2005 Central Asian Broadband and Internet Markets

Executive Summary

This Asia market report covers 7 countries in the Central Asia sub-region. It takes an overall look at the various telecoms markets, together with a particular look at the broadband Internet and mobile segments in each of the countries. The markets covered include:

Armenia�s telecommunications sector is small but growing. With almost 600,000 fixed-line subscribers for a population of about 4 million people, the level of investment in infrastructure and new services has begun to increase. There are, however, major structural issues to be addressed in the sector. ArmenTel, the country�s national telecom provider, has exclusive rights to the provision of all telecommunications services, including public switched telephony services and mobile telephony, in Armenia until 2013. Greek company OTE has a 90% equity stake in ArmenTel.

Following the collapse of the former Soviet Union, the telecommunications sector in Armenia went into decline. There were already almost 600,000 fixed-line subscribers by the end of 1994, but by the end of 2001 this figure had fallen to below 530,000. This decline can be partly explained by the prevailing socio-economic instability in the region following the collapse of the Soviet Union. But more significant a factor is that the country has failed to embrace any vigorous reform in the telecom sector. ArmenTel announced in 2002 that it was increasing its commitment to a US$24 million network upgrade plan. The amended program was expected to eventually provide network coverage to around 85% of Armenia�s population.

The one segment of the market exempt from the ArmenTel monopoly is Internet services. The country�s Internet market is small (penetration 7.5%), but has been developing steadily. However, there are still several major obstacles in the way of improved Internet connectivity. Not unexpectedly, these include poor telecom infrastructure; expensive telephone lines; the high cost of computer equipment relative to an average worker�s salary; political unrest in some regions of the country, which impedes infrastructure reform and intimidates potential sponsors and donors, and a heavy dependence on international funding, making long-range planning difficult.

Azerbaijan has begun to make progress in the development of its telecommunications sector, but still faces numerous problems. These include poor infrastructure and the high cost of satellite connections due to a monopoly held by the Ministry of Communications & Information (MCIT). The country�s significant dependence on international funding has also made it difficult for any long-range planning in the development of the sector.

In the last few years, Azerbaijan has had a surge in economic growth. Real GDP growth for 2003 surged to 11%, following on a similarly strong growth rate in 2002. A rapid increase in capital investment has been largely responsible for the country�s recent impressive growth record. Much of the capital investment has been from foreign sources and mainly directed toward oil and gas field developments.

The government-owned AzTelecom is the country�s main telecommunications service provider and is controlled by MCIT. A second operator, AzEuroTel, won a licence to provide international communication services in 1999. There are also four joint ventures offering telephone services, two mobile operators, and a number of ISPs operating in Azerbaijan. All these ventures have been established under the MCIT. The two mobile operators in Azerbaijan are the dominant Azercell (a subsidiary of AzTelecom) and a much smaller player, Bakcell (a joint venture with Motorola). Earlier on, the ministry said that it would licence a new major player in the mobile market. However, in October 2002, it was announced that the licensing of this third mobile operator had been deferred.

A permanent Internet link was established for Azerbaijan in 1995 through the country�s Academy of Science. The country has had dial-up Internet access since 1991. By early 2005, Internet penetration was around 6%.

Georgia continues to be held back in its development by poor telecommunications infrastructure. The network remains heavily analogue with only a minor proportion of digital lines and the teledensity is particularly low in rural areas. The country�s telecommunications sector is in desperate need of significant capital investment, particularly in the local network. Despite some strong economic growth in the last decade, Georgia�s economy continues to struggle. A political crisis in late 2003 added to uncertainty in the country, at least in the short term.

Positive developments in Georgia that will help the expansion of its telecom infrastructure include the establishment of an independent regulator for the telecom sector and the ongoing privatisation of the two largest fixed-line operators, Sakartvelos Telekomi and Sakartvelos Elektrokavshiri. Competition had arrived for all segments of the telecommunications market, including fixed-line services.

Following the launch of the country�s first mobile network in 1994, three more operators launched mobile services. As a result, the number of mobile subscribers has grown rapidly year on year. The annual growth rate in the mobile sector in 2004 was more than 40%. By early 2005, the mobile subscriber numbers had reached 1 million, having passed the fixed line subscriber base in 2003.

Georgia established a permanent link to the international Internet backbone in 1995, after having had non-permanent, dial-up Internet access since 1991. Internet use remains low (penetration 5%), but the market has shown growth and strong competition between ISPs. There are a handful of broadband services in place.

Kazakhstan has a relatively strong fixed-line penetration of close to 20%. However, the country�s infrastructure is generally in a poor state, only a small proportion of the switching system being electronic and much of this is old. Whilst the number of digital lines have been increased, only 53% of the network was digital by end-2004. There is also a high unsatisfied demand with a 2-3 year waiting list. National operator, Kazakhtelecom has launched a program to modernise the country�s telecommunications system. The plan includes modernising the company�s rural telecommunications network using digital telephone exchanges. The company has also been installing satellite facilities in Kazakhstan�s rural areas.

