ARMENTEL SEES CONVERGENT NETWORK LAUNCH BY END-2009
Michael Lacquiere

World Markets Research Centre
Global Insight
June 26, 2008

Some momentum is now building towards the possible roll-out of
fixed-mobile convergence in Armenia.

Armentel, the Armenian unit of Russian operator Vimpelcom, has
indicated that it plans to complete construction of a convergent
network by the end of 2009, reports ARKA. Earlier this year it
selected Ericsson for construction of the convergent network
and delivery of an IP Multimedia Subsystem (IMS) solution, which
facilitates fixed-mobile convergence (FMC) (see Armenia: 8 February
2008: ). The Ericsson network will replace components of an old
Siemens network. This transition will be completed by the end of
2009. Armentel’s Director for Operations Alexander Birman is quoted
as saying in a press conference that the new Ericsson equipment will
enable high-quality communication services, and that subscribers will
be allowed to switch smoothly from one network to the other depending
on the intensity of incoming signals.

Global Insight Perspective

Significance Armentel’s IMS solution is scheduled for completion by
the end of 2009, and as such could herald the launch of FMC in Armenia.

Implications The project is indicative of parent group VimpelCom’s
willingness to branch out beyond mobile-only provision and explore
cross-selling and unified billing opportunities.

Outlook Any launch of FMC could also help Armentel to convert
fixed-line subscribers to its mobile product, thereby improving its
mobile market share.

Having been the first mobile operator to enter the Armenian market,
Armentel has been overtaken by VivaCell, owned by Russia’s Mobile
TeleSystems (MTS), since its launch in July 2005. At the end of
the first quarter of 2008 Armentel had a 27% mobile market share to
VivaCell’s 73%. Both operators were awarded 3G licences in October
2007, with VimpelCom planning to launch services by the end of
the first half of 2008 and VivaCell by the end of 2008. Within the
fixed-line market Armentel’s monopoly was removed in October 2007,
and although a handful of IP telephony licences have been issued to
alternative operators it remains largely unchallenged in the market.

Outlook and Implications

VimpelCom Warming to Expansion Beyond Mobile-Only Provision:Until
recently, VimpelCom had only ever operated in the mobile market. After
its acquisition of Armentel back in November 2006, there was therefore
some speculation that the Russian group might divest Armentel’s
fixed-line operations. However, the company is evidently pushing ahead
with the construction of a network that will facilitate FMC, and this
service could be commercially offered by the end of 2009. VimpelCom
has begun to demonstrate a willingness to expand beyond mobile-only
services, having earlier this year acquired Commonwealth of Independent
States fixed-line and broadband operator Golden Telecom for $4US.24
billion. The expansion of its service portfolio creates opportunities
to cross-sell products and offer simplified, holistic billing services
to customers, while allowing the operator to counter the limited
growth potential of mature mobile markets.

Advantages of Adding Fixed-Line Operations to Service
Portfolio:Armentel has dropped well behind VivaCell in the Armenian
mobile market. The gap between the two is large, and Armentel has
previously stated its goal of improving subscriber market share by
improving network quality, expanding coverage, and strengthening its
marketing activities. Although these goals will remain in place, its
fixed-line operations give it an extra revenue source. In the fourth
quarter of 2007 Armentel’s fixed-line ARPU was $19US.6, compared with
mobile ARPU of $17US.4 and VivaCell’s mobile ARPU of $15US.8. Once
an FMC product is launched, Armentel could also use the lure of
a single-billing holistic telecoms product to convert fixed-line
subscribers to its mobile product, thereby possibly increasing its
mobile market share.