2007 Asia - Telecoms, Mobile and Broadband in Central Asia

Publication Overview

This report provides a comprehensive overview of the trends and developments in telecommunications markets in 11 developing telecom markets: Armenia, Azerbaijan, Bhutan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Nepal, Tajikistan, Turkmenistan and Uzbekistan. Subjects covered include:

• Key Statistics
• Market and Industry Overviews
• Regulatory Environment and Structural Reform
• Major Players (fixed and mobile)
• Infrastructure development
• Mobile Voice and Data Markets
• Internet, VoIP, IPTV
• Internet, including broadband development

Executive Summary

This annual publication looks at eleven of the developing countries of Asia.

Armenia

Armenia’s telecom sector has started to grow and the level of investment in infrastructure and new services is increasing. There are, however, major structural issues to be addressed in the sector. Amid growing dissatisfaction over the performance of the telecoms network, in November 2004 the government reached a compromise agreement with national telecom provider, ArmenTel, to end its exclusive rights to provide GSM, satellite, and mobile radio communications services in exchange for various other concessions, including the stipulation that only one alternative mobile operator would be allowed to operate in Armenia until 2009. ArmenTel was also allowed to retain sole rights to Internet telephony and the use of fibre optic cables. Previously, it had been granted exclusive rights to provide all telecom services in Armenia until 2013 (apart from data). The mobile market grew by 75% in 2006, with K-Telecom, Armenia's second mobile operator adding 200,000 new subscribers in the year. For the country overview, see chapter 1, page 1.

Azerbaijan

Azerbaijan is making steady progress in developing its telecom sector, but still faces numerous problems, including poor quality infrastructure; only around half the country’s telephone lines are digital. The monopoly held by the Ministry of Communications, among other things, results in the high cost of satellite connections. As well as being a commercial operator through its role in AzTelecom, the Ministry is both policy-maker and regulator for the telecoms sector. The country’s significant dependence on international funding has also made it difficult for any long-range planning in the development of the sector. The good news: by 2006, GDP growth was running at an estimated 30%, largely due to a rapid increase in capital investment. For the country overview, see chapter2, page 13.

Bhutan

Bhutan, which for a long time preferred to remain isolated from the world, has very recently started to improve its telecoms capability. To do so it has had to overcome its mountainous landscape. While the country had a basic connection to the outside world as early as 1974, with the introduction of trunk calls between Bhutan and India, it was not until 1999 that television, satellite dishes and Internet services started to appear. The tiny country proceeded to invest heavily – to the tune of around US$27 million – in telecom infrastructure between 1996 and 2002 to provide a modern fixed-line network. A mobile service launched in late 2003 by Bhutan Telecom claimed more than 60,000 subscribers by early 2007, equivalent to 3% penetration. Accurate statistical information on Bhutan is especially difficult to obtain. In the meantime, Bhutan was moving towards adopting a democratic system of government, the King having been actively involved in the process. For the country overview, see chapter 3, page 26.

Georgia

Although steadily improving, Georgia’s telecom infrastructure remains outmoded and inadequate as a result of gradual under-investment over decades. However, there has been an upward trend in the telecom market over the past few years, with rising revenues and increased investment in infrastructure. Mobile communication systems have become increasingly important because the fixed-line facilities provided in many places (particularly in rural and remote areas) are outdated and a mobile phone represents the only effective means of communication. In an interesting move, in April 2006, the telecom regulator, the Georgian National Communications Commission, awarded a 3G mobile licence to Argotex, a local textiles company. Further spectrum was auctioned in May 2006. In the three years to end-2006, mobile penetration increased threefold to reach a remarkable 42% in what was a booming market. For the country overview, see chapter 4, page 35.

Kazakhstan

Kazakhstan’s telecoms market is growing on a wide front. The dynamic nature of the market will ensure the rapid introduction of new infrastructure and the upgrade of old equipment. Legislation adopted in 2004 started the liberalisation process and ended Kazakhtelecom’s monopoly. By April 2005, four companies had been licensed to provide international and long-distance services and by year-end, over 1,000 licences had been issued to provide a range of telecom services. Rapid development in the mobile market has seen mobile penetration surge to almost 50% in early 2007. Although Internet penetration remains low, there is increasing interest in going online. As economic activity continues to remain strong in Kazakhstan, the scene is set for further growth in the telecoms sector. For the country overview, see chapter 5, page 48.