In the meantime, a healthy boom in mobile services has occurred. The market started to take off in 2000 and has experienced remarkable growth since then. By the March 2005, after annual growth of 80% in 2004, the mobile subscriber base was around 3.2 million and approaching 20% penetration. Altel, the country�s original mobile operator, has been joined by two new operators offering GSM services. The arrival of two competing operators has resulted in lower prices and broadening of services.

Commercial Internet services first became available in Kazakhstan in April 1996. Internet user penetration is less than 5%.

Kyrgyzstan, having followed a disciplined program of economic reform and steadily moved into a market economy, has been achieving strong economic growth. As a consequence, the country has been able to attract foreign investment and assistance of various types. The consequential benefits have flowed to the telecommunications sector, which is set to be restructured in the final phase of Kyrgyzstan�s extensive privatisation program. Although the country has been expanding and upgrading its telecommunications network since 1991, much work remains to be done.

Much has been done in recent years to modernise the Kyrgyzstan�s telecom network. Telecommunication projects worth nearly US$50 million have been implemented to develop the national infrastructure and upgrade systems. These projects have been financed with the help of US$27 million in loans from the World Bank and the European Bank for Reconstruction & Development (EBRD). The program included creating a digital network, digital radio-relay stations and a fibre optic links.

Mobile services are provided in Kyrgyzstan by two operators - Katel (D-AMPS) and Bitel (GSM). The mobile market is still in its infancy, with penetration at around 4%. Annual growth, however, was running at 50% coming into 2005.

Kyrgyzstan has an Internet penetration of around 4%. This sector of the market has been helped to some extent by an Asian Development Bank (ADB) loan for education and computers. Access to Internet in Kyrgyzstan, as with other telecom services, has a strong bias towards the urban customer.

Tajikistan�s telecommunications network is arguably the least developed of all the countries that emerged from the former Soviet Union. With a telecommunications network that was near total collapse, the government has started the difficult task of bringing the infrastructure up to modern standards. Less than 10% of the network is digital. Not surprisingly, the poor state of telecommunications services has had a negative impact on business and government.

The existing fixed-line network is in poor condition, being unable to provide the required services to the government and the population. It is estimated that one third of the local exchanges installed in the 1960s and 1970s are in poor condition and require urgent replacement. The Ministry has been implementing a plan to progressively replace old equipment. The local telephone network serves an estimated 250,000 subscribers, with total teledensity in the country standing at less than 4%.

The country has two operators providing mobile service. The mobile subscriber numbers have remained relatively flat for some years, but the market has started to grow more rapidly over the last year or two. By end-2004, the total subscriber base had risen to an estimated 65,000. This was still only a penetration of less than 1%.

Internet services began in 1998 with TajikTel serving as the national ISP. A number of other ISPs have since started offering access to the Internet. There were around 5,000 Internet users in Tajikistan in 2004-2003. Usage growth has been hindered by a number of factors including inadequate telecom infrastructure, the absence of appropriate regulation, no high-speed international communication channels and the very limited availability of personal computers.

Turkmenistan, another of the former republics within the Soviet Union, has a relatively underdeveloped telecommunications sector. Over the last decade or so, the sector has stagnated. The slow progress in the development of the private sector generally and continuing state control over most economic activities have not been helpful in growing the country�s telecommunication services. The government has introduced a number of laws designed to attract badly needed foreign investment to help build infrastructure.

The state-owned Turkmen Telecom is the primary provider of fixed-line services. Mobile services are provided exclusively by Barash Communications Technologies.

The Internet arrived in Turkmenistan in 1998. It was provided through an agreement signed between the government and international carrier MCI in 1996. The Internet has advanced only moderately since then. In a country of almost 5 million people, there were an estimated 15,000 Internet users at end-2004.

Uzbekistan has been struggling to bring its telecommunications system up to the standard found in developed countries. In 1991, the country had 1.55 million fixed-line subscribers for a penetration of 6.8%. With just over 1.7 million telephone services in place at the end of 2004 for a penetration of less than 8%, the country has been battling with outdated and poorly maintained infrastructure. In 1996, the government began inviting foreign telecom companies to invest in Uzbekistan in their own right. In 2000, Uzbekistan created a national telecommunications holding company, Uzbektelekom, in the first step towards privatising the sector but since then it has been moving only slowly along this path.

Six operators provide mobile services in Uzbekistan, the largest of which are Uzdunrobita JV and Daewoo Unitel. The market grew by over 80% in 2004, lifting mobile penetration to 2%.

The growth of Uzbekistan�s Internet services market has been picking up pace. Despite a range of difficulties, the estimated number of Internet users was estimated to have risen to around 600,000 by end-2004. Local Internet Service Providers (ISPs) continue to adjust pricing and service plans to make Internet service attractive and affordable for domestic users.