22 December 2005

Fewer Cows, More Demand For Milk

Something must give. I have lost count of the number of firms announcing expansion of dairy-related products in Russia this year. Yet no one is dealing with the underlying demand issue. Cow population declines from Itar Tass.

Companies in low margin commodity markets, such as raw milk, are not managed well enough to regularly make money. There is so much easy money around at the moment, especially if you can sit on the coat tails of the Chinovniki; why work hard for it instead.

These imbalances in the economy are not factored in to inflation forecasts. A combination of increasing protectionism (import tariffs etc), surging consumer demand, the need to import raw materials (dry milk, meat etc) and the extreme rapaciousness of Customs will keep inflation above forecasts throughout 2006. The good news is that consumers are reaching deeper in to their pockets and tax-advisory businesses are making a mint as companies find ever cleverer ways of circumventing the rent seekers.


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What is Libjingle?

A post on Google's opening of it's Libjingle; one from the Mr. Malik with a very good post on the AOL/Google deal and then a little update on my favorite (sic) voice app being less than forthcoming about how SIP and GTalk will interoperate. That they will is fantastic, but why not be honest and upfront about the technological challenges. It's not as though the early adopter community don't understand that SIP is not entirely dissimilar to Churchill's view on democracy; Democracy is the worst form of government except for all those others that have been tried.

SIP is cludgy (ask Martin Geddes - it's a Scottish thing) and a very heavy protocol. It wants to eat your cycles and it's not ubiquitous enough for easy end user inter-operability. Until someone develops a better mousetrap it's the one we have. I look forward to the day when my GizmoProject app/softphone will talk to my PC's brethern's GTalk via an intelligble UI. Tell us its a problem and it will take time - we believe you.

But the real point is that Skype was a flash in the pan. I posted a long, long time ago that Skype would make money for its founders but not for its owners. I will place a very large bet that a SIP-based inter-op solution will win out in the long-term - shit I did already. Win is not an economic term for financial investors.

Prediction for 2007; SIP goes mainstream, in the way that Bluetooth now is.












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21 December 2005

Stalin's army of man-apes

As if you did not know where the GAI came from; Boing Boing: Stalin's army of man-apes:

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15 December 2005

FSU Software Engineering Skills

On the back of a small company called Skype it would appear that the great Soviet Scientific Legacy theory can be wiped down and rolled out. There is a fair point here that it is not just software engineering that does it but entrepreneurial skills as well.

The Wild East: In the New York Times today, a visit to Skype Estonia:
Foreign investors are swooping into Tallinn's tiny airport in search of the next Skype (rhymes with pipe). The company most often mentioned, Playtech, designs software for online gambling services. It is contemplating an initial public offering that bankers say could raise up to $1 billion.

Indeed, there is an outlaw mystique to some of Estonia's ventures, drawn here to Europe's eastern frontier. Whether it is online gambling, Internet voice calls or music file sharing--Skype's founders are also behind the most popular music service, Kazaa--Estonian entrepreneurs are testing the limits of business and law.

And by tapping its scientific legacy from Soviet times and making the best of its vest-pocket size, Estonia is developing an efficient technology industry that generates ingenious products-often dreamed up by a few friends--able to mutate via the Internet into major businesses.

These entrepreneurs grow out of an energetic, youthful society, which has embraced technology as the fastest way to catch up with the West. Eight of 10 Estonians carry cell phones, and even gas stations in Tallinn are equipped with Wi-Fi connections, allowing motorists to visit the Internet after they fill up.

Such ubiquitous connectivity makes Tallinn's location midway between Stockholm and St. Petersburg seem less remote.

Even the short icebound days play a part, people here say, because they shackle software developers to the warm glow of their computer screens. For the 150 people who work at Skype, Estonia is clearly where the action is.


Hat tip to A Step At a Time and, of course Om Malik (no link required......)

Russia warned on poor diet, lifestyle

On the same day that Scotland was acknowledged as having the fattest children in Britain: Russia warned on poor diet, lifestyle.

Anyone for more kolbasa?

Nokia plans phone with SIP client for consumer VoIP

Yup that should go down well with their clients otherwise known as mobile operatorsNokia plans phone with SIP client for consumer VoIP.

As the article notes this will not work with Skype. So it looks as though 30-40% of the cellphone VOIP market just got closed off. Excluding those who will actually go out of their way to install something other than what came in the box. Extrapolated from IE usage that would be 20% of users.

Does this mark SIP's resurrection. It has a certain Bluetooth feel to it; slated for years and then - ubiquitous?

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Lada Theft, Roland Nash and Social Spending

Roland Nash draws an improbable link between having his Lada (why would anyone steal a Lada) stolen, the appalling state of Russian government infrastructure and pre-election mis-spending.



Interviews & Opinions - News - News Agency PRIME-TASS:

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13 December 2005

Russian Liberalism

Konstantin from Russia Blog points out tangentially that different countries have different definitions of liberalism. I would like to think that the liberals that we all hope get to be the future of Russia are those described in the last paragraph. Put in very simple terms they suffer from a branding problem not entirely dissimilar to that faced by the British Labour Party pre-Blair and the current Conservative Party.

It would be better to say that they are believers in liberal economics - that is a smaller role for the state. Which is not entirely unsurprising when you consider the additional burden that the state in its role as truly organized crime applies to their business.

Anyway worth a read.

My Political Credo:
What's my political credo? I'm a liberal intelligent who supports the state although it sounds as an oxymoron. Sergei Roy, the editor of intelligent.ru (you find the English version of this site at the sidebar) defines it better than I do. Here's his thoughts about the poor state of Russian liberalism published by Peter Lavalle's Untimely Thoughts.

Putin is indeed a statist, and thus the opposite of liberal, in that he has stopped the country rolling along an inclined plane into the abyss of disintegration. By the end of Boris Yeltsin, the Liberal Pretender’s, rule, Russia was fast becoming an assemblage of fiefdoms that were “territories of free hunting” (Khodorkovsky’s phrase) for oligarchs/barons of two types, regional and financial-industrial, without a clear demarcation line between them. It came to pass that the biggest and the most impudent of these, Mikhail Khodorkovsky, made a grab for ultimate political power, buying the services of 250 deputies of the Duma and preparing to sell to a U.S.-based transnational 50 percent of the biggest oil company in the land, which would have put him beyond the reach of Russian law.

Putin put a stop to that, in the nick of time, and did some other things to restore the notorious “vertical of power,” which on closer inspection proves nothing more nor less than a functioning system of governance securing a more or less unified legal, political, and economic space.

What about Putin, the Statist Pretender’s, liberal credentials? Alas, they are no better than his predecessor’s. Although some of the oligarchs have been slapped into line, the oligarchy as a system of post-communist order is still with us and, which is more, it is thriving. Some of the members of Putin’s government – Mikhail Zurabov, German Gref, Viktor Khristenko – enjoy the tags of liberals, or neo-liberals, or radical liberals. In my view, these appellations can only be applied to these people if the word “liberal” has irreversibly passed into the swearword section of the Russian vocabulary. Monetization of social benefits was one example of their liberalism, housing and utilities reforms will be another. As a result of these liberal reforms, oligarchic profits (say, Zurabov’s pharmaceutical interests) will swell, while the populace at large will find itself in a still harsher grip of those oligarchic interests and at the mercy of the state’s handouts. Liberalism, forsooth.

I have stressed in the above the primary tenets of liberalism: freedom from state intervention and control over the sovereign individual’s affairs. In Russia, this principle has undergone a fantastic perversion: an owner or top manager of a company is free from state control and intervention precisely because he himself is the State – a government minister or a member of the President’s Administration. That’s what oligarchy is in a nutshell. And that’s what we have.

A few words on the subject of Russia’s political parties and liberalism – simply because they do not deserve more than a few words. I will leave Vladimir Zhirinovsky’s Liberal-Democratic Party entirely out of account; it is the proper provenance for the Public Prosecutor.

The Union of Right Forces, or SPS: Headed to this day by the founding fathers of oligarchic capitalism, it is a graphic illustration of the perversion of liberal principles, as described above. Chubais’s call for a “liberal empire” is a classic, in this respect: it will be an empire for a few “liberals” up top, just as it is now, and the masses vainly awaiting liberation from the slavery of poverty, at bottom.

Yabloko, the left-leaning branch of the liberal intelligentsia: For one thing, it is tarred with the oligarchic brush, much as it would like to expunge that memory. For years it fed out of Khodorkovsky’s hand. For another, it has shown a readiness to take Russian liberalism to a point at which Russia would simply disappear. During the 2000 presidential campaign, Anatoly Chubais had every right to call Yabloko head Grigory Yavlinsky a “traitor,” very publicly, on NTV, because of Yavlinsky’s stance on policy vis-?-vis Chechnya. I would hate to agree with Chubais on the time of day, but here he hit the nail right on the head: any concessions in the matter of Chechnya’s independence mean one thing, and one thing only – wave after wave of Islamic fundamentalism hitting Russia from the Caucasus, threatening to split it right down the middle, along the Turkic-populated regions of the Volga. As president, Yavlinsky would one day be crowned with the same laurels of Russia’s destroyer as Mikhail Gorbachev and Alexander Kerensky before him, not counting the scum that started the Times of Troubles.

So, aren’t there any true liberals left in Russia? There are. We are simply looking for them in the wrong places.

One locus is the same as decades and hundreds of years ago: the liberal intelligentsia. True, its role is pitiful right now, reduced to criticizing the current state of affairs and preaching to the younger generation that things can be different from the existing heap of manure as long as they keep the faith. A sad role, but a necessary one, and there are enough memories to sustain the intelligentsia in this role; it has seen much worse times. Words can barely say just how much worse they were.

The other agent is a much more robust one: the non-oligarchic capitalist. His fate is perhaps even worse than the pensive intellectual’s, for it is he who has to grapple with the forces of the bandit bureaucracy, the pressure of bandits in the more traditional sense, and of oligarchic monopolies. These people would be very much surprised if you informed them that they were the brightest hope of liberalism in Russia. Yet that is a fact. Of course, they are mostly extremely rough diamonds, their esthetic taste is abominable – you only have to look at the “castles” they are building all around Moscow or any other city. But, as Anna Akhmatova said, “If only you knew out of what garbage poems grow, unaware of shame.” Liberalism seems to be akin to good poetry, growing out of garbage. Among other things.

12 December 2005

Stasi and the Yukos Sell-off

A Step At a Time posts on the not-so-mysterious relationship between Putin and the Head of DrKW's Russia business. Stasi and the Yukos Sell-off:

Tom Parfitt, the London Telegraph's Moscow correspondent, on a new headache for Gerhard Schroeder:
Opponents of President Vladimir Putin are calling for an investigation into his links with a German banker who was exposed last week as a former East German spy.

Documents uncovered in a Berlin archive revealed that Matthias Warnig, 49, who played a leading role in the controversial forced sell-off of part of the Yukos oil giant, was once an agent of the East German secret police, the Stasi.
The two banya together frequently - which is why presentations have to be laminated. Enough said.

09 December 2005

Nafta Moskva and Mostelecom / Mosteleset

Seems as although the logic of the Mostelecom deal is pretty strong that there is no great strategic or tactical plan for it. Another wasted asset.

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Nafta Moskva and Mostelecom / Mosteleset

Seems as although the logic of the Mostelecom deal is pretty strong that there is no great strategic or tactical plan for it. Another wasted asset.

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Duma passes foreign ownership changes for Gazprom

The painful death march to a fully-tradeable Gazprom share gets a step closer Duma passes foreign ownership changes for Gazprom. The ultimate in the no news story. I wonder what the government will use to keep the financial community happy after they finally pass this in to law when they do something truly stupid (again.)

Skype

Some of the most powerful bloggers on the future, or lack of it, for the telecom industry have had a real go at Skype recently.



Here from Om Malik on legitimate comments on Skype 2.0 (albeit as a Mac user I had to kick an analyst off his PC for a while to play with it - no worries we don't pay him to have a life so he did not mind staying late anyway.)



Here from James Enck on the Yahoo offering and Verso's Skype-blocking.


And then one from Andy Abramson suggesting a little unease inside the company. As James has it the comments emanate from the West Coast and make significant reference to problems in the Estonian development center.


I have no reason to like or dislike Skype as a company (I have a different take as a technology and a further view as a service) but have an opportunity to sell a voice-engine that could replace the stranglehold that GIP's has on Skype so am always interested in a bit of salacious gossip.


Being somewhat closer to Estonia than the esteemed bloggers of the West Coast it was a little easier to have a same time of the day conversations with friends of friends. For those of you who are interested Estonians are a strange mixture of Swedes without the welfare state and Russians without a bottle of vodka. It makes them somewhat reserved and very self-sufficient. If your only interaction with an Estonian of any kind was Steve Jurvetson then you would be very surprised to meet a real Estonian. Steve would also throw many aliens off track if they captured him as a representative of the human race.


Anyway the local Estonian take on the unhappiness in Skype's ranks does not seem to ring true with the Estonian R&D center. Yes its strange having a bunch of strangers constantly wondering through the office - but changes seem to be minimal at the programmer level. There was also a little head scratching at the management change in London allegations.


Now I am not a Skype insider and I was fishing for information on the role of GIPS as a core part of the Skype offering so lets not pretend that I was getting all the story, but it does not fit with what is being blogged as gospel truth.







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07 December 2005

Nafta Moscow Acquires Mostelecom

Mostelecom (Mtk), the inappropriately named carrier of free-to-air television to the older apartments in Moscow has been acquired by Nafta Moskva. Nafta has now acquired Mostelecom and National Cable Networks (can't find a link to the story) in the past 6 months.

Mostelecom pipes between 8 and 14 free-to-air channels to about 3 million Moscow households, the cable network overcomes the frequency and power issues that free-to-air broadcasters cannot overcome from the Ostankino tower. It's a slightly strange network in that Mtk broadcasts to a series of mini-headends around Moscow which then pipes the signal in to the housing blocks via some very old and crappy copper coax. There is no upgradeable capacity in the network. Mostelecom's value is its rights of way access to (admittedly not the best) homes in Moscow and about $6mn in monthly revenues. Which assumes that Moscovites pay their utility bills.

The salacious gossip is that the real purchaser was not Nafta Moskva but the previous TV Minister and VI shareholder, Mikhail Lesin.


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06 December 2005

Reiman vs Alfa - Ongoing

One of my favourite ongoing stories has a brief pre-New Year flourish. Which was of course denied by the MinSvyaz. Also reported in the Moscow Times, but as their archive policy was created by a half-wit in the middle of a zapoi there's f**k all point linking to it. This time it's the WSJ, whose online policy was also designed whilst in the middle of a zapoi (uncertain of my grammar here), who have picked up the investigative torch from the FT.

In trying to find a news source that had heard of Web2.0 I found this piece from Tass on Aton's website from July 2005. The pertinent quotation is:

"So far, it seems that Galmond, apart from the Commerzbank managers who have already fallen on their swords, is the one big name in the investigation truly in the firing line."
I have personal interest in the story and thought that I was pretty much up to date with the news - I had however missed a Zurich court ruling;

"In 2004, the same Zurich Arbitration Court now demanding further investigation into the actions of Commerzbank, Galmond and Telecominvest, made a partial ruling that IPOC Growth Fund Ltd. had not completed the option for the purchase of CT-Mobile, and that Galmond had been guilty of falsifying documents."

