2007 Central Asian - Broadband and Internet Markets

This market report covers eight countries in the Central Asia sub-region. It takes an overall look at the various telecoms markets, together with a particular look at the Internet market segments in each of the following countries: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

While the countries of Central Asia have struggled with poor telecom infrastructure and underdeveloped regulatory, one segment of the market that has been most adversely affected has been the Internet. With none of these countries having Internet user penetrations higher than 10% at the end of 2006, the race is now on in each of the markets to build increased capacity to access the Internet. Turkmenistan and Tajikistan with Internet user penetrations of less than 1% by end-2006 are the lowest ranked by this measure and certainly have a huge task ahead of them. Right across the sub-region, Internet access has been predominantly provided as a dial-up service. The first signs of higher speed, broadband access services are evident in a number of the markets, but the total broadband subscriber base remains very tiny for the time being and therefore constitutes only a small proportion of the total Internet subscriber base in each country.

The rate of expansion of Internet services will no doubt increase on the back of the wider push to improve the overall telecoms capacity and infrastructure in each market. Although the pace is variable across the markets, there is certainly a consistent commitment to developing the national networks. Of course, it is not simply a matter of increased investment in infrastructure. There also needs to be a commitment with regard to regulatory reform. Interestingly, the Internet market has experienced some distinct challenges in Central Asia in this regard, as some of the governments have seen online access as a specific threat to national security and good order of their respective countries. The two lowly penetrated Internet markets, Tajikistan and Turkmenistan, have both been subjected to tight government restrictions and limitations on access, no doubt helping stunt the growth of online activity in both these countries. But they are not the only markets in Central Asia with laws aimed at Internet censorship. Kazakhstan and Georgia, for example, both have restrictive regulations in place that can be invoked as and when the government sees fit.

Central Asia Internet markets – user penetration and subscribers – 2006

(Source: BuddeComm)

Armenia’s telecom sector has started to grow. There are over 600,000 fixed-line subscribers and over 800,000 mobile subscribers for a population of almost 4 million people. The level of investment in infrastructure and new services has begun to increase. In the meantime, however, the country’s Internet market remains relatively small, with service generally slow and expensive. Development is taking place but it is slow. Local ISPs have been critical of the high cost and poor quality of connections offered by ArmenTel the country’s national telecom provider. Despite the difficulties, there are a growing number of Internet users in both the residential and business sectors, with competition starting to increase in the sector. Internet access is heavily dependent on dial-up access with broadband Internet not yet having any significant impact on the market. A number of major obstacles stand in the way of improved Internet connectivity, including poor telecom infrastructure, expensive telephone lines and the high cost of computer equipment relative to an average worker’s salary.

The development of Internet in Armenia has been taking place amid growing dissatisfaction over the general performance of the telecoms network. In November 2004, the government announced that it had reached a compromise agreement with ArmenTel to end its exclusive right to provide mobile, 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, ArmenTel had been granted exclusive rights to the provision of all telecommunications services in Armenia until 2013 (apart from the data services market which had been opened up to competition). For the country overview, see chapter 2, page 7.

Azerbaijan is continuing to make steady progress in developing its telecom sector, but still faces numerous obstacles. Poor quality infrastructure has been a major ongoing problem. The development of Internet services in particular has been heavily constrained as a result. One of the main obstacles to the expansion of the Internet has been the lack of local loop infrastructure. A further complication has been the absence of appropriate legislation that would determine the legal status of Internet-related businesses, such as Internet telephony, e-commerce, information security, encryption products, etc. Internet access is reasonable in the capital Baku, but many outlying regions of the country, where fixed telephone lines desperately need modernisation, still do not have access to the Internet. Broadband Internet access is only available to users on a limited scale. By end-2006, only a small proportion of Internet subscribers (less than 5%) were signed up for broadband access.

The monopoly held by Azerbaijan’s Ministry of Communications, among other things, results in the high cost of satellite connections. This in turn impacts on the cost of Internet services. The powerful role of the ministry in the telecom sector is in fact restricting the growth of the market. As well as being a commercial operator through its role in AzTelecom, the ministry is both policy-maker and regulator for the telecoms sector in Azerbaijan. The vigorous expansion of Azerbaijan’s economy in the last few years sets the scene for strong expansion the telecom sector, including the Internet. For the country overview, see chapter 3, page 11.

Georgia: Although steadily improving, the country’s telecommunications infrastructure remains outmoded and inadequate as a result of gradual under-investment over decades. However, there has been an upward trend in the country’s telecom market over the past few years, with rising revenues and increased investment in infrastructure. In this context, Internet use remains low, but has shown moderately strong growth at the present time. There is healthy competition between ISPs, many of which offer broadband Internet access, either by DSL, fixed wireless or satellite. While broadband services are available they are not yet a significant part of the market. By end-2006, broadband access constituted only about 5% of Internet subscribers, the balance being supported by dial-up access.

Competition has become the norm in all segments of Georgia’s telecommunications market and this is certainly set to help boost the roll-out of Internet and Internet-related services. The expansion of its telecom infrastructure can expected to be boosted by the establishment of an independent regulator for the telecom sector and the ongoing privatisation of the country’s two largest fixed-line operators, Sakartvelos Telekomi and Sakartvelos Elektrokavshiri. For the country overview, see chapter 4, page 14.

