2008 ASIA – TELECOMS, MOBILE & BROADBAND IN CENTRAL ASIA

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02.07.2009 16:15:02 2008

Asia – Telecoms, Mobile & Broadband in Central Asia – a new market
research report on companiesandmarkets.com

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This annual publication looks at 11 of the developing telecom markets
of Asia: Armenia, Azerbaijan, Bhutan, Georgia, Kazakhstan, Kyrgyzstan,
Mongolia, Nepal, Tajikistan, Turkmenistan and Uzbekistan.

Armenia

Armenia’s telecom sector is small but growing. With over 600,000
fixed-line subscribers for a population of around 3.5 million, 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. In 2004,
amid growing dissatisfaction over the performance of the telecoms
network, the government reached a compromise with national telecom
provider, ArmenTel, ending its exclusive rights as a service provider
in exchange for various other concessions, including that only one
alternative mobile operator would be allowed to operate in Armenia
until 2009. ArmenTel was allowed to retain sole rights to Internet
telephony and the use of fibre optic cables. Previously, it had been
granted exclusive rights to provide all telecom services in Armenia
until 2013 (apart from data). The mobile market grew by around 75%
in 2007, with K-Telecom, Armenia’s second mobile operator having
a big impact on the market. Plans to award a third mobile operator
licence were announced in late 2007.

Azerbaijan Azerbaijan’s GDP growth was running at an estimated
30% coming into 2008, largely due to a rapid increase in capital
investment. Much of this is foreign capital and has mainly
been directed towards major oil and gas developments. On the
telecommunications front, the country has been making steady progress
in developing its telecom sector, but it still faces numerous problems,
including poor quality infrastructure; still only around half the
country’s telephone lines are digital. The monopoly held by the
Ministry of Communications remains problematic. As well as being
a commercial operator through its role in incumbent AzTelecom, the
ministry is both policy-maker and regulator for the telecoms sector.

Bhutan Bhutan, which for a long time preferred to remain isolated
from the world, has very recently started to improve its telecoms
capability. The tiny country proceeded to invest heavily – to the
tune of around US$27 million – in telecom infrastructure between
1996 and 2002, providing a modern fixed-line network. To do so it
has had to overcome its mountainous landscape. A mobile service
launched in late 2003 by Bhutan Telecom had signed up more than
150,000 subscribers by end-2007, equivalent to about 7% penetration. A
second national mobile licence was awarded in November 2006 to local
industrial conglomerate, the Tashi Group. Tashi launched its mobile
operations in April 2008. Accurate statistical information on Bhutan
is especially difficult to obtain. In the meantime, Bhutan has moved
towards adopting a democratic system of government, the King having
been actively involved in this process.

Georgia There has been an upward trend in Georgia’s telecom market
over the past few years, with rising revenues and increased investment
in infrastructure. Although steadily improving, Georgia’s telecom
infrastructure remains outmoded and inadequate as a result of gradual
under-investment over decades. Mobile telephone systems have become
increasingly important because the fixed-line infrastructure is
outdated and a mobile phone represents the only effective means of
communication. MagtiCom was awarded the country’s first 3G licence
in 2005. Then, in a significant move in 2006, the regulator awarded
another 3G licence. This was followed by a third licence going
to Telecom Invest Georgia. In the four years to end-2007, mobile
penetration increased fourfold to reach a remarkable 50% penetration
in what was a truly booming market.

Kazakhstan Kazakhstan’s telecoms market has been growing on a broad
front. One of the few central Asian countries that has a substantial
fixed-line network (almost 20% penetration), the dynamic nature of
the market is seeing the rapid introduction of new infrastructure and
the upgrade of old equipment. Legislation enacted in 2004 started the
liberalisation process and ended Kazakhtelecom’s sector monopoly. By
April 2005, four companies had been licensed to provide international
and long-distance services and by year-end, over 1,000 licences had
been issued to provide a range of telecom services. Rapid development
in the mobile market has seen mobile penetration surge to over
75% in early 2008. By contrast, Internet penetration remains low,
however. Supported by a strong economy and a GDP per capita estimated
at nearly US$9,000 in 2008, further vigorous expansion of the telecom
sector in Kazakhstan looks highly likely.

Kyrgyzstan Kyrgyzstan has progressed further and faster than other
Commonwealth of Independent States to liberalise its economy. It was
the first Central Asian Republic to join the WTO, despite being one
of the least developed countries in the region. Even though much has
been done to modernise its telecom network, a number of key obstacles
including geographical conditions, a high incidence of poverty and
a still developing legal and regulatory framework limit Kyrgystan’s
ability to expand its telecom operations. The telecom market has
been opened up to both foreign and domestic investors; an independent
regulator has been established to oversee the sector. Not surprisingly
there is a high level of interest among foreign investors, as well
as the offer of considerable economic and technical assistance of
various types. Although progress has been slow, the national operator
Kyrgyztelecom has been steadily working at upgrading its outdated
and poorly distributed network. Following the launch of a second GSM
network by MegaCom in 2006, KT Mobile, the non-operational mobile
subsidiary of Kyrgyztelecom, was granted frequencies in December 2006
for GSM 900 and GSM 1800 mobile services. With a mobile penetration of
around 35% in late 2007, the market still has plenty of room to grow.