Pretty sure that it will end badly for someone, but I am still not convinced that the someone may not be Alfa.

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Another Member of the RenTV News Team Resigns

"Was She Pushed Asks Humpty Dumpty"

Not sure whether this is internal politics, monumental arse licking or active suggestion I don't know. As I posted earlier there is no freedom of news broadcasting. Anyway another one bites the dust. Head of Russia’s Last Independent TV News Service Resigns.


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05 December 2005

NTL Swallows Virgin

I know I really should have been a Sun headline writer.



James Enck on NTL making a formal approach for Virgin Mobile.


Either that makes Renova's acquisition of Korbina (see previous post);


  1. Prescient

  2. Ahead of its time

  3. Not a bad deal but massively over-priced

  4. Stupid

He describes the deal as:



"no respite from the deflationary spiral which is our beloved UK telecom market"
So what does that mean for the PE players trying to forecast stable revenue for their LBO's?

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01 December 2005

Truth Stranger Than Fiction

I posted a while ago about the phenomenon that is the outsourcing at the FSB. It took a while for the NY Times to run it past its lawyers but here's the fuller story.

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Licensed DVDs Cost Too Much

Without getting overly cynical about a member of the Federation Council worrying about DVD prices this is a follow-up piece to My Friendly Local Video Kiosk Is Under Remont and tangentially about Korbina. Daniel Nezerov commented in effect that Hollywood's business model is broken. And to be fair to the VC blogosphere so has everyone else. This piece in the Moscow Times quotes a member of the Federation Council saying that there is little point trying to stamp out piracy if the narod cannot afford to buy licensed DVD's.

Being sure that Hollywood's business model is broken is very different from knowing how to make money from remaking it. It is now a pressing issue. As I pointed out in the Korbina link hi-speed internet ARPU's are on their way from $22 (ex-VAT) to $15 per month over the next three years. Additional services are essential to milking leveraging the investment in the network - however cheaply and well made they are.

For a number of reasons;

  • 1. 14 channels of free-to-air
  • 2. No meaningful cable only content
  • 3. Must-carry provisions
  • 4. The historical development of cable in Russia where crappy 250mhz networks carrying no more than 14 channels
cable TV has yet to take off in Russia yet. We are seeing better results outside Moscow and St. Petersburg where the competition for entertainment disposable income is a bottle of vodka and increasingly beer.

So if film and Hollywood content is the way to lure customers to buying premium packages, sports being the way, and the most recent blockbuster is being sold in every kiosk at Rbl90-120 ($3-4) what should the answer be and how should it be delivered? The simple answer is to make it easier to buy licensed than pirated; and that does not mean making the pirates go underground it means making licensed content really easy to pay for and watch. Whenever, however and over whatever medium. Acknowledge that however strong the DRM (an anti-consumer 4 letter word) protection someone will find a way to rip it off. So be it; as long as content is being sold at a fair price in a way that allows the user to view it as and when he/she wants then the needle will swing (violently) toward licensed versions. If iTunes isn't a lesson in fair-(ish) use there was no lesson.

I asked the head of Micorsoft's business in Moscow how she felt about competition from Linux about a year ago. Not bothered she said. I awaited the M$FT bullshit. She followed up with the view that her competitor was not Linux, OpenOffice (whatever) but pirated versions of Office et al at $10 for Office. Good point well made. The analogy is not easy to make but the point is the same. The competition is the most efficient business machine. It's input cost is close to zero and will charge whatever it can get away with. It will invest nothing in marketing or customer relations.

OK so that was the easy part; Hollywood busted, Russian piracy, poor cable TV uptake, booming consumer market. Any half-baked hack can write that part. The answer that makes money is so much harder than the question. In an environment where the only thing that costs a $ is a $ there are precious few opportunities to play the Hampton Court Maze game. The only way is forward.

Is it better to be the market leader setting the trend or the guy who has the subscribers and an open mind? Answers on a postcard please...

The technical answers are relatively simple; I just can't see the business plan without Hollywood's backing. And that's not an option to bet your hard won cash on.


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GMail

I really like - but I live in and for email so it joins one other account in Apple's Mail as a POP download. Though when I have a bunch of Gmail mail to deal with I'll switch to the browser and work in it. And I love the GMail in Basic HTML view. It feels really clean and to me (de gestibus non est disputandum) way more intuitive.

30 November 2005

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC. A collection of very smart people spending a lot of OPM to buy an old fashioned telecom company.

Are old fashioned telecom companies really a stable source of cash flow? Who do you sell it to?

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29 November 2005

The Glass is Half Full; The State vs um.. the rest of us

The very clever Mr. Nash of Renaissance Capital opines that in fact the glass is half full. As he is very clever it has to be admitted that he has more than half a well argued point. It is unlikely that the Chinovniki will be any more successful at running car companies than GM for instance, albeit with lower health care costs. So let them keep their heavy machines and extractive industries and let us get on with retail banking and providing services to consumers.

My problem with his argument is that I spend most of my life (the part when I am not I am either asleep or trying to be) interacting with the the owners of the new businesses that drive VVP's economic dream. As the big bosses get their hands around such giants as Kamaz and Avtovaz (and they are welcome to both - as a Brit they equal the quality that was once Leyland, remember it? Exactly) the junior bosses are getting hungrier; the price for delivery of a container through Kotka, Finland before the end of the year increased Monday 1.8x (that's 180% for those of you who prefer stats that way). Of that 180% increase about 30% can be paid white i.e. it can be officially paid and can therefore be deducted from Net Income, in addition a special delivery by New Year price was introduced on the same day of $450 per container. So let's be clear - you could pay the 180% price increase and the risk is that the container would not make it in time for the big buying season unless you pay another $450 per container, or in reality $596 as it cannot be deducted from Net Income.

These rapidly growing businesses are always looking for more cash. In the absence of reasonable bank lending (in particular inventory financing) the private equity guys would appear to be a good port of call. But they demand that the businesses run on the white side of grey-white. Meanwhile their competitors turn to government-sponsored money and run grey-black under the quasi-government roof. Good management will win out at the end of the day, whichever way the business is run - it's just remarkable that they tend to be at the whiter end of the spectrum. But in the meantime unequal competition means that sticking to the clean road is not always easy.

The State also impacts entrepreneurial business through its access to cheap money. An infrastructure company I am a shareholder in, and board member of, was offered a 5 year 9% loan with 2 year capital repayment holiday by such a Government sponsored company. That's LIBOR plus 3 for a business that will generate $6mn in revenue in 2006 and will invest every $ it can gets its grubby hands on. In a WACC calculation that means the debt is cheaper than the equity. Not that WACC calculations are worth the time calculating, but that's another story. That's one hell of a market distortion.

So my glass remains sceptical.


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Special Economic Real Estate

Today Gref announced the formation of 6 special economic zones. I was asked to get involved with a putative bid in Academ Gorodok in Novosibirsk which failed and with the Dubna effort which subsequently succeeded and two others that never got off the ground in Moscow. I turned down all the invitations as it was clear that the real reasons behind the bids were either fantastically idealistic (i.e. had not a cats chance in hell of succeeding) or were designed to assist companies that had political clout to make money on a. real estate and b. by lowering taxes on already profitable businesses or c. assist high profile unprofitable businesses compete unfairly against lower profile profitable ones (hint: if the CEO drives a new Merc and you lose $2mn+ a year the formula should return an ERROR.


It would be fair to say that Zelenograd SEZ will not assist micro-electronics in Russia nor will Dubna assist nuclear and physics technologies (sic). Dubna will find a way to build an offshore programming center which will fail to challenge Bangalore and Zelenograd will become the center for the manufacture assembly of PC's, notebooks and servers.


But the best job to get is the real estate developer. Funnily that was never on offer.


BTW my mood and the weather are in lock step and I will retain my heightened level of cynicism for one more month until I run for the sun.



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My Friendly Local Video Kiosk Is Under Remont

According to Kommersant the reason is an order from on high to cut down on piracy. My friendly video kiosk is in the underpass that sits directly in front of MID (Ministry of Foreign Affairs) and could be relied upon to provide a never ending host of truly crap movies. You have to imagine that a number of WTO negotiators passed through the hallowed doors of MID and might have had a reason to go through the underpass.

Kommersant come up with two principal reasons both of which are probably true; firstly WTO negotiations are reaching the tipping point so Russia needed to show that it was serious about clamping down on piracy. Secondly because the Prosecutors office has pushed the Militsia to show that it can actually do something about economic crime that is just mildly obvious.

It seems that most of the kiosks closed themselves down following a friendly hint from the local police. Time to keep your head down as the Militsia will need to replace their income sources.

The interesting fact that most of the retail points was locked up by owners themselves –that was their response to the action. “Those, who stayed open, took off all counterfeited merchandises and currently sell only licensed Russian games. Those, who sells DVD has only licensed copies of “9th Regiment,” the owner of the kiosk, which is located near Komsomolskaya Square, told Kommersant. “I don’t know when all this would be over. Some people say on Wednesday and some after the elections in Moscow City Duma.”

I love the Russian cynicism about their imminent return - maybe Wednesday....

I am not sure that I understand the point that they are making about the conflict between the Prosecutors Office and the Militsia (copied below for your enlightenment). Needs to be read in the original. The Prosecutor's office was the main instrument in the attack on Yukos (no link required) but if it is going to push the Militsia in to doing their job I might even be marginally less cynical about them.

"According to another point of view, the large-scale police operation is a consequence of the conflict between the General Prosecution of the Russian Federation and the Interior Ministry of RF. In September of this year, General Prosecutor of RF Vladimir Ustinov harshly criticized police for their inability to fight with pirates. “The antagonism between Interior Ministry and Prosecution over the investigation of the crimes for Article 146 of Criminal Code, is widely known. The quality of investigation documents provided by the police to prosecution in the pirate cases is awful,” Yuri Zlobin, head of the association Russian Shield. “I think, that in this case Interior Ministry wants to prove prosecution that it can fight effectively with pirates. The ministry hopes that after this action the law would get an amendments, which would allow police investigate these cases by itself (currently it is a competence of prosecution –Kommersant). Then, police would have a better ratio of cracking media pirate cases because it would collect the evidence, interrogate suspect and make arrests without constantly asking Prosecution for orders.”

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26 November 2005

TNT, Ivanov and TV Media

MosNews reports that TNT has taken Olga Romanova off the air allegedly because she reported that Sergei Ivanov's son would not be charged for killing a elderly women whilst driving. You would have to look pretty hard to find that piece of news in the Russian language.

It does not mark the end of free speech on broadcast television; it was already dead. It is however, another example of the 5th directorate thugs believing that they can control the flow of news when it proves to be embarrassing. The good news is that the Russian narod are at least 2 steps ahead of the thugs and no longer get their news from the television.

23 November 2005

The VoIP Shakeout

The king of broadband comment correctly points out that there is the beginning of a VoIP shakeout. To give him his due he is rarely wrong and admits it when he is.

I think that the more nuanced message that should make itself heard above the din of badly researched acquistions is that very few pure VoIP service-providers pretending to be pure communication devices will survive the death rattle.

I do like the technology that underlies the game. Global IP Sound is a little overvalued (work out the link) but there are others that have been built with smart engineers with an eye on the web and telephony that will make their owners a small fortune.

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21 November 2005

Irrational Gas Exuberance

This plain stupid. Victoria found some gas in Eastern Siberia (ergo no infrastructure) in a country where gas is uneconomic sold domestically and export gas is sold by Gazprom, which also controls the pipelines. Meanwhile, value trebles. Go figure.

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Korbina Telecom

I have been a little quiet in the blogging front due to the pressure of work (and the fact that it is dark in the morning which makes getting out bed difficult).

However the purchase of Korbina Telecom by Victor Vekelsburg of Renova fame forces me back to the keyboard.

As the Kommersant article points out a part of the Renova empire is the de facto majority shareholder of Comcor TV or Moscow Cable Com a NASDAQ listed entity (MOCC). For the financially-minded amongst you ignore the per household stats which are a result of thin liquidity not meaningful numbers of around $178 per household passed. MOCC's own stats page highlight the difficulty in selling premium pay TV services to a Russian public that already has access to 14 (or so) free-to-air TV channels. The problem is exacerbated by the lack of meaningful premium content. Discovery TV can be entertaining but it does not create a ROI on network investment.

Korbina, like its privately held competitor, Korvette Telecom (Russian only) (you will find both under the moniker of Corbina and Corvette Telecom K in cyrillic is C in English) (disclosure - where I am a shareholder), is deploying 10/100 gigabit ethernet networks in the sleeping regions of Moscow providing high-speed internet connection to retail subscribers. ARPU's (including VAT/NDS) tend to be in the $22/month region. In the longer established regions penetration rates are around 18% of households passed.

MOCC on the other hand employs a traditional hybrid-fiber coax ("HFC") network. Comparable capex per household passed seem to be $60-ish for MOCC's HFC network and $17-ish for the ethernet network. A recent network audit of the ethernet network by the previous director of network at UPC Broadband was exceedingly enthusiastic. Very simple (stupid) networks with high-throughput potential, well-engineered and very cheap to maintain. Today these ethernet networks only offer retail internet and provide no other services. It is clear that ARPU's will drop over the next 3 or so years to around $14/month so other services will have to replace the lost revenues. There is work ongoing and I would not be surprised if one or other of these companies becomes a trial user of meaningful IPTV-type services.

Possibly a good example of a technology leap-frog? The question to me is whether this will create a meaningful competition to the weight of money behind MOCC and StreamTV, part of the Sistema Group (Russian only.)

I bumped into MOCC's COO in the gym yesterday; whilst he was aware of the Korbina purchase there is as yet no explicit desire to merge Korbina's internet business with MOCC (Korbina is also a MVNO). I hope it stays that way for a while as a MOCC-Korbina merger employing ethernet networks would be a major competitor, in a market where there are already enough well-funded but customer unfriendly players.

Meanwhile the ante-deluvian Mostelekom (Russian only) is being fought over. Mostelekom connects 2.5 million of Moscow's approximately 4 million households with very old copper. If some real oil money gets behind it a large part of the market will be cornered.


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10 November 2005

The Bill & Ozzie Show

From the omnipresent Om Malik on the The Bill & Ozzie Show. A bunch of people more qualified to comment than I have done so - so I won't on the story. But I will on the process. As Om states;
So Bill Gates and Ray Ozzie dropped two memos to the Microserfs, and then somehow they got leaked to the media and more importantly to Dave Winer.

Which is pretty much how I read it on the FT with my muesli this morning - that it was leaked to the mainstream press as a strategy and therefore was not a leak. If it had been a real leak the first people to have reported on it would have been the blogosphere. It was supposed to be a clever piece of marketing that not only failed to hit its mark with me but achieved the opposite aim.

Could the marketing department consult with Scoble before launching a bollocks strategy like this.