Kazakhstan’s telecoms market has been growing on a wide front. The dynamic nature of the market has been ensuring the rapid introduction of new infrastructure and the upgrade of old equipment (Just over 70% of the national network was digital in 2006). While the fast development Kazakhstan’s mobile market has been a feature of the sector, the Internet segment of the market, by contrast, had remained somewhat sluggish. Nonetheless, this has been changing. In line with the dramatic improvements in telecom infrastructure, the Internet has become one of the fastest growing segments of the country’s domestic communications market. More and more people are going online as connection prices fall, reliability and speed of connection improves and a wider range of services become available. President Nazarbayev claimed in a speech in April 2005 that there were over 1.5 million Internet subscribers in Kazakhstan. (It is noted that the estimates from the ITU point to a considerably lower figure.) Despite the government’s apparent enthusiasm for the Internet, there remain some concerns about the occasional steps taken by the administration to censor or restrict online activity.

The majority of users connect to the Internet via dial-up. Although broadband access has been available since 2000, only a relatively small proportion of the market has made use of the DSL service on offer. VSAT systems also provide broadband satellite Internet. Kazakhtelecom has been installing satellite facilities in the country’s rural and remote areas, which has allowed at least some Internet access in these areas. Kazakhtelecom initiated a major expansion of its DSL broadband service capability during 2006. With the country continuing to experience strong economic activity, the scene is set for further growth in the telecoms sector and the development of the Internet in particular. For the country overview, see chapter5, page17.

Kyrgyzstan, despite being one of the least developed countries in the region, has progressed further and faster than other CIS in liberalising its economy. This has inevitably flowed on to the telecom sector. Nevertheless, many problems remain to be addressed if the telecom sector is to be properly supported. Despite its economic status, Kyrgyzstan has managed to build up a healthy number of Internet users per capita, boosted to some extent by an Asian Development Bank (ADB) loan for education and computers. Access to the Internet in Kyrgyzstan, as with other telecom services, has been strongly biased towards the urban customer. Internet penetration in rural areas has been virtually zero. Dial-up services remain the principal form of access to the Internet. Leased lines with transfer speeds of up to 64kb/s are available for businesses and limited higher-speed lines are available in some areas. Cable TV operator, Ala-TV, offers high-speed Internet access to more than 200,000 households in Bishkek. Although prices for Internet access were falling due to the competitive environment, on the whole they remained comparatively high for most of the population. For the country overview, see chapter 6, page 20.

Tajikistan: Of all the countries that emerged from the former Soviet Union, Tajikistan arguably had the least developed telecommunications network. The network is tiny, providing service to a subscriber base that represents a fixed-line teledensity of less than 5% coming into 2007. And, significant proportion of the Tajikistan network has not yet been converted to digital. While Internet services have been available since 1998, the Internet is beyond the reach of much of Tajikistan’s population due to a combination of inadequate telecom infrastructure, the lack of appropriate legislation and the cost of Internet access. Despite all this, demand for Internet usage is high. By 2006, the country had 12 ISPs providing a variety of services. Broadband Internet access is virtually non-existent in the country (although, somewhat ironically, the country already has 3G mobile services available). Internet cafes have proved to be a popular means of accessing the Internet. A large number of such cafés have been established in the capital Dushanbe since the first one opened in mid-2000. For the country overview, see chapter 7, page 23.

Turkmenistan is yet another of the nations that emerged from the former Soviet Union with an underdeveloped telecommunications sector. Poor growth in telecoms services, the slow progress in the development of the private sector and continuing state control over most economic activities have not been helpful in attempts to grow the country’s telecom market and the Internet in particular.

After the arrival of Internet in Turkmenistan in 1997, the country had six ISPs by 2000. However, the government revoked the licences of all private ISP. As a result, local Internet users and businesses have had only one ISP - the state provider. Turkmen Telecom has been maintaining a stranglehold on the country’s Internet traffic; and connecting to the Internet became increasingly difficult. Apart from the restrictions placed on access, Internet in the country has had a reputation for high prices, slow speeds and poor customer service. It was not surprising that the number of Internet users has been extremely low. Up until end-2006, the authorities had been routinely blocking websites, especially those that publicised ‘unwanted’ information. In more recent times, the Internet in Turkmenistan has been a very interesting sector to watch. In early 2007, there were reports emerging 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-2007, Internet cafes were starting to open again in the capital 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 the Internet customer. For the country overview, see chapter 8, page 25.

Uzbekistan has been struggling to bring its telecom system up to the standard found in developed countries. Although steadily improving, some its telecoms infrastructure remains outmoded and inadequate. With slightly less than 2 million fixed line telephone services at the end of 2006 for a population of almost 27 million, the national network still has 35% of equipment yet to be replaced or converted to digital. Inevitably, the poor state of the telecoms infrastructure has not helped the roll-out and development of Internet services in the country.

Although Uzbekistan’s Internet market remains relatively small for the time being, Internet usage has shown steady growth over the past few years. By giving priority to the development of ICT, the government has been able to help raise the percentage of Internet users from less than 1% in 2002, to more than 6% by early 2007. However, Internet access remains limited for the majority of the country’s population, 60% of whom live in rural areas. A highly competitive ISP market has resulted in falling access prices and the provision of flexible packages. The first widespread offering of broadband Internet access became available in Uzbekistan during 2005, when a DSL service was launched in Tashkent. At the same time, a number of WiFi public access points were launched in the capital. With a flourishing telecom market in Uzbekistan, including rising revenues and increased investment in infrastructure, the Internet service segment is certain to benefit. For the country overview, see chapter 9, page 27.