In-Depth: Connection Established and Stable

That tendency is especially felt in Moscow, which owing to its capital city status is attracting more and more firms, both domestic and international; their operations are impossible without high-end telephone lines and high-speed Internet.

Rapid evolution of telecommunications in Russia has set in only recently, a decade or two ago; nowadays, any developer when launching a new office project has to deal with a variety of problems related to telecommunications.

Experienced developers address the issue already during early design stages, being aware of the amount of losses they may incur otherwise. Even where a developer is undertaking his very first project he has to examine the market of telecommunications thoroughly and trust only major companies with many years of experience and immaculate reputation.

Unfortunately, quite often developers address the issue only at final stages of construction. As a result, unwanted problems arise and companies suffer unjustified losses. Today, every office developer should be aware of the importance of high-end telecommunications infrastructure for any business center.

The engineering know-how is upgraded each day, and even if designers include top-end telecom facilities in their projects, by the time the project is sanctioned by government bodies and construction is completed (which may take two to three years, on average) devices originally put in will grow obsolete as compared to the latest developments.

That is why while thoroughly examining all parameters of future engineering lines it is necessary to leave room for their perfection and modification so as to adjust them to changing market requirements.

Developer’s Gain

The access to quality telecommunication services provided by a reliable provider is a key factor for boosting the investment appeal of the building. To begin with, it is more appealing to tenants, which guarantees higher occupancy rates. Secondly, the telecom operator guarantees the lack of problems and technical malfunctions, and, should such problems arise, the operator promptly takes measures to fix those. Finally, with a quality telecommunication service in place the business center is able to stay afloat on the market without having to undergo a major overhaul.

All those factors taken together suggest that a developer who plans investment sale should equip his property with modern telecommunication facilities and sign a deal with a reliable telecom provider. Such measures will help boost the future market value of the project. On their part, tenants when looking for a new office attach utmost significance to availability of telecommunication networks and their uninterrupted operation.

A developer who takes measures to find a reliable telecom provider and put in high end equipment in advance is able to provide his tenants with all necessary services, as each office is linked to all communication lines. Many corporate tenants who have been operating on the local market for years have their phone and fax numbers, known to their customers, and seek to preserve them after relocation. Not all telecommunication companies are able to offer such services.

The developer has to see to it that the operator who services his building maintains contacts with other operators and is able to offer his tenants an opportunity to work with any of them. While major respectable telecom companies are ready to provide such services, smaller firms often impose tough restrictions on tenants.

Other requirements class A and B offices are to meet include availability of high-speed Internet access, Intranet corporate networks and PPTP connections. But with information technologies upgraded constantly, tenants renting office space in prime business centers generate demand for such services as video conferencing and other digital video services. Class A tenants show keen interest in smart office solutions, video surveillance, control of access to the premises, climate and lighting control, control over operation of elevators and parking facilities on the basis of a single automated system.

In class B offices those solutions are not as wide-spread, due to the specifics of their target audience. As a rule, class B office tenants are medium-size or small businesses that do not need high-end communication systems and make do with digital telephone services and high-speed Internet. Those clients pay more attention to rental rates; smart office solutions, including digital videoconferencing facilities and other sophisticated telecommunication systems, push up the rate by $50-$100 per 1sqm per year on average, depending on configuration of those systems, - an increase viewed by would-be tenants as unjustified. Besides, it should be kept in mind that complicated telecommunication systems require professional maintenance which results in higher operating costs.

For Client’s Comfort

A few words should also be said about tenants whose telecommunications requirements are above standards, given the specifics of their business operations. The business center High-Tech House at 5 Bolshaya Akademicheskaya Street may be cited as an example of a solution for such tenants. As early as the project was launched, back in 2004, it was marketed as a state of the art office building designed especially for companies with high requirements as regards to telecommunication technologies in place, and for IT units of major firms involved in various lines of business.

The special feature of the business center is the powerful telecommunications infrastructure providing fiber optics lines with a bandwidth up to 100 gigabytes, increased power capacity of up to 2,000 kilowatt and uninterrupted power supply, as well as high-end equipment that helps save costs, space and time. For cooperation between developers, telecom operators and tenants to be mutually beneficial and effective, the developer has to determine his telecommunications and engineering strategy in the earliest stages of the project. The choice of a telecommunications company is of primary importance.

Today there are a great variety of operators on the market and the competition between them is quite tense. However, there are several companies who shaped the digital communications market and by now have evolved into market leaders accounting for the main share of the market. In fact, the current situation is such that the range of services offered by those operators is more or less the same at the same price that is why from the standpoint of a developer it is of no vital importance with whom of them to sign a deal.

Owner’s Gain

Digital communication technologies, albeit introduced many years earlier, became sought-after in Moscow class A and B offices only in the mid-1990s while the web connection requirements emerged only in the early 2000s. Previously, even class A offices had only telephone lines operated by the Moscow major telecom operator MGTS. In the course of its growth the digital telecommunications market has reached the point where the competition between operators is tense, and hence, the market becomes client-oriented.