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05 November 2005

Inside Moscow

It has been 13 years since the Soviet Union added the moniker former. However, I am still asked by acquaintances outside Russia about our ability to get hold of things. As if we spend half our lives in food queues. For the longest time we were unable to get hold of "english" sausages. This problem has been solved by our friend Rostov John. Proper, as opposed to American-type, bacon is still a problem, as is Marmite. As you can see what I miss here is cultural, not shortage-created - god forbid in this city which worships consumerism.

Bread however, good bread has always been a scarce resource. Local bread has a certain similarity to the northern German variety, hard and not great for a bacon sarnie - something to do with flour varieties. There is also a hangover from Soviet days when the rumour was put out that fresh bread was bad for you. My (english) father-in-law was told the same thing during post-war (WWII) rationing. The idea being that you finished the last bread before starting in on the fresh stuff. Hard and semi-stale bread is not a great mix.

Life has just got marginally better. This post is accompanied by a cup of espresso, freshly-brewed at home, and a chocolate croissant from the new French Bakery. Not quite as good as the real butter variety I consumed in New York last week but pretty damn good all the same.

Time for another.....

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25 October 2005

That old chestnut - how do you measure innovation? From the FT (don't think that it's subscription only).

"The warning should be heeded by those western observers who, dazzled by China’s rise in basic manufacturing, breathlessly proclaim it is destined to become a global leader in science and technological innovation."
Many of whom should know better that China's centrally driven economy has as little chance as Russia's technoparks of succeeding. I sat opposite one of the scions of Valley investing as he breathlessly proclaimed that China was the next "BIG" thing. He knew as much about China as I do about innovation in the UK; Enough to sound knowledgeable, little enough to be enthusiastic.

Innovation is about breaking apart business models; Skype is not a new technology but it has more innovation in its business model than the outstandingly technologically brilliant SJPhone had for breakfast. End result - Skype - $2.6+bn SJPhone 2.4Rbls.

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British Petroleum - Kremlin secrecy talks

With thanks to Siberian Light for this one British Petroleum - Kremlin secrecy talks:

A lot of stuff from MosNews the long and short of which is.......The best outsourcing company in the world ever, otherwise known as the FSB scams itself more revenues.

A source close to TNK-BP said that the company was forced to replace foreign directors and to outsource all the work with maps and secret information to Russian companies.

To be frank the scams just get more pathetic. Look for the line in TNK-BP's accounts in 2006. Fees paid to useless idiots to do nothing in order to keep some malignant form of government of our backs.

A company who uses my services is raising money at the moment. The company imports stuff, quite a lot of it really. A potential investor wants to know how "white" they are.

a - "Except for customs; completely...."

q - How much does it save you

a - nothing

q - why do you do it

a - because we like our goods to arrive in the same millenium

The rules have changed recently - now the real rules are applied. It just costs more to get a certificate that badminton rackets are not dangerous ($1,000 per consignment through DME) and storage costs for non-storage in customs now equal 60% of COGS. All in costs to play according to the rules - "other" in COGS = 90% of COGS.

Long live the Chinovniki.....

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How To Make a Small Fortune

Start with a large one. Screw your best friend. Have him made persona non grata. Invest in a President to ensure that your stay-out-of-jail card remains valid. Invest in a football club. (Employ a bunch of useless bankers, sorry the first letter was a w) and at the end of the day, or at the end of the end.

A SMALL FORTUNE.............owned by someone else.

However, Sauer believes the motivation is simpler. He lives in a posh suburb of Moscow, where his son plays football with Abramovich's, and after 16 years in Russia he is an anthropologist of the oligarch tribe. Sauer explains: "These people have money, but they don't have status, so what do you do? You try to acquire status. In 1920s America there were tycoons who did exactly the same. They bought newspapers, went into art, that sort of thing

Oil Money Pumps Into Football - and who said I could not make it as a Sun headline writer.

p.s. congratulations to Derk who got out without selling his soul. Unlike his successors.

If you care I live here. Who says there is no free press.

24 October 2005

Blogs for Investment Banks

Interesting piece from Wired on blocking Blogs from Investment Banks. No Longer Safe For Work: Blogs. Not necessarily because it says anything that we don't know about Investment Banks ability to bury their head in the sand, but because of what James Enck has to say about the value of research to his buy-side clients.

The sort of research that I mostly require comes from Blogs. From time-to-time I need hard numbers, but mostly I need smart people to think about how the future, both immediate and medium-term (tomorrow to 5 years). People such as James do a great job of doing that.

A Strange Concept for Russia

From today's FT. It requires subscription so I have pulled out a line. There remains a mental block amongst the political elite that the Narod have a sort of mind of their own. It can be influenced but is increasingly resistant to manipulation. The greatest risk to economic stability is a failed transition of power.

Manipulation alone is not enough. Real appeal is required.
FT.com / Comment & analysis / Analysis - Righting the Orange Revolution

22 October 2005

Khodorkovsky Sent To Remote Siberian Camp

Khodorkovsky Sent To Remote Siberian Camp:

"Our country is headed by small-minded, vindictive people. Mere revenge -- that's the only motive."

Pretty difficult to be any clearer about the Fifth Directorate Thugs.

21 October 2005

What's the Difference Between a Developing Market...




What's the Difference Between a Developing Market and an Emerging Market



None; they both make money. A grab from the front page of this evening's FT.com

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18 October 2005

Sources and Uses of Russian Technology

My mornings are fairly standard, albeit that crawling out of bed thing gets harder as winter approaches. Sometime between 8 and 8.30 I am sitting at my computer scanning the overnight email and reading the morning news. This is a combination of RSS feeds via the wonderful NetNewsWire and traditional news websites.

It struck me last night that these break down in to two separate groups. The international news I read via RSS feed, including my sports news but with the dishonourable exception of The Deal. Any news that I read on Russia has to be read on the original website.

A comment on this Blog reminded me of Esther Dyson's $10,000 bet that Russia will be the world's leading software developer by 2010. Brilliance in software engineering is a good thing, but if that code is written in isolation then it may not serve a greater good. Web2.0 has the technology world jumping and down with joy, particularly if you are Sergei and Larry. There are deals being done all around the blogosphere. Wikis and Tiddlywikis (my current favourite if I can work out how to make it work for me) will make a significant difference to how we work in the future. If you are not deep in to this then the chances are that you will not be engineering software to change the future.

Offshoring companies like Luxoft (by the way you desperately need to change your ad copy) and Epam Systems probably don't care. I do because if Russia does not address innovation and soon the very bright will go and work elsewhere.

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16 October 2005

Russian Securities Agency Wants to Limit IPOs Abroad

Yet more geniuses, or is that geniae, at work Russian Securities Agency Wants to Limit IPOs Abroad. Has been tagged as a Kanutian policy(as in King Kanute).

Update - I decided, on reflection, that it is not only Kanutian but also Phyrric.

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FT on Russia/EU Relationships and Democracy

Philip Stephens associate editor and senior commentator at the Financial Times is my favourite columnist. He has written defendable sense ever since I first started reading him. They include some pieces on Northern Ireland which were truly fantastic. He may have been taken in by Blair's now a Christian, now a politician Jekyll and Hyde personality longer than the body politic - or maybe until his book was published - but it was not a fundamental error.

He is primarily a British political commentator who occasionally strays in to US politics. This comment (subscription only) on the relationship between VVP and the G8 is maybe a little outside his normal beat. Except that it was obviously informed from inside the British body politic. His comments regarding the differing views of VVP by Bush and Blair highlight fundamental foreign policy differences. More concerning were his distinctly unpolitic comments on the relationship between Berlusconi, Chirac and Schroeder and VVP are actually scary. It's rare for an article on Russia to leave me feeling depressed about both Russia and the EU. This did both.

Acting subserviently in front of the Imperium will leave only a sore ring. Whilst none of the soon to be ex-leaders-of-EU countries is a great believer in democracy (or the act of voting - which seems to be democracy's lowest common denominator) they are not, nor will they ever be as cynical about it as VVP and the Fifth Directorate Thugs. I remain ambivalent on whether democracy has been harmed by Putin's term in office. But Russia's ability to project beyond it's borders has grown massively. Fortunately the idiots running the lunatic asylum have yet to learn that their soft power is so much more powerful than their hard power. Lets hope that the EU develops a spine before the inmates elect someone whose competence extends beyond being able to resist a bottle of vodka.

Apologies for the quality of this post - read Philip's article.

Oil Spreads Wealth in Russia, and Russians Are Spending It on Foreign Cars - New York Times

The New York Times published a long article earlier in the week on the auto industry in Russia. There are lots and lots of great points on the opportunities for the global car manufacturers to sell cars with such strange accessories as brakes, windscreen wipers that actually remove the muck from the windscreen and, vitally important when its -10 outside, heated car seats. The article is worth reading.

If the NY Times could explain to me its headline Oil Spreads Wealth in Russia, and Russians Are Spending It on Foreign Cars and the inherent link. Now if the article was about how the Ferrari dealership sold out on the day it opened, or the Bentley dealership just down the road from Lubyanka whose opulence actually intimidates me I might be a buyer. But lets examine who is buying Hyundai's, and Ford Focuses and Kia's and Skoda's. They generally don't work for, own or steal cash from oil companies (the obvious link). A tiny few work for companies that service oil companies, auditors, lawyers, and the army that is required to look after the BP expats-wives (known locally as BP Princesses). But to be honest they always earnt enough to not have to buy a Hyundai. The lucky few who feed off the cash that falls from the tables of the super-rich oil men in Moscow have not grown more numerous over the past few years. Nor are the oilmen of Siberia driving demand. Nor are the Government's overflowing coffers causing cars to be bought. The cash that Putin just spent on pensioners, teachers and doctors is not going to buy cars. It might change consumtion patterns towards higher value goods, but they will still be necessities, not niceties like cars.

A better headline should be "Growing economy Sees Greater Wealth Trickle Down." This is a boom driven by local consumption that spreads its wealth far more rapidly than oil will ever do. Oil creates corruption and the corrupt don't drive Hyundai's.



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DFJ Nexus

My ex-colleagues at DFJ Nexus, are confident that they will have a first close of their tech fund targeting technologies emanating from Ukraine, Russia and the former Soviet Union. Venturewire has the article.

I remain an advisor to the Fund and wish them well. I fought to raise the same fund for 18 months with people who knew what they were doing - we failed. The fact that they are succeeding means that they are doing something better than we did. Notwithstanding I believe that making money is going to be a long haul.

Udachi.

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13 October 2005

Russian visas and the cost of business

Siberian Light posts on the costs of getting a Visa for entry to Russia. Below are his direct and assumed costs.
Here’s (roughly) how I broke down the costs:

$350: My time for one full day (approx 1 full day)
$500: My colleague’s time (approx 3 hours)
$250: My Partner’s time (approx 30 minutes)
$500: Our Moscow office’s time (approx 1 full day)
$200: Actual visa fee (we were in a hurry, so had to express it)
$100: Travel agent (for courier to stand in line)
$100: Couriering documents back and forth
As he points out it is the time and pain cost that hurts the most.
I had to liaise with our Moscow office, going back and forth, to ensure that my colleague provided enough information about his stay for them to fill in the forms and stand in line for hours at the Ministry of Foreign Affairs - just so they could get an official invitation
My colleague had to head out into town to get new passport photos taken (in matt finish, of course - and where can you find a machine printing those nowadays?), before collating all the documentation necessary to fill in his own visa application formI had to write an introductory letter, signed by a Partner, confirming that my colleague was indeed employed by the firm, and that they would be financially responsible for him
We had to employ a courier from a specialist firm, whose only responsibility was to queue up for hours on end at the Russian embassy, handover the paperwork, then collect the finished visa.

So far our (wife and I) costs this year must easily exceed $5k:

3 nights in Zurich airport hotel on way back from New Year holidays because the visa was not ready "due to the holidays." - 3x2xEuro150 = Euro900 (plus incidentals like eating)
1 Day Visa Processing Cost - Euro200 (ish)
3 Returns to Consulate in Bern Euro300 (one hell of a railway)

6 Months later
2 same day processing for visas - GBP800
2 return flights to UK (OK there are other reasons as well) - $1,800
Time spent with mine and my wife's family - uncountable.....

And we are still trying to get them registered.

12 October 2005

Blonde Jokes

Rather than emailing everyone who with a random joke I will post it instead. There will be a cultural miss here if you have no idea what Frosties are or who Tony the Tiger is for that matter.......

A blonde calls her boyfriend and says, "Please come over here and help me.

I have a killer jigsaw puzzle, and I can't figure out how to get it started.

"Her boyfriend asks, "What is it supposed to be when it's finished?"

The blonde says, "According to the picture on the box, it's a tiger."

Her boyfriend decides to go over and help with the puzzle.

She lets him in and shows him where she has the puzzle spread all over the table.

He studies the pieces for a moment, then looks at the box, then turns to her and says: -

"First of all, no matter what we do, we're not going to be able to assemble these pieces into anything resembling a tiger.

"He takes her hand and says, "Secondly, I want you to relax. Let's have a nice cup of tea, and then....." he sighed,

"let's put all these Frosties back in the box."

07 October 2005

Stoppard in Minsk

My wife (SWMBO) and I sat opposite Stoppard and Arkady Ostrovsky when they arrived in Moscow after Minsk. A classic bad Friday night after a long week we were drinking and eating and drinking to end the week, Stoppard was listening to his guests.

Not sure what made me Google him; this is the result. It's difficult to pick out outstanding sections of this. It's all outstanding; here are some quotations to convince you that I am right. read it.

This is a rubber-stamp "democratic republic", with the last collective farms, the last KGB, the last dissidents in the pre-1990 sense of the word, and - in President Alexander Lukashenko - the last dictator in Europe.

The journalist Dmitriy Zavadskiy was a young man who worked for the Belarusian affiliate of ORT, Russian public television. In July 2000, Zavadskiy was supposed to meet a colleague arriving at the airport. His car was found parked there. He hasn't been seen since.

T
he reason for his "disappearance", I was told, is that Zavadskiy was working on a story about the Belarusian special forces' presence in Chechnya on both sides. I had a friend with me, Arkady Ostrovsky, who reports for the Financial Times from Moscow and has pretty much covered the waterfront on Russian affairs. I saw Arkady blink and stare, and perhaps bite his tongue.

Last year Irina, now remarried to an American, made a statement before the US House Committee on International Relations. She told me the story she must have told a hundred times - "Anatoly and Victor drove away in Anatoly's car, to go to the sauna. Anatoly asked me to come, but I decided to stay home. Later, witnesses told investigators what happened. Anatoly and Victor left the sauna and got into our car. Immediately after they turned the corner, a car cut them off. My husband tried to back up but he was cut off by a second car. The doors of our car lock automatically if you hit the brakes. So the people who jumped out of those two cars broke the windows and pulled out Anatoly and Victor. Traces of Victor's blood were found at the scene. They were put into separate cars and driven away. Our car, a Jeep, was later towed away by one of the squad."
Irina says she is certain the two men were killed within a day or two. The cherry-red Jeep was never found. According to "information", it was flattened by an armoured troop carrier and buried.

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Why Russians Do Not Smile

Konstantin at Russia Blog posts lengthily on Why Russians Do Not Smile, in public at least.

I'll post his picture of The agrarian peasant (Saratov circa 1993) for entertainment.

