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Viewing cable 08MOSCOW1443, DESPITE STRONG TELECOM AND IT SECTORS, MINISTER REIMAN

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Reference ID Created Released Classification Origin
08MOSCOW1443 2008-05-22 13:18 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow
VZCZCXRO0904
PP RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHVK RUEHYG
DE RUEHMO #1443/01 1431318
ZNR UUUUU ZZH
P 221318Z MAY 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 8206
INFO RUEHZN/EST COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHYG/AMCONSUL YEKATERINBURG 3172
RUEHVK/AMCONSUL VLADIVOSTOK 2824
RUEHRA/AMEMBASSY RIGA 5397
UNCLAS SECTION 01 OF 02 MOSCOW 001443 
 
STATE FOR EB/CIP AMBASSADOR GROSS, RICHARD BEAIRD 
USDOC/ITA/MAC MATTHEW EDWARDS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: TSPL PGOV EINT TINT ECPS RS
SUBJECT: DESPITE STRONG TELECOM AND IT SECTORS, MINISTER REIMAN 
REPLACED 
 
REF: A)  MOSCOW 1336 (C) 
B) MOSCOW 1321 
C)  MOSCOW 893 
 
MOSCOW 00001443  001.2 OF 002 
 
 
------- 
Summary 
------- 
 
1. (SBU) The May 12 GOR cabinet reshuffle replaced IT and 
Communications Minister Leonid Reiman with longtime Presidential 
Protocol Chief Igor Shchyogolev.  The move surprised observers, who 
thought Reiman's long personal relationship with Putin and 
successful development of Russia's communications industry would 
keep him in his position.  Reiman landed on his feet, however, with 
an appointment as Presidential Advisor on innovation. 
 
2. (SBU) Despite charges of conflict of interest and other 
questionable business dealings, Reiman leaves a record of sustained 
growth in Russia's telecom and IT sector.  Recently-released figures 
show Russia's Information and Computer Technology (ICT) market 
booming in 2007, with 25 percent growth overall and big gains in 
internet use and personal computer ownership.  Shchyogolev will face 
several challenges in his new position, which has taken over press 
function from the Ministry of Culture, making him Minister of 
Communications and Press.  These include expanding broadband and 
third generation wireless service, privatizing state landline 
monopoly Svyazinvest and managing pressure from Reiman.  End 
Summary. 
 
-------------------------- 
Reiman Out, Shchyogolev In 
-------------------------- 
 
3. (SBU) Counter to widespread speculation, Leonid Reiman was 
replaced as Information Technologies and Communications (ITC) 
Minister in the May 12 cabinet reshuffle (reftels A and B).  The 
next day, however, the GOR announced that Reiman would take a 
position as Presidential Advisor.  Our Ministry contacts were 
surprised by the move, telling us that they only learned of the 
switch through media reports.  The new Minister, Igor Shchyogolev, 
was Head of President Putin's Protocol Service from 2002 - 2008, and 
head of Putin's Press Service from 2000 - 2002.  Prior to that, 
Shchyogolev was Press Secretary to Prime Minister Primakov (1998) 
and an ITAR-Tass correspondent in Moscow and Paris.  Just 42 years 
old, he speaks French, English and German.  Consistent with 
Shchyogolev's background, the Ministry's functions shifted and it 
was renamed the Ministry of Communications and Press (MCP), which 
adds the press functions formerly handled by the Ministry of 
Culture. 
 
4. (SBU) A well-placed industry contact described Shchogolev's 
posting as "a reward for long-term service" to Putin.  Shchyogolev 
has no telecom or IT experience, so the focus of the Ministry was 
shifted to include mass media.  Ilya Ponomarev, a member of the 
State Duma Committee on Information Policy, Information Technologies 
and Communications, told us that Reiman's new posting is a way to 
keep innovation policy under the direct control of the President. 
He reports that in the previous administration, the Kremlin and 
White House fought over control of innovation strategy.  Before last 
week's changeover, innovation was part of the portfolio of First 
Deputy Prime Minister Sergey Ivanov.  Ponomarev tells us to expect 
Medvedev to announce the creation of an innovation council, chaired 
by the President and directed by Reiman. 
 