Kyrgyzstan

Kyrgyzstan, despite being one of the least developed countries in the region, has progressed further and faster than other Commonwealth of Independent States to liberalise its economy and was the first Central Asian Republic to join the WTO. While much has been done to modernise the telecom network, geographical conditions, a high incidence of poverty and a still developing legal and regulatory framework remain key obstacles to expanding telecom operations. The good news is that the telecom market has been opened to both foreign and domestic investors and an independent regulator has been established to oversee the sector. Full liberalisation of the market was set for end-2006. As a consequence, the sector has been attracting strong foreign investment interest as well as considerable economic and technical assistance of various types. Since the start of market reforms in 1991, the national operator Kyrgyztelecom has been expanding and upgrading its outdated and poorly distributed network. The government has approved a proposal to put 77.8% of Kyrgyztelecom up for sale. A second GSM network launched in April 2006. For the country overview, see chapter 6, page 67.

Mongolia

Mongolia is committed to developing a more efficient telecom network as an integral part of its push towards a market economy. Since the mid-1990s, a series of telecom reforms has led to effective liberalisation of all market segments, partial privatisation of Mongolia Telecom, and establishment of an independent regulator. Competition is now in place for both fixed and mobile telephony, including local, long-distance, and international, Internet, VoIP, and VSATs. While the fixed-line network has been expanding slowly, the mobile phone market has undergone a remarkable boom, with penetration increasing from under 2% in 2000 to about 30% in early 2007. A third mobile network was launched in mid-2006. For the country overview, see chapter 7, page 77.

Nepal

Nepal is among the poorest and least developed countries in the world. Amid what has been an unsettled political climate, the country has been moving steadily towards a more liberalised telecom market. Positive regulatory changes have been implemented, including the incumbent telco losing its monopoly status. By April 2006, over 170 operators had been authorised to provide a wide range of telecom services, including two for basic telephony and two for mobile telephony. The expansion of telephone services has not been able to keep up with the growing demand; the biggest challenge is to provide rural services. Over 60% of telephone services are concentrated in Kathmandu. In March 2007, Nepal Telecom was heading up an ambitious push to increase total telephone penetration to 20% by 2010. Nepal’s target of 15 phone lines per 100 people by 2014 already looked set to be achieved seven years ahead of schedule. On the back of the combined effort by Nepal Telecom and the private operators, a figure of 25 lines per 100 people by 2014 was being considered feasible – significantly higher than the 6% penetration at end-2006 and just 1% at end-2005. For the country overview, see chapter 8, page 89.

Tajikistan

Tajikistan’s telecom network is arguably the least developed of all the countries that emerged from the former Soviet Union. With a telecom network that was near total collapse at the time, the government has started the daunting task of bringing it up to modern standards. The network is tiny, providing service to less than 5% of the population coming into 2007. And, significant proportion of the network has not yet been converted to digital. A gradual process of liberalisation is under way and over the last decade a significant number of private operators have been allowed to enter the telecom market, notably in the mobile and Internet sectors. Privatisation of state-owned Tajiktelecom was expected to be achieved by end-2007. The highly competitive mobile sector experienced a major growth surge in 2006, the subscriber base jumping by almost 80%; this rate of expansion appeares set to continue. Despite this, combined fixed and mobile teledensity was estimated at less than 15% in early 2007. Tajikistan was the first of the CIS to launch a 3G network. For the country overview, see chapter 9, page 108.

