Yarovaya Law Drives Up Internet Prices for Users

Russian internet providers have started warning their customers that, due to the costs of complying with Federal Law No. 374-FZ (the “Yarovaya Law”), they will have to raise prices for their services.

St. Petersburg provider LLC “Telekompas” (brand “Komfortel”) notified subscribers of an 8% increase in subscription fees starting July 1, 2018, due to the implementation of the Yarovaya Law. Dmitry Petrov, co-founder of Telekompas, explained that the rate hike is necessary to cover the expenses of complying with the federal law over the next five years. He estimates that an 8% increase will be the least painful option for customers. Telekompas expects to spend over 60 million rubles on equipment for data storage.

Petrov believes that all operators will eventually raise their prices: “Maintaining previous prices with such expenses will lead to lower profit margins, since the market hasn’t been growing for several years.”

One of Russia’s largest internet providers, “Dom.ru,” will increase the cost of some plans by 10% starting June 1. Although ER-Telecom (owner of Dom.ru) does not directly link the price hike to the Yarovaya Law, instead citing “market conditions,” users have speculated that the new law is a key reason for the increase. Previously, the provider estimated the cost of compliance at 50 billion rubles. According to a company representative, “Operators are affected by the economic situation: inflation, rising equipment and content costs, and increased investment in network upgrades.” Operators are reviewing their pricing to “continue providing quality services,” he added.

Experts and industry participants have repeatedly warned that operators will offset the costs of implementing the Yarovaya Law by raising rates. “Operators will definitely pass these costs on to subscribers, and rates will go up,” agrees former Minister of Communications and Chairman of the Board of Directors of Angstrem, Leonid Reiman. “This will fall entirely on consumers, because there’s no other way,” says David Yakobashvili, board member of AFK Sistema.

Earlier, Rostelecom President Mikhail Oseevsky, speaking at the St. Petersburg International Economic Forum (SPIEF-2018), proposed abolishing the principle of net neutrality, which ensures unrestricted access to all legal online resources. He also suggested compensating the costs of the Yarovaya Law by charging foreign internet and media companies.

Oseevsky explained that Russian telecom operators invest in developing telecommunications infrastructure, while large foreign companies like Google (and its subsidiary YouTube), Facebook, and others do not, yet still earn significant revenue from Russian users. “This situation seems abnormal to me. I would propose opening a discussion on how, primarily through economic means, we can correct this,” Oseevsky said.

Specifically, the head of Rostelecom, which leads the Russian broadband market and co-owns the Tele2 mobile network, believes operators should be allowed to manage traffic based on its priority and in line with the interests of the state and society, giving faster access to companies that pay for it. “This issue is even more relevant when fulfilling the requirements of the Yarovaya Law, because a significant portion of the traffic we must store is video content downloaded by users,” Oseevsky noted.

Alexander Popovsky, Executive Vice President for Strategy and Business Development at VimpelCom (brand “Beeline”), agrees that the Yarovaya Law has intensified the net neutrality debate. “Now, operators not only invest their revenue in developing networks for internet players (mainly foreign ones), but also in systems to store this traffic,” he said. According to Popovsky, many countries are reconsidering net neutrality to make telecom more attractive for investment, which is necessary for the rapid development of 5G networks.

Previously, a source close to one of the operators reported that there is discussion about exempting internet companies from the Yarovaya Law’s requirements. “Most of the traffic comes from large foreign companies, which are unlikely to comply with the law. Operators could store the data for them, but internet companies would have to pay for this service,” the source said, noting that this would require abolishing net neutrality to influence foreign internet companies.

As a reminder, in April of this year, the Russian government approved data storage rules in accordance with the Yarovaya Law. The relevant decree requires providers to store subscribers’ calls and text messages for six months. Internet traffic must be stored in an amount “equal to the volume of electronic communications sent and received by users over 30 days.”

One operator can store messages on the resources of other operators, with approval from the FSB. Each year, starting from the launch of the data storage system, operators must increase its capacity by 15% annually for five years.