Vying for customers, operators offer increasingly favorable terms and conditions of cooperation. Major companies enjoy clear advantages enabling them to offer more benefits to developers. To begin with they have their own fiber optics lines (not rented ones) at their disposal and a large direct phone number capacity. Thus, their smaller rivals are in fact their dealers who resell resources to end-users, which, of course, tells on the cost of services.

Besides, major providers operate complex branched networks, owing to which connection of the property to the network does not require much time and spending. Secondly, major operators offer services of better quality as they have all necessary resources for that and they value their reputation. Smaller operators often install equipment and lay cables without due observance of technical standards, which afterwards may result in poor quality of signal and malfunctions and force the developer to re-lay all cables anew.

What is also very important is that during the commissioning of the completed property the government does not issue an acceptance act in case the developer does not submit a certificate of telephone installation. Major telecom providers help to speed up and facilitate that procedure as the quality of telephone lines and services they provide is guaranteed through their extensive experience.

Completed projects on their records are available to confirm that they observe fire safety regulations, guarantee protection from damage in case of flood, etc. All that helps speed up registration of title to the property. Telephone networks built by smaller operators often have faults detected during commissioning and time needed to fix them causes unwanted delays. Experienced developers are aware that major telecom operators may help solve issues in other related fields, such as power connection, water supply and sewage disposal.

As a result of the growing competition the market has reached a stage where major telecommunication companies begin to offer royalty fees to developers in exchange for their presence in the project. (For smaller companies the move is not justified financially). Thus, today the developer is able to receive extra income from the telecom provider’s operations in the amount of a fixed percentage of turnover.

Another important step is to determine the strategy of cooperation between the developer and the operator, which depends on the developer’s future plans – whether he is set to sell the completed building without any leases in place or to keep the title to it. If the building is to be sold immediately upon completion developers usually do not sign any deals with operators but wait for the buyer to address the issue. In case of an investment sale, or where the developer is set to keep the title to the project, he should choose the optimal scheme of interaction with the telecom services provider.

Major companies offer a dozen of cooperation schemes tailored to individual characteristics of the project, the current stage of construction and other specifics. The most beneficial option for a developer is co-investment. A telecom operator joins the project at the stage of construction, lays fiber optics lines and installs all necessary equipment, including automatic telephone systems, Internet access servers, builds distribution network within the building.

The cost of those works, amounting to 10% of the total cost of construction, is assumed by the operator who retains ownership of all telecommunication networks within the building, maintains them and provides telecommunication services. The financial benefit of the developer is obvious, besides, the operator being aware that he is to maintain all systems himself seeks to ensure maximum quality of installation.

On their part, telecom operators welcome such forms of cooperation given the tense competition on the market where telecom companies vie virtually for each quality building under construction. With a payback on their investment in business centers taking up to ten years, only major players can afford to make such attractive offers to developers. Owing to serious advantages for the developer co-investment becomes increasingly popular on the market. Developers rarely seek ownership of telecommunication networks, as that would mean extra headache.

The developer has an opportunity to decide on how to provide services to end-users, i.e. tenants. Usually, telecom operators sign contracts with them directly and collect payments themself. Such an arrangement frees the owner of the building of extra work that would require additional payroll expenses. Tenants also benefit from such cooperation as they receive services at market prices directly from the provider. Less popular is a scheme where the cost of telecom services is partially included in rental payments.

For a developer who runs a network of properties it makes sense to establish a separate telecommunication services unit. But that requires careful preliminary calculations as such a project will prove profitable only where there are large volumes of properties in operation.

Options Available

Major operators today undertake any schemes, which are satisfactory for developers, and this is their key advantage over smaller rivals. Even in complicated situations, for example where construction nears completion, in case of financial difficulties or increased requirements set by the customer, such operators are able to join the project and offer their solutions to the tasks.

While in Moscow the telecom services market is booming and competition is tense, the situation in the Moscow Region is exactly opposite. The office real estate there is underdeveloped and telecom operators dictate conditions to customers. Few companies have their own networks across the region and are able to connect new properties. In the future when the office market in the Moscow Region begins to develop more rapidly those operators are likely to take leading positions in the sector.

As Moscow’s telecom services market grows, it will see further development of technologies and emergence of new forms of communication. IP-telephony, Internet video, digital television and other services will become increasingly sought-after. Moreover, in the next five to ten years market experts anticipate further standardization in telecom sector, which will result in lower charges. For example, larger bandwidth will reduce the cost of traffic considerably and make top end services available to wider public, such as for example video services.

Office developers’ requirements for the quality of telecommunication services will grow permanently, especially as far as class A offices are concerned. The advent of new technologies will render older networks obsolete in buildings unable to adjust to changing market conditions. That will inevitably result in their downgrading. Developers should think about what status their properties will enjoy in 10 to 15 years after their completion.

This piece was contributed to Vedomosti by Sergei Kolegov, general director of the company Prime City Properties. The point of view of the author does not necessarily reflect the position of the editors.