He was incensed by an article by Olga Nikitina “Combining a Rude and Very Hospitable Reputation.” In particular the assertion (albeit not directly by Nikitina) that it is as a result of the lack security after the collapse of the Soviet Union that causes public introspection catches his ire. Konstantin heads back back to the nature of isolated peasant communities (everywhere is isolated if you have to walk) as a more likely cause. His thoughts are worth reading.

Firstly Moscow for a 12 million person city rates way ahead of London and New York for personal safety (unless you count anti-social driving) Blaming public introspection on a lack of safety is indeed rubbish.

When I first arrived here in 1994 I was particularly struck by the fact that no one would catch your eye when walking down the street. It's changed now and Muscovites (which is not Russia) are as heads up a city population as you will find. I ascribed it to the travails of communism and whatever euphemism you want to use for the excesses of Stalinism and the KGB. Maybe Konstantin's take on the nature of peasantry not only explains Russian's outward reticence but also why it was possible for Beria et al to divide and murder.


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A Story for My Grand Children to Read?

The Daily Torygraph writes the standard why was Abramovich allowed to sell and Khordokovsky get TB here. It's fairly open about the alleged links between VVP and Abramovich. Certainly more explicit than a publication in Russia could be.

I wonder when we will learn the real Abramovich story - I somehow feel it will be a story my grandchildren will read about - and I don't have any kids.

05 October 2005

What's worrying Russians?

Yuri Levada has published the results of a recent survey which only go to show that the question put correctly elicits the response that the questioner is after. Hat tip to Siberian Light for the translation.

If you read other surveys then the concerns would have been terrorism, corruption and immigration.......

Only shows you cannot trust marketing and PR - just ask my wife

August 15, 2005

In July 2005, the Yuri Levada Analytical Center (Levada Center) conducted a survey of 2107 Russians. One of the questions was "Which of the following social problems concern you the most, which do you consider the most acute?" Respondents could choose up to 5 or 6 [sic] answers.

1. Growth of prices [inflation] - 71%

2. Poverty, the impoverishment of the majority of the population - 53%

3. The growth of unemployment - 39%

4. Economic crisis, falling industrial and agricultural productivity - 33%

5. Increasing crime rate - 29%

6-7. Inaccessibility/unaffordibility of many forms of medical treatment - 29%

6-7. Growth of drug abuse - 29%

8. Growing cost/inaffordability of education - 27%

9. Sharp division [of society] into wealthy and poor, inequitable income distribution - 27%

10. Corruption and bribe-taking - 24%

11. Crisis in the areas of ethics, culture, and morality - 22%

12. Deterioration of the environment - 17%

13. The threat of explosions and other terrorist acts where you live - 15%

14. The weakness of the government - 11%

15. Abuses of power and the impunity of government officials - 9%

16. The arrival of immigrants and migrant workers - 7%

17. The military campaign in Chechnya - 7%

18. Growth in the rate of AIDS infection - 6%

19. Police brutality - 6%

20. Inability to obtain justice in a court of law - 5%

21. Growth of nationalism, deterioration of inter-ethnic relations - 4%

22. Delays in payment of salaries, pensions, stipends, etc. - 4%

23. Conflicts between different branches of government - 3%

24. Restrictions on civil rights and democratic freedoms (freedom of speech, freedom of the press) - 2%

Other - 1%

Unable to answer - 1%

VCitis

Posted in full, and without comment, from David Hornik at Venture Blog on VCitis:
In a Woody Allen moment, I was reading the DSM IV (the American Psychiatric Association's diagnostic manual for mental illness) to make sure I didn't have the mental equivalent of a "tumor the size of a golf ball." But, as Woody Allen himself points out, just because you're paranoid doesn't mean people aren't out to get you, and sure enough, I've diagnosed myself with a full blown mental illness -- it's called Narcissistic Personality Disorder (NPD) or, as I've renamed it, Venture Capitalitis. Of the Personality Disorders available to me (Histrionic Personility Disorder, Antisocial Pesonality Disorder, Schizoid Personality Disorder, Obsessive-Compulsive Personality Disorder, etc.), Narcissistic Personality Disorder may be as good as mental illness gets. Which is a good thing because best I can tell NPD is running rampant on Sand Hill Road.
The DSM IV is the Fourth Edition of the Diagnostic and Statistical Manual of Mental Disorders. Its purpose is to assist mental health practitioners in diagnosing and differentiating among mental illnesses. Accordingly, it takes the form of a list of diagnostic criteria which, if met in sufficient numbers by a particular person, indicates that that individual has the particular mental disorder in question. The diagnostic criteria for NPD are telling. NPD is diagnosed by "a pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy, beginning by early adulthood and present in a variety of contexts," -- sounds like VCitis already doesn't it. Narcissistic Personality Disorder is "indicated by five (or more) of the following:"
1) Has a grandiose sense of self-importance (e.g. exaggerates achievements and talents, expects to be recognized as superior without commensurate achievements).

2) Is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love.

3) Believes that he or she is "special" and unique and can only be understood by, or should associate with, other special or high-status people (or institutions).

4) Requires excessive admiration.

5) Has a sense of entitlement, i.e., unreasonable expectations of especially favorable treatment or automatic compliance with his or her expectations.

6) Is interpersonally exploitative, i.e., takes advantage of others to achieve his or her own ends.

7) Lacks empathy: is unwilling to recognize or identify with the feelings and needs of others.

8) Is often envious of others or believes that others are envious of him or her.

9) Shows arrogant, haughty behaviors or attitudes.
Now I don't mean to be critical of my brethren in the Venture Capital industry, nor of myself for that matter, but tell me if that doesn't hit the nail on the head. Forget about meeting 5 of the criteria. How about 8 or 9? This Web 2.0 stuff is all well and good but I can tell you what my next investment will be in -- a mental health facility on Sand Hill Road.

29 September 2005

More Sibneft Thoughts

Failing to come up with anything useful to say about Gazprom's acquisition of Sibneft I am reduced to reproducing other people's thoughts. These are from the Economist
In one of the jokes Russians tell about Roman Abramovich, owner of Chelsea football club and until this week an oil tycoon, he complains that London is an expensive city. Punch-line: “He still can’t buy it.”
Other good lines include this one which link the inverse correlation between state ownership, ownership of cash flow and output efficiency.
The second question is: are the deal, and the trend it represents, good for the Russian oil industry, and Russia itself? After the Yugansk and Sibneft transactions, the share of Russia’s oil production controlled by the Kremlin will approach a third. The state also influences oil exports via its pipeline monopoly; Gazprom has monopolies both on gas pipelines and gas sales outside the former Soviet Union. True, the Russian government still has a weaker grip on the energy sector than the governments of many other petro-states. But as one Moscow-based tycoon puts it, the problem is not with state ownership per se, but with this state in particular. The growth of Russian oil production has already drooped. More state oversight—meaning more graft and less efficiency—is unlikely to help.
My favourite though is the failure to outright say that the rumour doing the rounds in Moscow is that VVP has an economic stake in Sibneft - he owns the people who own the shares sort of thing.
Still, why is Mr Putin, hammer of the oligarchs, letting him walk away with all this cash? With whom will he be sharing it? There are rumours.
There are indeed and they make less than pretty hearing. Anyway good luck to the Kremlin theftocrats why work to make money when you can steal it in the name of your nation instead.

Short, Sharp and too the Point

Couldn't really work out how to describe the Gazprom/Sibneft merger. Adam Landes from Reniassance Capital cuts to the chase.

"Clearly, this deal is way below the market price and below a fair estimate of [Sibneft's] market value," said Adam Landes, an analyst at Moscow-based brokerage Renaissance Capital. "From an industrial point of view, it adds very little for Gazprom, and strategically it's a waste of time."

From the Daily Deal.


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28 September 2005

Raw Materials

If you read my ramblings you probably don't need me to tell you that the domestic economy is booming. Not just in Moscow, but in the Volga heartland, the oil towns and in strange places such as Novosibirsk. The growth in consumer spending is drawing in the multinationals from autos to cheese in search of growing markets and driven on at the board level by Goldman Sachs BRIC report (Brazil, Russia, India and China) (the link is to the original Goldman Sachs pdf report.) Russia provides a surer path to profitability than I & C but worse beaches than Brazil. I have half an eye on Russia's agribusiness industry, in particular the dairy and beef end of the business. Two headlines over the past couple of weeks caught my attention. Chronologically the first was Kraft's that they intend to be a major player in Russia's booming cheese industry. The second and the one that caused me to think about this post was Wimm-Bill-Dann's interim reports. Most analysts tend to focus on WMD's surrendering its leading position in the juice business to Lebedansky. To me the most telling statement related to its dairy business;

Sales in the Dairy Segment increased 20.1% from US$399.1 million in the first six months of 2004 to US$479.5 million in the first six months of 2005, while the average selling price rose 13.7% from US$0.73 per 1 kg in the first half of 2004 to US$0.83 per 1 kg in the same period of 2005. This increase was primarily driven by ruble price increases. Gross margin in the Dairy Segment declined from 24.1% in the first six months of 2004 to 23.8% in the same period of 2005. This change was primarily driven by the increase in raw materials costs and stronger demand for raw milk intensive traditional products in the regions.

In short what drove margins down despite above inflation price rises were a lack of raw materials. Domestic raw milk supplies are effectively flat. Any increase in sales has to be offset by an increase in dry milk crossing the border from the near abroad - Poland and Estonia. The supply problem is further exacerbated by the very poor quality of domestic milk. Maximum bacteria parts per millimeter in raw milk in the US is 100,000. In a dairy plant in western Siberia I trawled recently they were not particularly concerned by the count but did measure it. The average for the hot summers day that we were there was 700,000. Somatic cell counts were also very poor. The long and short of which being that the milk was worse for you to drink than unpasteurized milk and would be useless for dairy products that require high fat content - cheese for example.

I am sure that a behemoth such as Kraft is not going to announce a major expansion in to Russia without first securing its supplies. I just have not seen any evidence that there is meaningful investment in agribusiness that would supply Kraft, WMD et al. WMD made a strategic decision last year not to invest in upstream production. A mistake in my mind if they want to maintain an interest in the dairy business. It will be interesting to see how long WMD can pass on its costs increases to its customers.


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27 September 2005

Idiocy

Maxim Kononenko the author of the smile worthy satirical take on the daily life of Vladimir Vladimirovich Putin vladimir.vladimirovich.ru (Russian only) provides the only logical answer as to why the powers-that-be decided to cancel the visa for Khordokovsky's US/Canadian lawyer, Robert Amsterdam.

Khordokovsky is off to a penal colony somewhere where the sun don't shine for the next 8 years, it looks like his side-kick Platon Lebedev, probably won't come out alive. His appeal was a travesty of justice; fair enough, so was the trial. Why make the news last any longer - it's just plain stupid.

Without translating the whole of Friday's piece a quick synopsis. VVP is talking to Patrushev, the head of the FSB, and asks why they decided to expel Amsterdam. A non-literal translation goes something like this - "we have to do something truly idiotic from time-to-time; they expect less from us as a result."

Could not have put it better myself.

And to ensure that coverage is even a dig at George W. And my favourite joke of the moment.

Donald Rumsfeld is giving the President his daily briefing on Iraq. 
He concludes by saying:  "Yesterday, 3 Brazilian soldiers were killed."
"OH NO!" the President exclaims.  "That's terrible!"
His staff sits stunned at this display of emotion, nervously watching as the President sits, head in hands.
Finally, President looks up and asks, "How many is a brazillion?"


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06 September 2005

The Wheel Turns

Ultra Motors one of my favourite bizarre technologies to emerge from Russia makes its way on to the pages (sic) of Red Herring. Good work by Russian Technologies and Flintstone Technologies.

It has taken a while for the Company to make the break through that it's technology deserves. As always bringing in a good CEO in Paul Dyson seems to have made a huge difference.

They are out looking for cash right now.


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01 September 2005

Reiman Resorts to St. Petersburg Courts to "Prove" that he is Innocent

I should really start a section on the Reiman/Alfa battle. Back from my summer hols, obligatory school essay to follow, to discover that the MinSvyaz has convinced the Prosecutor's office to open a criminal investigation in to kompromat.ru (a Russian-language scandal website) for reporting that documents lodged with the courts in the British Virgin Islands allegedly show that Reiman took a $1mn bribe for easing a British businessman's way to obtain a license. Here's the link in the Moscow Times it will degrade in a day or so. I'll update when I find a permanent link.

The only thing that it proves is that the "law" is whatever the authorities want it to be.

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09 August 2005

Definition of a Smartphone

A phone that is smart enough to make you part with vast amounts of cash to acquire it but fulfills neither the function of a phone, a PDA or a camera (as if having a below par camera makes up for having a crap phone and PDA)

In the case of my Treo650 it also has French Workers syndrome. Thus if it is doing one thing and is required to do another the whole thing shuts down and takes 15 minutes of coaxing to get back to work.

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29 July 2005

Ukraine Heading Backwards

From the eponymous Moscow Times reporting on the collective head in the sand approach by Julia Tymoshenko announcing that there is no crisis in Ukraine.

The only crisis is that March 2006 cannot come soon enough for her so that she can stop pretending that she is working for Yushchenko.

The IRA

Ordered yesterday to "dump their arms" (from the Economist)the IRA's legitimate campaign finally spluttered to something like a halt yesterday. Though if someone could translate "dump their arms" that feeling of been here, done that may also come to a halt. It has that weazle-worded feeling that the IRA specializes in.

It will be interesting to see what happens to the likes of Slab Murphy who according to Families Acting for Innocent Relatives is more interested in his business activities. This Google search link provides more links and thanks to the advent of blogging more truth.
To paraphrase the Republican song; no more armoured cars, tanks and guns come to take away our sons

27 July 2005

Field Guide To Moscow

An excellent guide to the habitat in Moscow from the eXile. Once Moscow's most notorious newspaper (sic) unfortunately a rather poor imitation today.

A Civilized Way of Bribing

From A Russian Blog more thoughts on bribery in Russia, the whole post is here; Civilized Way of Bribing:

I picked this particular quotation from the bottom of the post because I think in an otherwise well thought through take on the changing rules of bribery in Russia this one is wrong.....
"The irony in this matter is that Russian businessmen know exactly that they are still giving good old bribes. Western businesses operating in Russia act as a crowd in a fairy tale delighted by the emperor new clothes. American, European or Japanese businesses hire a Russian – ‘a guy who solves problems’ – and are very happy with his incredible effectiveness and luck."
I forget the number of times I have seen western businessmen being led round Moscow by their "guy who solves problems" looking like a bunch of girl scouts at the annual outing of (a good analogy fails me). His main role is not to solve problems but to ensure that there are a constant flow of them so that he and the "problem" can share the fee. They are never proactive problem solvers but merely reporters of bad news. These guys have no skin in the game and believe that the only thing worth a dollar is a dollar.

When I took on the problem of solving the nationalization issues at Lomonosov Porcelain Factory it took about 3 months to get rid of all the hogs filling themselves at the trough. Once they had gone we could negotiate face-to-face with our problem and solve the issues.

If you want something done, do it yourself, or don't do it at all.

