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Russian ISP Finds Court Victory Sometimes Is No Victory at All

The Wall Street Journal Interactive Edition, October 5, 1999 <Russian version>
Having your day in court isn't necessarily all it's cracked up to be -- certainly not if you're Nail Murzakhanov, general director of the Russian Internet-service provider Bayard-Slavia Communications.

05.10.1999, Jeanette Borzo

October 5, 1999

Tech Center

Russian ISP Finds Court Victory
Sometimes Is No Victory at All

By JEANETTE BORZO
THE WALL STREET JOURNAL INTERACTIVE EDITION

PARIS -- Having your day in court isn't necessarily all it's cracked up to be -- certainly not if you're Nail Murzakhanov, general director of the Russian Internet-service provider Bayard-Slavia Communications.

Mr. Murzakhanov's legal saga began when he objected to SORM-2, a ministerial act currently under consideration in Russia and hatched in part by an offshoot of the KGB. It ended -- or at least it should have -- when Mr. Murzakhanov took the authorities to court and a telecommunications body rescinded the suspension it had slapped on his company. But despite that win, Mr. Murzakhanov's 1,000 customers are still without Internet access and stuck using a backup communication channel that only has enough data capacity to handle a trickle of e-mail messages.

SORM, an acronym that stands for "system for ensuring investigative activity," is the stuff of U.S. privacy advocates' worst dreams.

For years, the original act has given the Russian government authority to monitor the nation's telephone network, fax lines and paging services. SORM-2, the product of a KGB successor known as the FSB and telecommunications regulatory body Gosvyaznadzor, expands that authority to Internet traffic so that government authorities can read incoming and outgoing e-mail messages via monitoring devices placed at Internet-service providers.

In theory, a warrant is needed for such activities under either SORM or SORM-2, but with the electronic-eavesdropping devices in place, many in the Russian Internet market worry that the temptation to ignore that step will be too great.

While SORM-2 has never been officially adopted, that hasn't stopped it from being enforced. "Although SORM-2 has not yet passed the legal examination of Russia's Ministry of Justice, the FSB has already introduced this initiative practically everywhere," Mr. Murzakhanov says.

Service in Limbo

According to Mr. Murzakhanov, the FSB, operating through Gosvyaznadzor, ordered Bayard-Slavia's satellite provider of Internet access to cut it off, leaving the service crippled. He took Gosvyaznadzor to court and prevailed -- but the satellite link still hasn't been reconnected. That's left Bayard-Slavia in limbo -- and observers once more shaking their heads about the prospects for Russian entrepreneurs.

The uncertain nature of Russia's legal environment only compounds the country's seemingly bottomless pit of bad news for business. Russian rules and regulations have never been easy to navigate, and this most recent court case calls further into question the viability of investing or participating in the country's nascent but growing Internet market.

"It has real ramifications for investor interests in this part of the world," says David Bain, chief executive officer of Global Information Services & Technologies Inc., an Arlington, Va., consulting and publishing company that specializes in emerging markets such as Russia.

Nor has a change in government been the cure-all that many seemingly expected.

"Seventy years of totalitarianism are not so easy to overcome, even if we assume that the state methods have changed," says Michael Novikov, the chief executive officer and founder of Admin Ltd., an Internet and e-commerce consulting firm in St. Petersburg.

The High Cost of SORM-2

Bayard-Slavia's objections to SORM-2 were based both on principle and principal: "From the first minute, I refused to submit," says Mr. Murzakhanov. "We worked to prevent the infringement of our clients' constitutional rights." Accepting SORM-2 would also have infringed on Mr. Murzakanov's budget; by his account, installing the surveillance device at the Volgograd company would have carried an initial cost of $25,000, a hefty sum for a Russian business, and could ultimately have cost $120,000.

However, the cost of not complying with SORM-2 has also been steep.

According to Mr. Murzakhanov, Gosvyaznadzor claimed that Moscow Teleport had incorrectly issued the documents for Bayard-Slavia's satellite channel link to the Internet and ordered Moscow Teleport to pull the plug on its Internet connection. That essentially crippled the service: "E-mail works on the reserve channel, but the capacity is small," Mr. Murzakhanov says.

And despite the state committee's decision to revoke the penalties it had earlier levied on Bayard-Slavia, the Internet-service provider is still waiting for its link to be reconnected.

Meanwhile, other Russian Internet-service providers, or ISPs, are watching the situation. "There is a whisper that one large ISP in St. Petersburg has successfully installed the SORM equipment," confides one Russian Internet executive.

"Like any restriction of business, SORM-2 has a negative [impact on] ISP development," says Victor Naumov, a research associate at the St. Petersburg Institute for Informatics and an expert in Russian Internet law.

One thing at least is clear -- SORM-2 and Bayard-Slavia's case aren't favored discussion topics in many circles.

Keep It Quiet

According to Mr. Murzakhanov, Moscow Teleport warned him in a letter not to speak to reporters or human-rights groups, as "a certain agency would not appreciate it."

"It seems that both Internet-service providers and the FSB are trying to hide existence of SORM from the public, Internet users and e-commerce consumers," says Admin's Mr. Novikov.

Requests for information sent to Moscow Teleport went unanswered, while Russian telecommunications officials weren't available for comment.

Meanwhile, it's Mr. Murzakhanov's view that discussion of SORM-2 and his case may be the only thing that will keep Bayard-Slavia -- and others -- from disappearing off the business radar entirely.

"The interest of the public, attracted by the press, has prevented the FSB and Gosvyaznadzor from killing my company," says Mr. Murzakhanov. "For the time being I am alone among ISPs, but I think other providers will sooner or later confront the issue. And in order to work out a problem, you must expose it -- and loudly."

Write to Jeanette Borzo at Jeanette.Borzo@wsj.com1.


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