Institute for War and Peace Reporting
Nov 25 2004

ARMENIANS GET MOBILE PHONE CHOICE

ArmenTel loses mobile phone monopoly as government ushers in
Karabakh-related company.

By Naira Melkumyan in Yerevan

Following years of wrangling with the Greek company that owns 90 per
cent of Armenia’s telecommunications monopoly ArmenTel, the government
has finally moved to allow competition.

However, although the arrival of newcomer on Armenia’s poorly developed
telecoms market may herald improved services, some are questioning
the selection process.

The tender was won by K-Telecom, a firm affiliated to Karabakh-Telecom
which is the sole telecoms operator in Nagorny Karabakh, the
Armenian-held territory still claimed by Azerbaijan.

The Armenian government, which owns a residual 10 per cent of ArmenTel
shares, last week signed a truce with the majority owner OTE, ending
four months of often-difficult negotiations over its licence.

The agreement means ArmenTel’s licence will be changed so that it
loses exclusive rights to provide GSM, satellite, and mobile radio
communications services, as well as internet access. But it will retain
sole rights to internet telephony and the use of fibreoptic cables.

The decision follows growing dissatisfaction over the performance of
the telecoms network.

OTE has been in control of ArmenTel since 1998, having paid 142
million US dollars for a 90 per cent stake and what amounted to a
15-year monopoly over communications.

This year, the government tried to change the company’s license with
a view to removing its monopoly, arguing that ArmenTel was not meeting
its investment obligations – an accusation the firm has rejected. The
latest deal means the firm has lost its monopoly in most areas.

However, the way the government moved swiftly to select a competitor
has proved controversial.

Parliamentary deputy Victor Dallakyan says that in an “unprecedented”
move, the government set up a commission to award the GSM licence,
which took just one day to pick K-Telecom in a rushed tender process.

Prime Minister Andranik Markaryan told journalists that the commission
had the power to change the tender rules in exceptional cases.

Many observers disagree. Dallakyan believes the commission violated
various rules, such as the need to advertise the tender in the press,
and to seek and review bids.

Other companies were said to be in the running, but the communications
ministry insists that K-Telecom was the only one that actually applied.

Even members of the ruling coalition are confused by the process.

“We are not against K-Telecom being chosen as a second operator,
but the government should explain. so that we know whether there was
another choice,” Levon Lazarian, head of the pro-government party
Dashnaktsutyun’s faction, told IWPR.

Government representatives say that the decision to go for K-Telecom
was more political than commercial.

“This government decision was strategic and political, not a choice
in favour of the best operator,” justice minister David Arutyunyan
told journalists. “By giving K-Telecom the license, we are helping the
people of Karabakh overcome their isolation. Maintaining the existing
quality of communications is extremely necessary for security reasons.”

Arutyunyan implied that K-Telecom’s parent firm in Karabakh would
benefit from the deal, and get round the Azerbaijani government’s
objections to the unrecognised Karabakh state being allowed to have
GSM communications with the outside world.

Some politicians think the government should have gone further and
deprived ArmenTel of its license altogether.

According to National Democrat bloc leader Arshak Sadoyan, the
government should have implemented a January 1999 ruling by Armenia’s
constitutional court that ArmenTel should lose its monopoly within
five years.

Ovsep Khurshudyan, an economic expert at the Centre for National
and Strategic Studies, believes that one reason why this did not
happen is that OTE has been pursuing a case against Armenia at the
International Court of Arbitration in London, in a dispute in which
each side accuses the other of breaching the ArmenTel contract.

If OTE win, the Armenian government would have had to pay 300 million
dollars in damages. But the latest agreement with ArmenTel appears
to end claims by either side.

“It is clear that the steps that were taken to deprive ArmenTel of
its monopoly were populist in nature, while the real negotiating
process was taking place behind the scenes,” said Khurshudyan.

ArmenTel has largely abstained from commenting on the deal, but a
spokesman told IWPR that the company was not against competition,
as it has its own client base.

Naira Melkumyan is an independent journalist in Yerevan.