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22 December 2005

Fewer Cows, More Demand For Milk

Something must give. I have lost count of the number of firms announcing expansion of dairy-related products in Russia this year. Yet no one is dealing with the underlying demand issue. Cow population declines from Itar Tass.

Companies in low margin commodity markets, such as raw milk, are not managed well enough to regularly make money. There is so much easy money around at the moment, especially if you can sit on the coat tails of the Chinovniki; why work hard for it instead.

These imbalances in the economy are not factored in to inflation forecasts. A combination of increasing protectionism (import tariffs etc), surging consumer demand, the need to import raw materials (dry milk, meat etc) and the extreme rapaciousness of Customs will keep inflation above forecasts throughout 2006. The good news is that consumers are reaching deeper in to their pockets and tax-advisory businesses are making a mint as companies find ever cleverer ways of circumventing the rent seekers.


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What is Libjingle?

A post on Google's opening of it's Libjingle; one from the Mr. Malik with a very good post on the AOL/Google deal and then a little update on my favorite (sic) voice app being less than forthcoming about how SIP and GTalk will interoperate. That they will is fantastic, but why not be honest and upfront about the technological challenges. It's not as though the early adopter community don't understand that SIP is not entirely dissimilar to Churchill's view on democracy; Democracy is the worst form of government except for all those others that have been tried.

SIP is cludgy (ask Martin Geddes - it's a Scottish thing) and a very heavy protocol. It wants to eat your cycles and it's not ubiquitous enough for easy end user inter-operability. Until someone develops a better mousetrap it's the one we have. I look forward to the day when my GizmoProject app/softphone will talk to my PC's brethern's GTalk via an intelligble UI. Tell us its a problem and it will take time - we believe you.

But the real point is that Skype was a flash in the pan. I posted a long, long time ago that Skype would make money for its founders but not for its owners. I will place a very large bet that a SIP-based inter-op solution will win out in the long-term - shit I did already. Win is not an economic term for financial investors.

Prediction for 2007; SIP goes mainstream, in the way that Bluetooth now is.












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21 December 2005

Stalin's army of man-apes

As if you did not know where the GAI came from; Boing Boing: Stalin's army of man-apes:

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15 December 2005

FSU Software Engineering Skills

On the back of a small company called Skype it would appear that the great Soviet Scientific Legacy theory can be wiped down and rolled out. There is a fair point here that it is not just software engineering that does it but entrepreneurial skills as well.

The Wild East: In the New York Times today, a visit to Skype Estonia:

Foreign investors are swooping into Tallinn's tiny airport in search of the next Skype (rhymes with pipe). The company most often mentioned, Playtech, designs software for online gambling services. It is contemplating an initial public offering that bankers say could raise up to $1 billion.

Indeed, there is an outlaw mystique to some of Estonia's ventures, drawn here to Europe's eastern frontier. Whether it is online gambling, Internet voice calls or music file sharing--Skype's founders are also behind the most popular music service, Kazaa--Estonian entrepreneurs are testing the limits of business and law.

And by tapping its scientific legacy from Soviet times and making the best of its vest-pocket size, Estonia is developing an efficient technology industry that generates ingenious products-often dreamed up by a few friends--able to mutate via the Internet into major businesses.

These entrepreneurs grow out of an energetic, youthful society, which has embraced technology as the fastest way to catch up with the West. Eight of 10 Estonians carry cell phones, and even gas stations in Tallinn are equipped with Wi-Fi connections, allowing motorists to visit the Internet after they fill up.

Such ubiquitous connectivity makes Tallinn's location midway between Stockholm and St. Petersburg seem less remote.

Even the short icebound days play a part, people here say, because they shackle software developers to the warm glow of their computer screens. For the 150 people who work at Skype, Estonia is clearly where the action is.


Hat tip to A Step At a Time and, of course Om Malik (no link required......)

Russia warned on poor diet, lifestyle

On the same day that Scotland was acknowledged as having the fattest children in Britain: Russia warned on poor diet, lifestyle.

Anyone for more kolbasa?

Nokia plans phone with SIP client for consumer VoIP

Yup that should go down well with their clients otherwise known as mobile operatorsNokia plans phone with SIP client for consumer VoIP.

As the article notes this will not work with Skype. So it looks as though 30-40% of the cellphone VOIP market just got closed off. Excluding those who will actually go out of their way to install something other than what came in the box. Extrapolated from IE usage that would be 20% of users.

Does this mark SIP's resurrection. It has a certain Bluetooth feel to it; slated for years and then - ubiquitous?

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Lada Theft, Roland Nash and Social Spending

Roland Nash draws an improbable link between having his Lada (why would anyone steal a Lada) stolen, the appalling state of Russian government infrastructure and pre-election mis-spending.



Interviews & Opinions - News - News Agency PRIME-TASS:

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13 December 2005

Russian Liberalism

Konstantin from Russia Blog points out tangentially that different countries have different definitions of liberalism. I would like to think that the liberals that we all hope get to be the future of Russia are those described in the last paragraph. Put in very simple terms they suffer from a branding problem not entirely dissimilar to that faced by the British Labour Party pre-Blair and the current Conservative Party.

It would be better to say that they are believers in liberal economics - that is a smaller role for the state. Which is not entirely unsurprising when you consider the additional burden that the state in its role as truly organized crime applies to their business.

Anyway worth a read.

My Political Credo:
What's my political credo? I'm a liberal intelligent who supports the state although it sounds as an oxymoron. Sergei Roy, the editor of intelligent.ru (you find the English version of this site at the sidebar) defines it better than I do. Here's his thoughts about the poor state of Russian liberalism published by Peter Lavalle's Untimely Thoughts.

Putin is indeed a statist, and thus the opposite of liberal, in that he has stopped the country rolling along an inclined plane into the abyss of disintegration. By the end of Boris Yeltsin, the Liberal Pretender’s, rule, Russia was fast becoming an assemblage of fiefdoms that were “territories of free hunting” (Khodorkovsky’s phrase) for oligarchs/barons of two types, regional and financial-industrial, without a clear demarcation line between them. It came to pass that the biggest and the most impudent of these, Mikhail Khodorkovsky, made a grab for ultimate political power, buying the services of 250 deputies of the Duma and preparing to sell to a U.S.-based transnational 50 percent of the biggest oil company in the land, which would have put him beyond the reach of Russian law.

Putin put a stop to that, in the nick of time, and did some other things to restore the notorious “vertical of power,” which on closer inspection proves nothing more nor less than a functioning system of governance securing a more or less unified legal, political, and economic space.

What about Putin, the Statist Pretender’s, liberal credentials? Alas, they are no better than his predecessor’s. Although some of the oligarchs have been slapped into line, the oligarchy as a system of post-communist order is still with us and, which is more, it is thriving. Some of the members of Putin’s government – Mikhail Zurabov, German Gref, Viktor Khristenko – enjoy the tags of liberals, or neo-liberals, or radical liberals. In my view, these appellations can only be applied to these people if the word “liberal” has irreversibly passed into the swearword section of the Russian vocabulary. Monetization of social benefits was one example of their liberalism, housing and utilities reforms will be another. As a result of these liberal reforms, oligarchic profits (say, Zurabov’s pharmaceutical interests) will swell, while the populace at large will find itself in a still harsher grip of those oligarchic interests and at the mercy of the state’s handouts. Liberalism, forsooth.

I have stressed in the above the primary tenets of liberalism: freedom from state intervention and control over the sovereign individual’s affairs. In Russia, this principle has undergone a fantastic perversion: an owner or top manager of a company is free from state control and intervention precisely because he himself is the State – a government minister or a member of the President’s Administration. That’s what oligarchy is in a nutshell. And that’s what we have.

A few words on the subject of Russia’s political parties and liberalism – simply because they do not deserve more than a few words. I will leave Vladimir Zhirinovsky’s Liberal-Democratic Party entirely out of account; it is the proper provenance for the Public Prosecutor.

The Union of Right Forces, or SPS: Headed to this day by the founding fathers of oligarchic capitalism, it is a graphic illustration of the perversion of liberal principles, as described above. Chubais’s call for a “liberal empire” is a classic, in this respect: it will be an empire for a few “liberals” up top, just as it is now, and the masses vainly awaiting liberation from the slavery of poverty, at bottom.

Yabloko, the left-leaning branch of the liberal intelligentsia: For one thing, it is tarred with the oligarchic brush, much as it would like to expunge that memory. For years it fed out of Khodorkovsky’s hand. For another, it has shown a readiness to take Russian liberalism to a point at which Russia would simply disappear. During the 2000 presidential campaign, Anatoly Chubais had every right to call Yabloko head Grigory Yavlinsky a “traitor,” very publicly, on NTV, because of Yavlinsky’s stance on policy vis-?-vis Chechnya. I would hate to agree with Chubais on the time of day, but here he hit the nail right on the head: any concessions in the matter of Chechnya’s independence mean one thing, and one thing only – wave after wave of Islamic fundamentalism hitting Russia from the Caucasus, threatening to split it right down the middle, along the Turkic-populated regions of the Volga. As president, Yavlinsky would one day be crowned with the same laurels of Russia’s destroyer as Mikhail Gorbachev and Alexander Kerensky before him, not counting the scum that started the Times of Troubles.

So, aren’t there any true liberals left in Russia? There are. We are simply looking for them in the wrong places.

One locus is the same as decades and hundreds of years ago: the liberal intelligentsia. True, its role is pitiful right now, reduced to criticizing the current state of affairs and preaching to the younger generation that things can be different from the existing heap of manure as long as they keep the faith. A sad role, but a necessary one, and there are enough memories to sustain the intelligentsia in this role; it has seen much worse times. Words can barely say just how much worse they were.

The other agent is a much more robust one: the non-oligarchic capitalist. His fate is perhaps even worse than the pensive intellectual’s, for it is he who has to grapple with the forces of the bandit bureaucracy, the pressure of bandits in the more traditional sense, and of oligarchic monopolies. These people would be very much surprised if you informed them that they were the brightest hope of liberalism in Russia. Yet that is a fact. Of course, they are mostly extremely rough diamonds, their esthetic taste is abominable – you only have to look at the “castles” they are building all around Moscow or any other city. But, as Anna Akhmatova said, “If only you knew out of what garbage poems grow, unaware of shame.” Liberalism seems to be akin to good poetry, growing out of garbage. Among other things.

12 December 2005

Stasi and the Yukos Sell-off

A Step At a Time posts on the not-so-mysterious relationship between Putin and the Head of DrKW's Russia business. Stasi and the Yukos Sell-off:

Tom Parfitt, the London Telegraph's Moscow correspondent, on a new headache for Gerhard Schroeder:
Opponents of President Vladimir Putin are calling for an investigation into his links with a German banker who was exposed last week as a former East German spy.

Documents uncovered in a Berlin archive revealed that Matthias Warnig, 49, who played a leading role in the controversial forced sell-off of part of the Yukos oil giant, was once an agent of the East German secret police, the Stasi.
The two banya together frequently - which is why presentations have to be laminated. Enough said.

09 December 2005

Nafta Moskva and Mostelecom / Mosteleset

Seems as although the logic of the Mostelecom deal is pretty strong that there is no great strategic or tactical plan for it. Another wasted asset.

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Nafta Moskva and Mostelecom / Mosteleset

Seems as although the logic of the Mostelecom deal is pretty strong that there is no great strategic or tactical plan for it. Another wasted asset.

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Duma passes foreign ownership changes for Gazprom

The painful death march to a fully-tradeable Gazprom share gets a step closer Duma passes foreign ownership changes for Gazprom. The ultimate in the no news story. I wonder what the government will use to keep the financial community happy after they finally pass this in to law when they do something truly stupid (again.)

Skype

Some of the most powerful bloggers on the future, or lack of it, for the telecom industry have had a real go at Skype recently.



Here from Om Malik on legitimate comments on Skype 2.0 (albeit as a Mac user I had to kick an analyst off his PC for a while to play with it - no worries we don't pay him to have a life so he did not mind staying late anyway.)



Here from James Enck on the Yahoo offering and Verso's Skype-blocking.


And then one from Andy Abramson suggesting a little unease inside the company. As James has it the comments emanate from the West Coast and make significant reference to problems in the Estonian development center.


I have no reason to like or dislike Skype as a company (I have a different take as a technology and a further view as a service) but have an opportunity to sell a voice-engine that could replace the stranglehold that GIP's has on Skype so am always interested in a bit of salacious gossip.


Being somewhat closer to Estonia than the esteemed bloggers of the West Coast it was a little easier to have a same time of the day conversations with friends of friends. For those of you who are interested Estonians are a strange mixture of Swedes without the welfare state and Russians without a bottle of vodka. It makes them somewhat reserved and very self-sufficient. If your only interaction with an Estonian of any kind was Steve Jurvetson then you would be very surprised to meet a real Estonian. Steve would also throw many aliens off track if they captured him as a representative of the human race.


Anyway the local Estonian take on the unhappiness in Skype's ranks does not seem to ring true with the Estonian R&D center. Yes its strange having a bunch of strangers constantly wondering through the office - but changes seem to be minimal at the programmer level. There was also a little head scratching at the management change in London allegations.


Now I am not a Skype insider and I was fishing for information on the role of GIPS as a core part of the Skype offering so lets not pretend that I was getting all the story, but it does not fit with what is being blogged as gospel truth.







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07 December 2005

Nafta Moscow Acquires Mostelecom

Mostelecom (Mtk), the inappropriately named carrier of free-to-air television to the older apartments in Moscow has been acquired by Nafta Moskva. Nafta has now acquired Mostelecom and National Cable Networks (can't find a link to the story) in the past 6 months.

Mostelecom pipes between 8 and 14 free-to-air channels to about 3 million Moscow households, the cable network overcomes the frequency and power issues that free-to-air broadcasters cannot overcome from the Ostankino tower. It's a slightly strange network in that Mtk broadcasts to a series of mini-headends around Moscow which then pipes the signal in to the housing blocks via some very old and crappy copper coax. There is no upgradeable capacity in the network. Mostelecom's value is its rights of way access to (admittedly not the best) homes in Moscow and about $6mn in monthly revenues. Which assumes that Moscovites pay their utility bills.

The salacious gossip is that the real purchaser was not Nafta Moskva but the previous TV Minister and VI shareholder, Mikhail Lesin.


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06 December 2005

Reiman vs Alfa - Ongoing

One of my favourite ongoing stories has a brief pre-New Year flourish. Which was of course denied by the MinSvyaz. Also reported in the Moscow Times, but as their archive policy was created by a half-wit in the middle of a zapoi there's f**k all point linking to it. This time it's the WSJ, whose online policy was also designed whilst in the middle of a zapoi (uncertain of my grammar here), who have picked up the investigative torch from the FT.

In trying to find a news source that had heard of Web2.0 I found this piece from Tass on Aton's website from July 2005. The pertinent quotation is:

"So far, it seems that Galmond, apart from the Commerzbank managers who have already fallen on their swords, is the one big name in the investigation truly in the firing line."
I have personal interest in the story and thought that I was pretty much up to date with the news - I had however missed a Zurich court ruling;

"In 2004, the same Zurich Arbitration Court now demanding further investigation into the actions of Commerzbank, Galmond and Telecominvest, made a partial ruling that IPOC Growth Fund Ltd. had not completed the option for the purchase of CT-Mobile, and that Galmond had been guilty of falsifying documents."