5. (SBU) Reiman had been ITC Minister since 1999.  He was considered 
one of the most economically liberal ministers in the Putin cabinet, 
and is credited with directing a prolonged boom in Russia's telcom 
and IT sector.  His tenure was marred, however, by well-publicized 
allegations of conflicts of interest.  Russian capital company Alfa 
Group charged Reiman with money laundering in several foreign 
courts.  The court cases produced evidence that Reiman, through 
off-shore holding companies, owns a stake worth $2.5 billion in 
Russia's third-largest mobile communication company (MegaFon).  Last 
year, MegaFon was granted one of three highly-prized third 
generation wireless licenses.  Most observers agree that it was 
probably Reiman's questionable business dealings, not his 
performance as Minister, that cost him his cabinet position. 
 
--------------- 
Reiman's Legacy 
--------------- 
 
6. (SBU) Ironically, Reiman's dismissal came shortly after the 
official release of IT and telecom statistics for 2007 that showed a 
 
MOSCOW 00001443  002.2 OF 002 
 
 
continuation of the solid growth the sectors have experienced for 
the past decade under Reiman's watch.  The Minister also reported 
success in his drive to connect Russian schools to the internet 
within the framework of the National Priority Project on Education. 
 
7. (SBU) In a recent meeting with us, MITC Deputy Director for 
International Cooperation Maksim Timofeyev highlighted some of the 
Ministry's recent accomplishments.  In 2007, the Russian IT and 
communications market reached 1.5 trillion rubles ($65 billion), a 
25 percent increase over 2006.  This included 983 billion rubles 
($423 billion) from telecommunication services and 450 billion 
rubles ($20 billion) from information technologies.  The number of 
internet users in Russia grew to 35 million, up 40 percent. 
Personal computer ownership grew to 31 million, up 36 percent.  The 
number of households accessing broad-band Internet access grew by 50 
percent, reaching 4.8 million. 
 
8. (SBU) Timofeyev also reported that Russia had 180 million mobile 
phone subscribers in 2007, greater than Russia's population of 142 
million.  Although this represents a 15 percent increase over 2006, 
the rate of growth slowed from previous years.  To address market 
saturation, the Ministry proposes refocusing its priorities beyond 
expanding service zones and improving coverage quality to the 
provision of high-end services like high-speed Internet, mobile 
television and video calling. 
 
---------------------------------- 
Ministry Challenges and Priorities 
---------------------------------- 
 
9. (SBU) Initial comments by Minister Shchyogolev indicate that he 
may focus Ministry efforts on expanding broadband connection, which 
is still at low levels, especially outside major cities.  Another 
continuing challenge is the establishment of third generation (3G) 
wireless service.  The GOR issued 3G licenses to Russian companies 
MTS, VimpelCom and Megafon in 2007.  So far, however, only St. 
Petersburg, through MegaFon, offers 3G service.  Service in Moscow 
was held up by Ministry of Defense refusal to allow civilian use of 
3G frequencies, which was finally lifted on March 20.  Timofeyev 
reported that 3G networks will soon be operating in Moscow and 
Sochi, with a Ministry goal of coverage in 10 major Russian cities 
by 2010.  The new minister will also face the long-anticipated 
privatization of State landline monopoly Svyazinvest. 
 
------- 
Comment 
------- 
 
10. (SBU) Although IT and Telecom continue to be among Russia's 
fastest-growing sectors, the new Minister will face a number of 
hurdles.  In addition to the industry issues of expanding broadband 
and 3G wireless service and privatizing Svyazinvest, there will also 
be internal management challenges.  There have been moves by the FSB 
to subject the telecoms and IT industries to strategic sectors 
restrictions (reftel C).  Shchyogolev will also have to contend with 
Reiman's continued influence in the sector, exerted from a powerful 
position.