to gain Internet access, but this extra feature was not advertised. Nevertheless, over a period of four months Combellga sold more than 40,000 cards, a number that far exceeded expectations for the sale of standard phone-cards. An analysis of the success of this effort showed that 97 per cent of the cards were used for accessing the Internet. The cards left unsold were the ones valued at 100 dollars. They were too expensive for the many students wanting to gain access to the Internet.

Fibre highway
A number of those students probably study in one of the buildings occupied by the Comincom/Combellga Group in Moscow University. The University, located in a ring of seven triumphant communist high-rises, was erected by Stalin to celebrate the city’s 800th birthday in 1947. This architectural mastodon is 250 meters tall, with a spire crowned with a 12-ton star – one of the defining silhouettes of the Moscow skyline. Its rundown exterior does not reflect the high-tech facilities inside. Here one of Combellga’s digital switches is located, supplying 30 per cent of the city’s business market with high quality fibre-optic solutions. It is part of the backbone of Comincom/Combellga’s network. Belgian expatriate, Erick Akkaert is in charge of the technical operation. He carefully supervises the engineers who are testing the lines and merging the fibre-optic cables. Nine years ago, in 1991, he implemented the first Alcatel switch operated by the Comincom/Combellga Group.

Alexander V. Kozhanov mentions his appreciation to Belgacom and Alcatel, two of the original partners. In the very initial stages they gave the then new Russian business venture access to the necessary technology. According to Kozhanov, the main task ahead (the Russian language doesn’t have a word for challenge) – will be to shape the market. “In the west, they say the market dictates your actions. We in the Comincom/Combellga group have never been that patient,” he says.