Pretty sure that it will end badly for someone, but I am still not convinced that the someone may not be Alfa.

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Another Member of the RenTV News Team Resigns

"Was She Pushed Asks Humpty Dumpty"

Not sure whether this is internal politics, monumental arse licking or active suggestion I don't know. As I posted earlier there is no freedom of news broadcasting. Anyway another one bites the dust. Head of Russia’s Last Independent TV News Service Resigns.


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05 December 2005

NTL Swallows Virgin

I know I really should have been a Sun headline writer.



James Enck on NTL making a formal approach for Virgin Mobile.


Either that makes Renova's acquisition of Korbina (see previous post);


  1. Prescient

  2. Ahead of its time

  3. Not a bad deal but massively over-priced

  4. Stupid

He describes the deal as:



"no respite from the deflationary spiral which is our beloved UK telecom market"
So what does that mean for the PE players trying to forecast stable revenue for their LBO's?

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01 December 2005

Truth Stranger Than Fiction

I posted a while ago about the phenomenon that is the outsourcing at the FSB. It took a while for the NY Times to run it past its lawyers but here's the fuller story.

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Licensed DVDs Cost Too Much

Without getting overly cynical about a member of the Federation Council worrying about DVD prices this is a follow-up piece to My Friendly Local Video Kiosk Is Under Remont and tangentially about Korbina. Daniel Nezerov commented in effect that Hollywood's business model is broken. And to be fair to the VC blogosphere so has everyone else. This piece in the Moscow Times quotes a member of the Federation Council saying that there is little point trying to stamp out piracy if the narod cannot afford to buy licensed DVD's.

Being sure that Hollywood's business model is broken is very different from knowing how to make money from remaking it. It is now a pressing issue. As I pointed out in the Korbina link hi-speed internet ARPU's are on their way from $22 (ex-VAT) to $15 per month over the next three years. Additional services are essential to milking leveraging the investment in the network - however cheaply and well made they are.

For a number of reasons;

  • 1. 14 channels of free-to-air
  • 2. No meaningful cable only content
  • 3. Must-carry provisions
  • 4. The historical development of cable in Russia where crappy 250mhz networks carrying no more than 14 channels
cable TV has yet to take off in Russia yet. We are seeing better results outside Moscow and St. Petersburg where the competition for entertainment disposable income is a bottle of vodka and increasingly beer.

So if film and Hollywood content is the way to lure customers to buying premium packages, sports being the way, and the most recent blockbuster is being sold in every kiosk at Rbl90-120 ($3-4) what should the answer be and how should it be delivered? The simple answer is to make it easier to buy licensed than pirated; and that does not mean making the pirates go underground it means making licensed content really easy to pay for and watch. Whenever, however and over whatever medium. Acknowledge that however strong the DRM (an anti-consumer 4 letter word) protection someone will find a way to rip it off. So be it; as long as content is being sold at a fair price in a way that allows the user to view it as and when he/she wants then the needle will swing (violently) toward licensed versions. If iTunes isn't a lesson in fair-(ish) use there was no lesson.

I asked the head of Micorsoft's business in Moscow how she felt about competition from Linux about a year ago. Not bothered she said. I awaited the M$FT bullshit. She followed up with the view that her competitor was not Linux, OpenOffice (whatever) but pirated versions of Office et al at $10 for Office. Good point well made. The analogy is not easy to make but the point is the same. The competition is the most efficient business machine. It's input cost is close to zero and will charge whatever it can get away with. It will invest nothing in marketing or customer relations.

OK so that was the easy part; Hollywood busted, Russian piracy, poor cable TV uptake, booming consumer market. Any half-baked hack can write that part. The answer that makes money is so much harder than the question. In an environment where the only thing that costs a $ is a $ there are precious few opportunities to play the Hampton Court Maze game. The only way is forward.

Is it better to be the market leader setting the trend or the guy who has the subscribers and an open mind? Answers on a postcard please...

The technical answers are relatively simple; I just can't see the business plan without Hollywood's backing. And that's not an option to bet your hard won cash on.


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GMail

I really like - but I live in and for email so it joins one other account in Apple's Mail as a POP download. Though when I have a bunch of Gmail mail to deal with I'll switch to the browser and work in it. And I love the GMail in Basic HTML view. It feels really clean and to me (de gestibus non est disputandum) way more intuitive.

30 November 2005

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC

Group of Private Equity Firms Launches $36.12 Billion Bid for TDC. A collection of very smart people spending a lot of OPM to buy an old fashioned telecom company.

Are old fashioned telecom companies really a stable source of cash flow? Who do you sell it to?

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29 November 2005

The Glass is Half Full; The State vs um.. the rest of us

The very clever Mr. Nash of Renaissance Capital opines that in fact the glass is half full. As he is very clever it has to be admitted that he has more than half a well argued point. It is unlikely that the Chinovniki will be any more successful at running car companies than GM for instance, albeit with lower health care costs. So let them keep their heavy machines and extractive industries and let us get on with retail banking and providing services to consumers.

My problem with his argument is that I spend most of my life (the part when I am not I am either asleep or trying to be) interacting with the the owners of the new businesses that drive VVP's economic dream. As the big bosses get their hands around such giants as Kamaz and Avtovaz (and they are welcome to both - as a Brit they equal the quality that was once Leyland, remember it? Exactly) the junior bosses are getting hungrier; the price for delivery of a container through Kotka, Finland before the end of the year increased Monday 1.8x (that's 180% for those of you who prefer stats that way). Of that 180% increase about 30% can be paid white i.e. it can be officially paid and can therefore be deducted from Net Income, in addition a special delivery by New Year price was introduced on the same day of $450 per container. So let's be clear - you could pay the 180% price increase and the risk is that the container would not make it in time for the big buying season unless you pay another $450 per container, or in reality $596 as it cannot be deducted from Net Income.

These rapidly growing businesses are always looking for more cash. In the absence of reasonable bank lending (in particular inventory financing) the private equity guys would appear to be a good port of call. But they demand that the businesses run on the white side of grey-white. Meanwhile their competitors turn to government-sponsored money and run grey-black under the quasi-government roof. Good management will win out at the end of the day, whichever way the business is run - it's just remarkable that they tend to be at the whiter end of the spectrum. But in the meantime unequal competition means that sticking to the clean road is not always easy.

The State also impacts entrepreneurial business through its access to cheap money. An infrastructure company I am a shareholder in, and board member of, was offered a 5 year 9% loan with 2 year capital repayment holiday by such a Government sponsored company. That's LIBOR plus 3 for a business that will generate $6mn in revenue in 2006 and will invest every $ it can gets its grubby hands on. In a WACC calculation that means the debt is cheaper than the equity. Not that WACC calculations are worth the time calculating, but that's another story. That's one hell of a market distortion.

So my glass remains sceptical.


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Special Economic Real Estate

Today Gref announced the formation of 6 special economic zones. I was asked to get involved with a putative bid in Academ Gorodok in Novosibirsk which failed and with the Dubna effort which subsequently succeeded and two others that never got off the ground in Moscow. I turned down all the invitations as it was clear that the real reasons behind the bids were either fantastically idealistic (i.e. had not a cats chance in hell of succeeding) or were designed to assist companies that had political clout to make money on a. real estate and b. by lowering taxes on already profitable businesses or c. assist high profile unprofitable businesses compete unfairly against lower profile profitable ones (hint: if the CEO drives a new Merc and you lose $2mn+ a year the formula should return an ERROR.


It would be fair to say that Zelenograd SEZ will not assist micro-electronics in Russia nor will Dubna assist nuclear and physics technologies (sic). Dubna will find a way to build an offshore programming center which will fail to challenge Bangalore and Zelenograd will become the center for the manufacture assembly of PC's, notebooks and servers.


But the best job to get is the real estate developer. Funnily that was never on offer.


BTW my mood and the weather are in lock step and I will retain my heightened level of cynicism for one more month until I run for the sun.



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My Friendly Local Video Kiosk Is Under Remont

According to Kommersant the reason is an order from on high to cut down on piracy. My friendly video kiosk is in the underpass that sits directly in front of MID (Ministry of Foreign Affairs) and could be relied upon to provide a never ending host of truly crap movies. You have to imagine that a number of WTO negotiators passed through the hallowed doors of MID and might have had a reason to go through the underpass.

Kommersant come up with two principal reasons both of which are probably true; firstly WTO negotiations are reaching the tipping point so Russia needed to show that it was serious about clamping down on piracy. Secondly because the Prosecutors office has pushed the Militsia to show that it can actually do something about economic crime that is just mildly obvious.

It seems that most of the kiosks closed themselves down following a friendly hint from the local police. Time to keep your head down as the Militsia will need to replace their income sources.

The interesting fact that most of the retail points was locked up by owners themselves –that was their response to the action. “Those, who stayed open, took off all counterfeited merchandises and currently sell only licensed Russian games. Those, who sells DVD has only licensed copies of “9th Regiment,” the owner of the kiosk, which is located near Komsomolskaya Square, told Kommersant. “I don’t know when all this would be over. Some people say on Wednesday and some after the elections in Moscow City Duma.”

I love the Russian cynicism about their imminent return - maybe Wednesday....

I am not sure that I understand the point that they are making about the conflict between the Prosecutors Office and the Militsia (copied below for your enlightenment). Needs to be read in the original. The Prosecutor's office was the main instrument in the attack on Yukos (no link required) but if it is going to push the Militsia in to doing their job I might even be marginally less cynical about them.

"According to another point of view, the large-scale police operation is a consequence of the conflict between the General Prosecution of the Russian Federation and the Interior Ministry of RF. In September of this year, General Prosecutor of RF Vladimir Ustinov harshly criticized police for their inability to fight with pirates. “The antagonism between Interior Ministry and Prosecution over the investigation of the crimes for Article 146 of Criminal Code, is widely known. The quality of investigation documents provided by the police to prosecution in the pirate cases is awful,” Yuri Zlobin, head of the association Russian Shield. “I think, that in this case Interior Ministry wants to prove prosecution that it can fight effectively with pirates. The ministry hopes that after this action the law would get an amendments, which would allow police investigate these cases by itself (currently it is a competence of prosecution –Kommersant). Then, police would have a better ratio of cracking media pirate cases because it would collect the evidence, interrogate suspect and make arrests without constantly asking Prosecution for orders.”

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26 November 2005

TNT, Ivanov and TV Media

MosNews reports that TNT has taken Olga Romanova off the air allegedly because she reported that Sergei Ivanov's son would not be charged for killing a elderly women whilst driving. You would have to look pretty hard to find that piece of news in the Russian language.

It does not mark the end of free speech on broadcast television; it was already dead. It is however, another example of the 5th directorate thugs believing that they can control the flow of news when it proves to be embarrassing. The good news is that the Russian narod are at least 2 steps ahead of the thugs and no longer get their news from the television.

23 November 2005

The VoIP Shakeout

The king of broadband comment correctly points out that there is the beginning of a VoIP shakeout. To give him his due he is rarely wrong and admits it when he is.

I think that the more nuanced message that should make itself heard above the din of badly researched acquistions is that very few pure VoIP service-providers pretending to be pure communication devices will survive the death rattle.

I do like the technology that underlies the game. Global IP Sound is a little overvalued (work out the link) but there are others that have been built with smart engineers with an eye on the web and telephony that will make their owners a small fortune.

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21 November 2005

Irrational Gas Exuberance

This plain stupid. Victoria found some gas in Eastern Siberia (ergo no infrastructure) in a country where gas is uneconomic sold domestically and export gas is sold by Gazprom, which also controls the pipelines. Meanwhile, value trebles. Go figure.

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Korbina Telecom

I have been a little quiet in the blogging front due to the pressure of work (and the fact that it is dark in the morning which makes getting out bed difficult).

However the purchase of Korbina Telecom by Victor Vekelsburg of Renova fame forces me back to the keyboard.

As the Kommersant article points out a part of the Renova empire is the de facto majority shareholder of Comcor TV or Moscow Cable Com a NASDAQ listed entity (MOCC). For the financially-minded amongst you ignore the per household stats which are a result of thin liquidity not meaningful numbers of around $178 per household passed. MOCC's own stats page highlight the difficulty in selling premium pay TV services to a Russian public that already has access to 14 (or so) free-to-air TV channels. The problem is exacerbated by the lack of meaningful premium content. Discovery TV can be entertaining but it does not create a ROI on network investment.

Korbina, like its privately held competitor, Korvette Telecom (Russian only) (you will find both under the moniker of Corbina and Corvette Telecom K in cyrillic is C in English) (disclosure - where I am a shareholder), is deploying 10/100 gigabit ethernet networks in the sleeping regions of Moscow providing high-speed internet connection to retail subscribers. ARPU's (including VAT/NDS) tend to be in the $22/month region. In the longer established regions penetration rates are around 18% of households passed.

MOCC on the other hand employs a traditional hybrid-fiber coax ("HFC") network. Comparable capex per household passed seem to be $60-ish for MOCC's HFC network and $17-ish for the ethernet network. A recent network audit of the ethernet network by the previous director of network at UPC Broadband was exceedingly enthusiastic. Very simple (stupid) networks with high-throughput potential, well-engineered and very cheap to maintain. Today these ethernet networks only offer retail internet and provide no other services. It is clear that ARPU's will drop over the next 3 or so years to around $14/month so other services will have to replace the lost revenues. There is work ongoing and I would not be surprised if one or other of these companies becomes a trial user of meaningful IPTV-type services.

Possibly a good example of a technology leap-frog? The question to me is whether this will create a meaningful competition to the weight of money behind MOCC and StreamTV, part of the Sistema Group (Russian only.)

I bumped into MOCC's COO in the gym yesterday; whilst he was aware of the Korbina purchase there is as yet no explicit desire to merge Korbina's internet business with MOCC (Korbina is also a MVNO). I hope it stays that way for a while as a MOCC-Korbina merger employing ethernet networks would be a major competitor, in a market where there are already enough well-funded but customer unfriendly players.

Meanwhile the ante-deluvian Mostelekom (Russian only) is being fought over. Mostelekom connects 2.5 million of Moscow's approximately 4 million households with very old copper. If some real oil money gets behind it a large part of the market will be cornered.


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10 November 2005

The Bill & Ozzie Show

From the omnipresent Om Malik on the The Bill & Ozzie Show. A bunch of people more qualified to comment than I have done so - so I won't on the story. But I will on the process. As Om states;
So Bill Gates and Ray Ozzie dropped two memos to the Microserfs, and then somehow they got leaked to the media and more importantly to Dave Winer.

Which is pretty much how I read it on the FT with my muesli this morning - that it was leaked to the mainstream press as a strategy and therefore was not a leak. If it had been a real leak the first people to have reported on it would have been the blogosphere. It was supposed to be a clever piece of marketing that not only failed to hit its mark with me but achieved the opposite aim.

Could the marketing department consult with Scoble before launching a bollocks strategy like this.

