Mediamax, Armenia
Jan 29 2007

`We plan a large-scale advancement of WiMAX in Armenia starting from
the third quarter of 2007′

The interview of «Cornet» Company’s Director Boris Demirkhanian to
Mediamax news agency

In late October, 2006, the Russian `Comstar – United TeleSystems»,
which is a part of the AFK «System», informed on its purchasing 75%
plus one share of the international «Collnet» Operator, the assets of
which in Armenia make the 100% share of the Armenian «Cornet»
Internet provider. Simultaneously, the `Comstar – United TeleSystems»
signed an option on purchasing the remaining shares of the company.
It was said in the statements on the deal that «Cornet» provides
internet access services by telephone lines with the use of dial-up,
ISDN, DSL and Wireless technologies, the access to the interbank
SWIFT net, as well as web-hosting services.

The General Director of «Cornet» Boris Demirkhanian informed Mediamax
on the details of the deal and the development prospects of the
company.

– As opposed to other Armenian providers, «Cornet» and «Collnet»
brands have been widely recognized by the ordinary customers. Which
is your «strong point» and why your company in particular was chosen
by «Comstar-UTS»?

– `Collnet’ – is an English international communication operator,
which was the 100% share owner of the `Cornet’ Company. What concerns
the interest of `Comstar-UTS’, I should say that being a dynamically
developing company, it does not limit itself to the Russian market
only, and our republic was of special interest for `Comstar-UTS’.

To my mind, `Cornet’ is of interest, first of all, because it
provides diverse services. Besides, `Cornet’ tries to be a company
`with a salt’, from the point of view of specific services, which it
can offer on the market.

I suppose that of no less significance a role in the choice of
`Comstar-UTS’ played the fact that in 2004-2005 «Cornet» developed
very intensively. In particular, in 2005, the growth of revenues as
compared to 2004 made 100%, and the profit in 2005 made about 40mln
AMD.

-What are the conditions, scales and the terms for the realization of
the «Comstar-United TeleSystems» investments in Armenia?

– The formalities of the deal on purchasing `Collnet’ were finished
in late 2006. It is obvious that the development program of `Cornet’
for 2007 is subject to fundamental reconsideration in the light of
the plans and prospects of development with the participation of the
parent company. However, as a rule, such prospect planning needs
certain period of time, which we did not have in connection with the
formalization of the relations only in late 2006. At present,
`Cornet’ works on the development program for 2007, and we hope that
already starting from mid-2007 certain steps directed at the
implementation of the given program will be made. `Comstar UTS’ has
plans concerning the development of infrastructures and its positions
on the Armenian market, but we will be able to talk about them more
concretely some time later.

-In Autumn 2006, it was noted that `Comstar’ intended to purchase the
remaining 25% of the `Cornet’ Company. When will that take place and
under what conditions?

– I would like to once again clarify that the deal was made between
`Collnet’ and `Comstar UTS’. The conditions of the deal on purchasing
`Collnet’ were the following: the control package (75%+1share) passes
into the hands of `Comstar’, and the 25%-1 share remains as an option
and is subject to conclusion at the expiration of the 2-year term.
That is, following the year of 2008, the formalities of selling the
remaining 25% shares will be determined.

– The new owner of `ArmenTel’ – `VimpelCom’ stated its readiness to
gradually renounce all types of monopoly. Does it introduce serious
changes in the plans of your company, or was the refusal of the
tender winner from the monopolies a predictable event, and so, that
was the reason for the decision of `Comstar’ to start working in
Armenia?

– There were several companies participating in the tender on
purchasing `ArmenTel’, including the `Mobile TeleSystems’ (MTS), and
the talks concerning the legitimacy of the status of `ArmenTel’ were
underway. `VimpelCom’, most likely, supposed that such a development
of events was possible. Such large-scale companies should take a
sober view of liberalization of the telecommunications market, and
corresponding expectations were not a surprise.

What concerns the liberalization, and the form, in which it is being
realized in Armenia, even if the market is liberalized de jure, de
facto the stance, the scale and the status of `ArmenTel’ impose a
certain specific character on the market. It will take much time
until it becomes possible to announce with all certainty about the
liberalized market of telecommunications in all its segments in
Armenia. And that, in its turn, means that on the market there will
appear a player, which will be able by its potential and services to
really compete with `ArmenTel’, as the given company was developing
in the course of ten years, based on the monopoly status. And, in the
given process, to my mind, is not of less importance the role of the
government as to how balanced will be its regulation of the relations
between `ArmenTel’ and other companies, assisting real liberalization
of the telecommunications market.