Turkmenistan

Turkmenistan is another nation that emerged from the former Soviet Union with a relatively underdeveloped telecom sector. In fact, it is claimed that its telecom services were the least developed of all the CIS countries. Poor growth in telecoms services, slow progress in developing the private sector and continuing state control over most economic activities have not helped to support growth in the telecom market. Combined fixed-line and mobile teledensity was estimated at almost 13% by end-2006. Fixed-line growth has been virtually stagnant for almost a decade. Unlike most of its neighbours, Turkmenistan’s mobile market, served by one private and one state-owned operator, has been slow to grow. The year 2005 provided the first signs of a more energetic mobile market; then in 2006 the number of mobile subscribers jumped by an impressive 150%. The Internet has been an interesting sector to watch. The government had been exercising tight control over all online activity and access was severely restricted, stunting any possible development. In early 2007, reports emerged from Turkmenistan that, following the death of President Niyazov in December 2006 and the election of a new president, restrictions on the Internet had started to be lifted. In particular, in mid-2006, Internet cafes were starting to open again in Ashbagat with the approval of the government. The extent of these new freedoms was not clear, however. And, of course, issues such as the high cost of access, slow access speeds and possible blocking of websites were still confronting Internet users. For the country overview, see chapter 10, page 118.

Uzbekistan

Uzbekistan has been struggling to bring its telecom system up to the standard found in developed countries. Although steadily improving, some of the telecom infrastructure remains outmoded and inadequate. Certainly, however, the situation has been steadily improving, due largely to the government’s decision to give priority to the telecom sector. In 1996, in what was a significant move, the government started inviting foreign telecom companies to invest in Uzbekistan in their own right. This was followed by the creation in 2000 of Uzbektelekom, a holding company charged with operating the national telecom network. An upward trend in the country’s telecom market over recent years has seen rising revenues and increased investment in infrastructure. The next step is to privatise Uzbektelecom and to open the market to competition consistent with the country’s aim to join the WTO. Combined fixed and mobile teledensity was estimated at over 16% by end-2006, with the mobile sector growing at more than 100% per annum coming into 2007. For the country overview, see chapter 11, page 124.

Key highlights

• Following the launch of a second mobile operator in Armenia in mid-2005, the overall mobile market grew by 75% in 2006, with newcomer K-Telecom leading the way, adding 200,000 subscribers in the year;
• In what has been a struggling telecoms market, the current economic boom in Azerbaijan (GDP growth of 30% in 2006) saw positive signs with mobile subscribers increasing by 50% in 2006;
• Bhutan’s telecom sector remains underdeveloped; mobile penetration is only 3%. The country’s move towards a democratic system of government, with first elections scheduled for 2008, is likely to bring significant structural reform to all sectors of the economy;
• In Georgia, the telecom regulator awarded a 3G mobile licence to a local textiles company, in a market which had reached a remarkable 42% mobile penetration by end-2006;
• Kazakhstan’s mobile market has been characterised by a prolonged surge in subscribers, reaching 7.5 million (a penetration of almost 50%) by early 2007, up from only 0.25 million in 2000;
• Kyrgyzstan, the first Central Asian Republic to be admitted to the WTO, continues to work to liberalise its economy and in the process reform the telecom sector;
• The mobile sector in Mongolia saw the entry of a third mobile operator, with Unitel launching its service in mid-2006; the move was certain to boost the country’s already strong mobile market;
• Nepal Telecom initiated an ambitious program in early 2007 to increase Nepal’s total telephone penetration to 20% by 2010; the plan came as the country entered a more stable period politically;
• Tajikistan’s mobile sector experienced a major growth surge in 2006, the subscriber base jumping by almost 80%. Tajikistan was the first CIS to launch a 3G network, Babilon-Mobile, April 2005;
• In early 2007, following the death of President Niyazov in Turkmenistan, restrictions on the Internet started to be lifted. In a country where Internet access was tightly controlled, it came as a surprise to see that Internet cafes were being allowed to operate in the capital Ashgabat;
• Investment in Uzbekistan’s telecoms sector during 2006 increased by 69% year-on-year to US$145 million; foreign investment in the telecom sector also rose, up by 39% year-on-year to US$133 million;
• The sale of stakes in Uzbektelecom, Tajiktelecom and Kyrgyztelecom continues to be on the agenda in their respective markets; no detailed plans for these privatisation proceedings have been released, however.

Mobile penetration, annual growth and GDP per capita in Central Asian countries – 2006

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