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05 November 2005

Inside Moscow

It has been 13 years since the Soviet Union added the moniker former. However, I am still asked by acquaintances outside Russia about our ability to get hold of things. As if we spend half our lives in food queues. For the longest time we were unable to get hold of "english" sausages. This problem has been solved by our friend Rostov John. Proper, as opposed to American-type, bacon is still a problem, as is Marmite. As you can see what I miss here is cultural, not shortage-created - god forbid in this city which worships consumerism.

Bread however, good bread has always been a scarce resource. Local bread has a certain similarity to the northern German variety, hard and not great for a bacon sarnie - something to do with flour varieties. There is also a hangover from Soviet days when the rumour was put out that fresh bread was bad for you. My (english) father-in-law was told the same thing during post-war (WWII) rationing. The idea being that you finished the last bread before starting in on the fresh stuff. Hard and semi-stale bread is not a great mix.

Life has just got marginally better. This post is accompanied by a cup of espresso, freshly-brewed at home, and a chocolate croissant from the new French Bakery. Not quite as good as the real butter variety I consumed in New York last week but pretty damn good all the same.

Time for another.....

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25 October 2005

That old chestnut - how do you measure innovation? From the FT (don't think that it's subscription only).

"The warning should be heeded by those western observers who, dazzled by China’s rise in basic manufacturing, breathlessly proclaim it is destined to become a global leader in science and technological innovation."
Many of whom should know better that China's centrally driven economy has as little chance as Russia's technoparks of succeeding. I sat opposite one of the scions of Valley investing as he breathlessly proclaimed that China was the next "BIG" thing. He knew as much about China as I do about innovation in the UK; Enough to sound knowledgeable, little enough to be enthusiastic.

Innovation is about breaking apart business models; Skype is not a new technology but it has more innovation in its business model than the outstandingly technologically brilliant SJPhone had for breakfast. End result - Skype - $2.6+bn SJPhone 2.4Rbls.

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British Petroleum - Kremlin secrecy talks

With thanks to Siberian Light for this one British Petroleum - Kremlin secrecy talks:

A lot of stuff from MosNews the long and short of which is.......The best outsourcing company in the world ever, otherwise known as the FSB scams itself more revenues.

A source close to TNK-BP said that the company was forced to replace foreign directors and to outsource all the work with maps and secret information to Russian companies.

To be frank the scams just get more pathetic. Look for the line in TNK-BP's accounts in 2006. Fees paid to useless idiots to do nothing in order to keep some malignant form of government of our backs.

A company who uses my services is raising money at the moment. The company imports stuff, quite a lot of it really. A potential investor wants to know how "white" they are.

a - "Except for customs; completely...."

q - How much does it save you

a - nothing

q - why do you do it

a - because we like our goods to arrive in the same millenium

The rules have changed recently - now the real rules are applied. It just costs more to get a certificate that badminton rackets are not dangerous ($1,000 per consignment through DME) and storage costs for non-storage in customs now equal 60% of COGS. All in costs to play according to the rules - "other" in COGS = 90% of COGS.

Long live the Chinovniki.....

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How To Make a Small Fortune

Start with a large one. Screw your best friend. Have him made persona non grata. Invest in a President to ensure that your stay-out-of-jail card remains valid. Invest in a football club. (Employ a bunch of useless bankers, sorry the first letter was a w) and at the end of the day, or at the end of the end.

A SMALL FORTUNE.............owned by someone else.

However, Sauer believes the motivation is simpler. He lives in a posh suburb of Moscow, where his son plays football with Abramovich's, and after 16 years in Russia he is an anthropologist of the oligarch tribe. Sauer explains: "These people have money, but they don't have status, so what do you do? You try to acquire status. In 1920s America there were tycoons who did exactly the same. They bought newspapers, went into art, that sort of thing

Oil Money Pumps Into Football - and who said I could not make it as a Sun headline writer.

p.s. congratulations to Derk who got out without selling his soul. Unlike his successors.

If you care I live here. Who says there is no free press.

24 October 2005

Blogs for Investment Banks

Interesting piece from Wired on blocking Blogs from Investment Banks. No Longer Safe For Work: Blogs. Not necessarily because it says anything that we don't know about Investment Banks ability to bury their head in the sand, but because of what James Enck has to say about the value of research to his buy-side clients.

The sort of research that I mostly require comes from Blogs. From time-to-time I need hard numbers, but mostly I need smart people to think about how the future, both immediate and medium-term (tomorrow to 5 years). People such as James do a great job of doing that.

A Strange Concept for Russia

From today's FT. It requires subscription so I have pulled out a line. There remains a mental block amongst the political elite that the Narod have a sort of mind of their own. It can be influenced but is increasingly resistant to manipulation. The greatest risk to economic stability is a failed transition of power.

Manipulation alone is not enough. Real appeal is required.
FT.com / Comment & analysis / Analysis - Righting the Orange Revolution

22 October 2005

Khodorkovsky Sent To Remote Siberian Camp

Khodorkovsky Sent To Remote Siberian Camp:

"Our country is headed by small-minded, vindictive people. Mere revenge -- that's the only motive."

Pretty difficult to be any clearer about the Fifth Directorate Thugs.

21 October 2005

What's the Difference Between a Developing Market...




What's the Difference Between a Developing Market and an Emerging Market



None; they both make money. A grab from the front page of this evening's FT.com

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18 October 2005

Sources and Uses of Russian Technology

My mornings are fairly standard, albeit that crawling out of bed thing gets harder as winter approaches. Sometime between 8 and 8.30 I am sitting at my computer scanning the overnight email and reading the morning news. This is a combination of RSS feeds via the wonderful NetNewsWire and traditional news websites.

It struck me last night that these break down in to two separate groups. The international news I read via RSS feed, including my sports news but with the dishonourable exception of The Deal. Any news that I read on Russia has to be read on the original website.

A comment on this Blog reminded me of Esther Dyson's $10,000 bet that Russia will be the world's leading software developer by 2010. Brilliance in software engineering is a good thing, but if that code is written in isolation then it may not serve a greater good. Web2.0 has the technology world jumping and down with joy, particularly if you are Sergei and Larry. There are deals being done all around the blogosphere. Wikis and Tiddlywikis (my current favourite if I can work out how to make it work for me) will make a significant difference to how we work in the future. If you are not deep in to this then the chances are that you will not be engineering software to change the future.

Offshoring companies like Luxoft (by the way you desperately need to change your ad copy) and Epam Systems probably don't care. I do because if Russia does not address innovation and soon the very bright will go and work elsewhere.

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16 October 2005

Russian Securities Agency Wants to Limit IPOs Abroad

Yet more geniuses, or is that geniae, at work Russian Securities Agency Wants to Limit IPOs Abroad. Has been tagged as a Kanutian policy(as in King Kanute).

Update - I decided, on reflection, that it is not only Kanutian but also Phyrric.

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FT on Russia/EU Relationships and Democracy

Philip Stephens associate editor and senior commentator at the Financial Times is my favourite columnist. He has written defendable sense ever since I first started reading him. They include some pieces on Northern Ireland which were truly fantastic. He may have been taken in by Blair's now a Christian, now a politician Jekyll and Hyde personality longer than the body politic - or maybe until his book was published - but it was not a fundamental error.

He is primarily a British political commentator who occasionally strays in to US politics. This comment (subscription only) on the relationship between VVP and the G8 is maybe a little outside his normal beat. Except that it was obviously informed from inside the British body politic. His comments regarding the differing views of VVP by Bush and Blair highlight fundamental foreign policy differences. More concerning were his distinctly unpolitic comments on the relationship between Berlusconi, Chirac and Schroeder and VVP are actually scary. It's rare for an article on Russia to leave me feeling depressed about both Russia and the EU. This did both.

Acting subserviently in front of the Imperium will leave only a sore ring. Whilst none of the soon to be ex-leaders-of-EU countries is a great believer in democracy (or the act of voting - which seems to be democracy's lowest common denominator) they are not, nor will they ever be as cynical about it as VVP and the Fifth Directorate Thugs. I remain ambivalent on whether democracy has been harmed by Putin's term in office. But Russia's ability to project beyond it's borders has grown massively. Fortunately the idiots running the lunatic asylum have yet to learn that their soft power is so much more powerful than their hard power. Lets hope that the EU develops a spine before the inmates elect someone whose competence extends beyond being able to resist a bottle of vodka.

Apologies for the quality of this post - read Philip's article.

Oil Spreads Wealth in Russia, and Russians Are Spending It on Foreign Cars - New York Times

The New York Times published a long article earlier in the week on the auto industry in Russia. There are lots and lots of great points on the opportunities for the global car manufacturers to sell cars with such strange accessories as brakes, windscreen wipers that actually remove the muck from the windscreen and, vitally important when its -10 outside, heated car seats. The article is worth reading.

If the NY Times could explain to me its headline Oil Spreads Wealth in Russia, and Russians Are Spending It on Foreign Cars and the inherent link. Now if the article was about how the Ferrari dealership sold out on the day it opened, or the Bentley dealership just down the road from Lubyanka whose opulence actually intimidates me I might be a buyer. But lets examine who is buying Hyundai's, and Ford Focuses and Kia's and Skoda's. They generally don't work for, own or steal cash from oil companies (the obvious link). A tiny few work for companies that service oil companies, auditors, lawyers, and the army that is required to look after the BP expats-wives (known locally as BP Princesses). But to be honest they always earnt enough to not have to buy a Hyundai. The lucky few who feed off the cash that falls from the tables of the super-rich oil men in Moscow have not grown more numerous over the past few years. Nor are the oilmen of Siberia driving demand. Nor are the Government's overflowing coffers causing cars to be bought. The cash that Putin just spent on pensioners, teachers and doctors is not going to buy cars. It might change consumtion patterns towards higher value goods, but they will still be necessities, not niceties like cars.

A better headline should be "Growing economy Sees Greater Wealth Trickle Down." This is a boom driven by local consumption that spreads its wealth far more rapidly than oil will ever do. Oil creates corruption and the corrupt don't drive Hyundai's.



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DFJ Nexus

My ex-colleagues at DFJ Nexus, are confident that they will have a first close of their tech fund targeting technologies emanating from Ukraine, Russia and the former Soviet Union. Venturewire has the article.

I remain an advisor to the Fund and wish them well. I fought to raise the same fund for 18 months with people who knew what they were doing - we failed. The fact that they are succeeding means that they are doing something better than we did. Notwithstanding I believe that making money is going to be a long haul.

Udachi.

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13 October 2005

Russian visas and the cost of business

Siberian Light posts on the costs of getting a Visa for entry to Russia. Below are his direct and assumed costs.
Here’s (roughly) how I broke down the costs:

$350: My time for one full day (approx 1 full day)
$500: My colleague’s time (approx 3 hours)
$250: My Partner’s time (approx 30 minutes)
$500: Our Moscow office’s time (approx 1 full day)
$200: Actual visa fee (we were in a hurry, so had to express it)
$100: Travel agent (for courier to stand in line)
$100: Couriering documents back and forth
As he points out it is the time and pain cost that hurts the most.
I had to liaise with our Moscow office, going back and forth, to ensure that my colleague provided enough information about his stay for them to fill in the forms and stand in line for hours at the Ministry of Foreign Affairs - just so they could get an official invitation
My colleague had to head out into town to get new passport photos taken (in matt finish, of course - and where can you find a machine printing those nowadays?), before collating all the documentation necessary to fill in his own visa application formI had to write an introductory letter, signed by a Partner, confirming that my colleague was indeed employed by the firm, and that they would be financially responsible for him
We had to employ a courier from a specialist firm, whose only responsibility was to queue up for hours on end at the Russian embassy, handover the paperwork, then collect the finished visa.

So far our (wife and I) costs this year must easily exceed $5k:

3 nights in Zurich airport hotel on way back from New Year holidays because the visa was not ready "due to the holidays." - 3x2xEuro150 = Euro900 (plus incidentals like eating)
1 Day Visa Processing Cost - Euro200 (ish)
3 Returns to Consulate in Bern Euro300 (one hell of a railway)

6 Months later
2 same day processing for visas - GBP800
2 return flights to UK (OK there are other reasons as well) - $1,800
Time spent with mine and my wife's family - uncountable.....

And we are still trying to get them registered.

12 October 2005

Blonde Jokes

Rather than emailing everyone who with a random joke I will post it instead. There will be a cultural miss here if you have no idea what Frosties are or who Tony the Tiger is for that matter.......

A blonde calls her boyfriend and says, "Please come over here and help me.

I have a killer jigsaw puzzle, and I can't figure out how to get it started.

"Her boyfriend asks, "What is it supposed to be when it's finished?"

The blonde says, "According to the picture on the box, it's a tiger."

Her boyfriend decides to go over and help with the puzzle.

She lets him in and shows him where she has the puzzle spread all over the table.

He studies the pieces for a moment, then looks at the box, then turns to her and says: -

"First of all, no matter what we do, we're not going to be able to assemble these pieces into anything resembling a tiger.

"He takes her hand and says, "Secondly, I want you to relax. Let's have a nice cup of tea, and then....." he sighed,

"let's put all these Frosties back in the box."

07 October 2005

Stoppard in Minsk

My wife (SWMBO) and I sat opposite Stoppard and Arkady Ostrovsky when they arrived in Moscow after Minsk. A classic bad Friday night after a long week we were drinking and eating and drinking to end the week, Stoppard was listening to his guests.

Not sure what made me Google him; this is the result. It's difficult to pick out outstanding sections of this. It's all outstanding; here are some quotations to convince you that I am right. read it.

This is a rubber-stamp "democratic republic", with the last collective farms, the last KGB, the last dissidents in the pre-1990 sense of the word, and - in President Alexander Lukashenko - the last dictator in Europe.

The journalist Dmitriy Zavadskiy was a young man who worked for the Belarusian affiliate of ORT, Russian public television. In July 2000, Zavadskiy was supposed to meet a colleague arriving at the airport. His car was found parked there. He hasn't been seen since.

T
he reason for his "disappearance", I was told, is that Zavadskiy was working on a story about the Belarusian special forces' presence in Chechnya on both sides. I had a friend with me, Arkady Ostrovsky, who reports for the Financial Times from Moscow and has pretty much covered the waterfront on Russian affairs. I saw Arkady blink and stare, and perhaps bite his tongue.

Last year Irina, now remarried to an American, made a statement before the US House Committee on International Relations. She told me the story she must have told a hundred times - "Anatoly and Victor drove away in Anatoly's car, to go to the sauna. Anatoly asked me to come, but I decided to stay home. Later, witnesses told investigators what happened. Anatoly and Victor left the sauna and got into our car. Immediately after they turned the corner, a car cut them off. My husband tried to back up but he was cut off by a second car. The doors of our car lock automatically if you hit the brakes. So the people who jumped out of those two cars broke the windows and pulled out Anatoly and Victor. Traces of Victor's blood were found at the scene. They were put into separate cars and driven away. Our car, a Jeep, was later towed away by one of the squad."
Irina says she is certain the two men were killed within a day or two. The cherry-red Jeep was never found. According to "information", it was flattened by an armoured troop carrier and buried.

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Why Russians Do Not Smile

Konstantin at Russia Blog posts lengthily on Why Russians Do Not Smile, in public at least.

I'll post his picture of The agrarian peasant (Saratov circa 1993) for entertainment.