-Is it possible to talk about the fact that `Cornet’ will seriously
try to compete with `ArmenTel’ in certain segments of the market?

– The very segment of the market, which we want to become strong in,
does not intersect with `ArmenTel’ today. `ArmenTel’ is, first of
all, a telephone company, a mobile net and datacom net. If the
position of `ArmenTel’ on the market does not change fundamentally,
we will not be competing with each other, at any case, in the segment
of broadband access and provision of Internet services.

On the other hand, `Comstar’ is a huge company with a distributed
network of services. It does not limit itself to providing services
of broadband access to Internet, and if all the services, which the
company provides in Russia, become available in Armenia also, first
of all, in case of their legitimateness on the market, we can
intersect with `ArmenTel’. And here we will be able to talk about
competition in the form, in which it should be present on a
liberalized market.

– According to you, when will it be possible to talk about full
liberalization of the market of Internet services in Armenia? How
legitimate are the assumptions on the near `boom’ in the sphere of
Internet in Armenia, as a result of ArmenTel’s renunciation of the
monopoly?

– As a matter of fact, the internet-market in Armenia has never been
monopolized. This is the only type of service, which never fell under
the monopoly of `ArmenTel’. The position of `ArmenTel’ indirectly
influenced the development of internet-services in Armenia, as the
international exit and surface communications channels belonged to
the given company. On the other hand, the given dependence will be
present on the Armenian market for a very long time yet, as today all
the wire technologies are IAE connected to `ArmenTel’. The only way
to establish certain freedom in developing end-to end services is to
implement various wireless solutions (radio-net).

– Does your company have any plans in the given direction? You are
the only company in the country having a license for WiMAX, aren’t
you?

– Factually, there is no notion of a license for WiMAX in Armenia.
Any company, which has a license for providing datacom services, and
the most important, a permission to use radio-frequency spectrum
line, can establish and operate radio nets, including ones, based on
WiMAX technologies.

As `Cornet’ has all the necessary licenses and frequency range, we
have launched a net in test regime, based in WiMAX technologies. This
is a new technology, and there are not many standards for it, that is
why for a start we are realizing a pilot project, which is being
realized jointly with the `Alvarion’ Company. It will allow assessing
the abilities and the prospects of the given technology, will allow
probing the readiness of the market to accept a novelty.

We plan a large-scale development of the WiMAX net, starting form the
third quarter of 2007. Strengthening the facilities in Yerevan, we
intend to move through the entire republic, covering those regions of
Armenia, where there is demand for the service. We plan to provide
datacom services, Internet access and to establish a distributed
department and corporate nets through the WiMAX net in the most
developed and densely populated towns and regional centers of
Armenia, using the privileges of quick expansion of the net and its
penetration. The situation on the telecommunications market in the
regions is reasoned by the unsatisfying quality of the cooper cable
infrastructure, and sometimes by complete absence of opportunity to
use cable technologies, which gives the net of wireless broadband
access (WBA) irrefutable competitive privileges. Naturally, for us of
main interest are the corporate users, however, we consider the
possibility of providing services to natural persons as well.

– In autumn, the Russian Media were writing that your company is in
fact the only operator in Armenia, which provides services of
connection to the global inter-bank S.W.I.F.T. network by means of
close, protected IP SWIFT (SIPN) net. If possible, please, tell us in
detail about the given sphere of activities and about the plans for
its development.

– More than 70% of the Armenian banks are the customers of the
`Cornet’ Company, however, we are not involved in SWIFT directly. We
have the opportunity to provide the given service, but it is somewhat
specific, and there are organizations on the market, which specialize
in the given sphere.

I think that today SWIFT services do not represent a determinant
service for the Armenian banks. The issues of interaction between the
branches of the bank are more relevant, and `Cornet’ on this occasion
prefers to orient itself more on interbanking – the organization of
telecommunications solutions for providing interbranch, interbank
cooperation.

– What difficulties does your company face today?

– We go through all the difficulties, which each company, working in
the same sphere as we do, faces on the Armenian market. However, the
basic difficulty lies in the plane of state control and regulation.
We go through a transition period, and any development is coupled
with difficulties, which we overcome without assistance. We would
like the regulation bodies to listen more keenly to the needs, which
are present today in the IT sector.