He was incensed by an article by Olga Nikitina “Combining a Rude and Very Hospitable Reputation.” In particular the assertion (albeit not directly by Nikitina) that it is as a result of the lack security after the collapse of the Soviet Union that causes public introspection catches his ire. Konstantin heads back back to the nature of isolated peasant communities (everywhere is isolated if you have to walk) as a more likely cause. His thoughts are worth reading.

Firstly Moscow for a 12 million person city rates way ahead of London and New York for personal safety (unless you count anti-social driving) Blaming public introspection on a lack of safety is indeed rubbish.

When I first arrived here in 1994 I was particularly struck by the fact that no one would catch your eye when walking down the street. It's changed now and Muscovites (which is not Russia) are as heads up a city population as you will find. I ascribed it to the travails of communism and whatever euphemism you want to use for the excesses of Stalinism and the KGB. Maybe Konstantin's take on the nature of peasantry not only explains Russian's outward reticence but also why it was possible for Beria et al to divide and murder.


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A Story for My Grand Children to Read?

The Daily Torygraph writes the standard why was Abramovich allowed to sell and Khordokovsky get TB here. It's fairly open about the alleged links between VVP and Abramovich. Certainly more explicit than a publication in Russia could be.

I wonder when we will learn the real Abramovich story - I somehow feel it will be a story my grandchildren will read about - and I don't have any kids.

05 October 2005

What's worrying Russians?

Yuri Levada has published the results of a recent survey which only go to show that the question put correctly elicits the response that the questioner is after. Hat tip to Siberian Light for the translation.

If you read other surveys then the concerns would have been terrorism, corruption and immigration.......

Only shows you cannot trust marketing and PR - just ask my wife

August 15, 2005

In July 2005, the Yuri Levada Analytical Center (Levada Center) conducted a survey of 2107 Russians. One of the questions was "Which of the following social problems concern you the most, which do you consider the most acute?" Respondents could choose up to 5 or 6 [sic] answers.

1. Growth of prices [inflation] - 71%

2. Poverty, the impoverishment of the majority of the population - 53%

3. The growth of unemployment - 39%

4. Economic crisis, falling industrial and agricultural productivity - 33%

5. Increasing crime rate - 29%

6-7. Inaccessibility/unaffordibility of many forms of medical treatment - 29%

6-7. Growth of drug abuse - 29%

8. Growing cost/inaffordability of education - 27%

9. Sharp division [of society] into wealthy and poor, inequitable income distribution - 27%

10. Corruption and bribe-taking - 24%

11. Crisis in the areas of ethics, culture, and morality - 22%

12. Deterioration of the environment - 17%

13. The threat of explosions and other terrorist acts where you live - 15%

14. The weakness of the government - 11%

15. Abuses of power and the impunity of government officials - 9%

16. The arrival of immigrants and migrant workers - 7%

17. The military campaign in Chechnya - 7%

18. Growth in the rate of AIDS infection - 6%

19. Police brutality - 6%

20. Inability to obtain justice in a court of law - 5%

21. Growth of nationalism, deterioration of inter-ethnic relations - 4%

22. Delays in payment of salaries, pensions, stipends, etc. - 4%

23. Conflicts between different branches of government - 3%

24. Restrictions on civil rights and democratic freedoms (freedom of speech, freedom of the press) - 2%

Other - 1%

Unable to answer - 1%

VCitis

Posted in full, and without comment, from David Hornik at Venture Blog on VCitis:
In a Woody Allen moment, I was reading the DSM IV (the American Psychiatric Association's diagnostic manual for mental illness) to make sure I didn't have the mental equivalent of a "tumor the size of a golf ball." But, as Woody Allen himself points out, just because you're paranoid doesn't mean people aren't out to get you, and sure enough, I've diagnosed myself with a full blown mental illness -- it's called Narcissistic Personality Disorder (NPD) or, as I've renamed it, Venture Capitalitis. Of the Personality Disorders available to me (Histrionic Personility Disorder, Antisocial Pesonality Disorder, Schizoid Personality Disorder, Obsessive-Compulsive Personality Disorder, etc.), Narcissistic Personality Disorder may be as good as mental illness gets. Which is a good thing because best I can tell NPD is running rampant on Sand Hill Road.
The DSM IV is the Fourth Edition of the Diagnostic and Statistical Manual of Mental Disorders. Its purpose is to assist mental health practitioners in diagnosing and differentiating among mental illnesses. Accordingly, it takes the form of a list of diagnostic criteria which, if met in sufficient numbers by a particular person, indicates that that individual has the particular mental disorder in question. The diagnostic criteria for NPD are telling. NPD is diagnosed by "a pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy, beginning by early adulthood and present in a variety of contexts," -- sounds like VCitis already doesn't it. Narcissistic Personality Disorder is "indicated by five (or more) of the following:"

1) Has a grandiose sense of self-importance (e.g. exaggerates achievements and talents, expects to be recognized as superior without commensurate achievements).

2) Is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love.

3) Believes that he or she is "special" and unique and can only be understood by, or should associate with, other special or high-status people (or institutions).

4) Requires excessive admiration.

5) Has a sense of entitlement, i.e., unreasonable expectations of especially favorable treatment or automatic compliance with his or her expectations.

6) Is interpersonally exploitative, i.e., takes advantage of others to achieve his or her own ends.

7) Lacks empathy: is unwilling to recognize or identify with the feelings and needs of others.

8) Is often envious of others or believes that others are envious of him or her.

9) Shows arrogant, haughty behaviors or attitudes.
Now I don't mean to be critical of my brethren in the Venture Capital industry, nor of myself for that matter, but tell me if that doesn't hit the nail on the head. Forget about meeting 5 of the criteria. How about 8 or 9? This Web 2.0 stuff is all well and good but I can tell you what my next investment will be in -- a mental health facility on Sand Hill Road.

29 September 2005

More Sibneft Thoughts

Failing to come up with anything useful to say about Gazprom's acquisition of Sibneft I am reduced to reproducing other people's thoughts. These are from the Economist

In one of the jokes Russians tell about Roman Abramovich, owner of Chelsea football club and until this week an oil tycoon, he complains that London is an expensive city. Punch-line: “He still can’t buy it.”
Other good lines include this one which link the inverse correlation between state ownership, ownership of cash flow and output efficiency.
The second question is: are the deal, and the trend it represents, good for the Russian oil industry, and Russia itself? After the Yugansk and Sibneft transactions, the share of Russia’s oil production controlled by the Kremlin will approach a third. The state also influences oil exports via its pipeline monopoly; Gazprom has monopolies both on gas pipelines and gas sales outside the former Soviet Union. True, the Russian government still has a weaker grip on the energy sector than the governments of many other petro-states. But as one Moscow-based tycoon puts it, the problem is not with state ownership per se, but with this state in particular. The growth of Russian oil production has already drooped. More state oversight—meaning more graft and less efficiency—is unlikely to help.
My favourite though is the failure to outright say that the rumour doing the rounds in Moscow is that VVP has an economic stake in Sibneft - he owns the people who own the shares sort of thing.
Still, why is Mr Putin, hammer of the oligarchs, letting him walk away with all this cash? With whom will he be sharing it? There are rumours.
There are indeed and they make less than pretty hearing. Anyway good luck to the Kremlin theftocrats why work to make money when you can steal it in the name of your nation instead.

Short, Sharp and too the Point

Couldn't really work out how to describe the Gazprom/Sibneft merger. Adam Landes from Reniassance Capital cuts to the chase.

"Clearly, this deal is way below the market price and below a fair estimate of [Sibneft's] market value," said Adam Landes, an analyst at Moscow-based brokerage Renaissance Capital. "From an industrial point of view, it adds very little for Gazprom, and strategically it's a waste of time."

From the Daily Deal.


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28 September 2005

Raw Materials

If you read my ramblings you probably don't need me to tell you that the domestic economy is booming. Not just in Moscow, but in the Volga heartland, the oil towns and in strange places such as Novosibirsk. The growth in consumer spending is drawing in the multinationals from autos to cheese in search of growing markets and driven on at the board level by Goldman Sachs BRIC report (Brazil, Russia, India and China) (the link is to the original Goldman Sachs pdf report.) Russia provides a surer path to profitability than I & C but worse beaches than Brazil. I have half an eye on Russia's agribusiness industry, in particular the dairy and beef end of the business. Two headlines over the past couple of weeks caught my attention. Chronologically the first was Kraft's that they intend to be a major player in Russia's booming cheese industry. The second and the one that caused me to think about this post was Wimm-Bill-Dann's interim reports. Most analysts tend to focus on WMD's surrendering its leading position in the juice business to Lebedansky. To me the most telling statement related to its dairy business;

Sales in the Dairy Segment increased 20.1% from US$399.1 million in the first six months of 2004 to US$479.5 million in the first six months of 2005, while the average selling price rose 13.7% from US$0.73 per 1 kg in the first half of 2004 to US$0.83 per 1 kg in the same period of 2005. This increase was primarily driven by ruble price increases. Gross margin in the Dairy Segment declined from 24.1% in the first six months of 2004 to 23.8% in the same period of 2005. This change was primarily driven by the increase in raw materials costs and stronger demand for raw milk intensive traditional products in the regions.

In short what drove margins down despite above inflation price rises were a lack of raw materials. Domestic raw milk supplies are effectively flat. Any increase in sales has to be offset by an increase in dry milk crossing the border from the near abroad - Poland and Estonia. The supply problem is further exacerbated by the very poor quality of domestic milk. Maximum bacteria parts per millimeter in raw milk in the US is 100,000. In a dairy plant in western Siberia I trawled recently they were not particularly concerned by the count but did measure it. The average for the hot summers day that we were there was 700,000. Somatic cell counts were also very poor. The long and short of which being that the milk was worse for you to drink than unpasteurized milk and would be useless for dairy products that require high fat content - cheese for example.

I am sure that a behemoth such as Kraft is not going to announce a major expansion in to Russia without first securing its supplies. I just have not seen any evidence that there is meaningful investment in agribusiness that would supply Kraft, WMD et al. WMD made a strategic decision last year not to invest in upstream production. A mistake in my mind if they want to maintain an interest in the dairy business. It will be interesting to see how long WMD can pass on its costs increases to its customers.


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27 September 2005

Idiocy

Maxim Kononenko the author of the smile worthy satirical take on the daily life of Vladimir Vladimirovich Putin vladimir.vladimirovich.ru (Russian only) provides the only logical answer as to why the powers-that-be decided to cancel the visa for Khordokovsky's US/Canadian lawyer, Robert Amsterdam.

Khordokovsky is off to a penal colony somewhere where the sun don't shine for the next 8 years, it looks like his side-kick Platon Lebedev, probably won't come out alive. His appeal was a travesty of justice; fair enough, so was the trial. Why make the news last any longer - it's just plain stupid.

Without translating the whole of Friday's piece a quick synopsis. VVP is talking to Patrushev, the head of the FSB, and asks why they decided to expel Amsterdam. A non-literal translation goes something like this - "we have to do something truly idiotic from time-to-time; they expect less from us as a result."

Could not have put it better myself.

And to ensure that coverage is even a dig at George W. And my favourite joke of the moment.

Donald Rumsfeld is giving the President his daily briefing on Iraq. 
He concludes by saying:  "Yesterday, 3 Brazilian soldiers were killed."
"OH NO!" the President exclaims.  "That's terrible!"
His staff sits stunned at this display of emotion, nervously watching as the President sits, head in hands.
Finally, President looks up and asks, "How many is a brazillion?"


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06 September 2005

The Wheel Turns

Ultra Motors one of my favourite bizarre technologies to emerge from Russia makes its way on to the pages (sic) of Red Herring. Good work by Russian Technologies and Flintstone Technologies.

It has taken a while for the Company to make the break through that it's technology deserves. As always bringing in a good CEO in Paul Dyson seems to have made a huge difference.

They are out looking for cash right now.


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01 September 2005

Reiman Resorts to St. Petersburg Courts to "Prove" that he is Innocent

I should really start a section on the Reiman/Alfa battle. Back from my summer hols, obligatory school essay to follow, to discover that the MinSvyaz has convinced the Prosecutor's office to open a criminal investigation in to kompromat.ru (a Russian-language scandal website) for reporting that documents lodged with the courts in the British Virgin Islands allegedly show that Reiman took a $1mn bribe for easing a British businessman's way to obtain a license. Here's the link in the Moscow Times it will degrade in a day or so. I'll update when I find a permanent link.

The only thing that it proves is that the "law" is whatever the authorities want it to be.

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09 August 2005

Definition of a Smartphone

A phone that is smart enough to make you part with vast amounts of cash to acquire it but fulfills neither the function of a phone, a PDA or a camera (as if having a below par camera makes up for having a crap phone and PDA)

In the case of my Treo650 it also has French Workers syndrome. Thus if it is doing one thing and is required to do another the whole thing shuts down and takes 15 minutes of coaxing to get back to work.

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29 July 2005

Ukraine Heading Backwards

From the eponymous Moscow Times reporting on the collective head in the sand approach by Julia Tymoshenko announcing that there is no crisis in Ukraine.

The only crisis is that March 2006 cannot come soon enough for her so that she can stop pretending that she is working for Yushchenko.

The IRA

Ordered yesterday to "dump their arms" (from the Economist)the IRA's legitimate campaign finally spluttered to something like a halt yesterday. Though if someone could translate "dump their arms" that feeling of been here, done that may also come to a halt. It has that weazle-worded feeling that the IRA specializes in.

It will be interesting to see what happens to the likes of Slab Murphy who according to Families Acting for Innocent Relatives is more interested in his business activities. This Google search link provides more links and thanks to the advent of blogging more truth.
To paraphrase the Republican song; no more armoured cars, tanks and guns come to take away our sons

27 July 2005

Field Guide To Moscow

An excellent guide to the habitat in Moscow from the eXile. Once Moscow's most notorious newspaper (sic) unfortunately a rather poor imitation today.

A Civilized Way of Bribing

From A Russian Blog more thoughts on bribery in Russia, the whole post is here; Civilized Way of Bribing:

I picked this particular quotation from the bottom of the post because I think in an otherwise well thought through take on the changing rules of bribery in Russia this one is wrong.....

"The irony in this matter is that Russian businessmen know exactly that they are still giving good old bribes. Western businesses operating in Russia act as a crowd in a fairy tale delighted by the emperor new clothes. American, European or Japanese businesses hire a Russian – ‘a guy who solves problems’ – and are very happy with his incredible effectiveness and luck."
I forget the number of times I have seen western businessmen being led round Moscow by their "guy who solves problems" looking like a bunch of girl scouts at the annual outing of (a good analogy fails me). His main role is not to solve problems but to ensure that there are a constant flow of them so that he and the "problem" can share the fee. They are never proactive problem solvers but merely reporters of bad news. These guys have no skin in the game and believe that the only thing worth a dollar is a dollar.

When I took on the problem of solving the nationalization issues at Lomonosov Porcelain Factory it took about 3 months to get rid of all the hogs filling themselves at the trough. Once they had gone we could negotiate face-to-face with our problem and solve the issues.

If you want something done, do it yourself, or don't do it at all.

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