Mongolia Since the government’s telecom reform program in the
mid-1990s, there has been effective liberalisation of all market
segments, partial privatisation of the fixed-line incumbent
operator, Mongolia Telecom, and establishment of an independent
regulator. Competition is in place for both fixed and mobile telephony,
including local, long-distance, and international, Internet, VoIP,
and VSATs. While the fixed-line network has been expanding slowly, the
mobile phone market has undergone a remarkable boom, with the number
of subscribers growing at an average rate of close to 50% year-on-year
for a number of years. Two additional mobile licences were awarded
in 2005/06 to Unitel (GSM) and rural mobile operator G-Mobile (CDMA),
with both networks well founded for growth going into 2008. Although
GDP has grown substantially, 36% of the population still lives below
the international poverty line of US$0.75c per day, while the average
monthly wage is US$70. Despite this, mobile penetration of less than
40% indicates that there is still room to grow, particularly in the
rural areas.

Nepal Nepal is among the poorest and least developed countries in
the world. Amid what has been an unsettled political climate, the
country has surprisingly been able to move towards a more liberalised
telecom market. Positive regulatory changes have been implemented,
including the incumbent telco losing its monopoly status. By 2006,
over 170 operators had been authorised to provide a wide range of
telecom services, including two for basic telephony and two for
mobile telephony. The expansion of telephone services has not been
able to keep up with the growing demand; the biggest challenge has
been to provide rural services. Over 60% of telephone services are
concentrated in the capital Kathmandu. Nepal Telecom has been heading
up an ambitious plan to increase total telephone penetration to 20%
by 2010. Nepal’s target of 15 total phone lines per 100 people by
2014 already looked set to be achieved well ahead of schedule. On
the back of the combined effort by Nepal Telecom and the private
operators, a figure of 25 lines per 100 people by 2014 was being
considered feasible – significantly higher than the 11% penetration
(3% fixed; 8% mobile) at end-2007; in comparison, by end-2005 the
combined penetration figure was just 1%.

Tajikistan With a telecom network that was near total collapse when the
Soviet Union fell, Tajikistan’s government started on the daunting task
of bringing it up to modern standards. The telecom network was arguably
the least developed of all the countries that emerged from the former
Soviet Union. The basic fixed network remains tiny, providing service
to barely 5% of the population coming into 2008; and a large proportion
of the network has not yet been converted to digital. A gradual process
of liberalisation is under way and over the last decade a significant
number of private operators have been allowed to enter the telecom
market, notably in the mobile and Internet sectors. Privatisation of
state-owned Tajiktelecom was expected to be achieved by end-2007. The
highly competitive mobile sector experienced a major growth surge in
2006 and 2007, the subscriber base jumping by around 200% over this
two year period; this expansion looks set to continue. Interestingly,
Tajikistan was the first of the CIS countries to launch a 3G network.

Turkmenistan Turkmenistan is another nation that emerged
from the former Soviet Union with a relatively underdeveloped
telecom sector. Poor growth in telecoms services, slow progress in
developing the private sector and continuing state control over most
economic activities have not helped to support growth in the telecom
market. Combined fixed-line and mobile teledensity was estimated at
around 16% by end-2007. For almost a decade fixed-line growth has
been virtually stagnant. And oddly, Turkmenistan’s mobile market,
served by one private and one state-owned operator, has not taken off
like its neighbours but is only growing slowly (7% mobile penetration
by end-2007). The Internet has been an interesting sector to watch;
government has been exercising tight control, with online activity and
access severely restricted. Reports have been emerging, however, that
suggest Turkmenistan is moderating its restrictions on the Internet,
though it is difficult to assess the trend.

Uzbekistan Although steadily improving, much of Uzbekistan’s telecom
infrastructure remains outmoded and inadequate. The country has
been struggling to bring its telecom system up to the standard
found in developed countries. No doubt the government’s decision to
give priority to the telecom sector has seen the situation steadily
improving. Back in 1996, in what was a significant move at the time,
the government was encouraging foreign telecom companies to invest
in Uzbekistan. This was followed by the creation of Uzbektelekom, a
holding company charged with operating the national telecom network. An
upward trend in the country’s telecom market over recent years has
seen rising revenues and increased investment in infrastructure. The
next step is to privatise Uzbektelecom and to open the market to
competition consistent with the country’s objective of joining the
WTO. Combined fixed and mobile teledensity was estimated at over 23%
by end-2007, the mobile sector having just surged by more than 200%
in a two year period.

Key highlights: ~U Armenia’s mobile market was growing at an annual
rate of 80% in late 2007, with newcomer K-Telecom passing the one
million subscriber mark and grabbing two-thirds of the market; ~U
The current economic boom in Azerbaijan continued (GDP growth of 29%
in 2007) and mobile penetration passed 50% with growth continuing at
around 40% per annum.

~U Bhutan’s telecom sector remains underdeveloped with mobile
penetration still below 10%. The country moved towards a democratic
system of government with elections in early 2008; the hope was that
this would bring significant structural reform to all sectors of the
economy; ~U In Georgia, the telecom regulator awarded a third 3G mobile
licence, creating further interest in a market that had remarkably
passed 50% mobile penetration by late 2007; ~U Kazakhstan’s mobile
market has been characterised by a prolonged surge in subscribers,
reaching 13 million (a penetration of 75%) by early 2008, up from
only 1.3 million in 2003.

~U Kyrgyzstan, the first Central Asian Republic to be admitted to
the WTO, continues to work on reforming the telecom sector; mobile
subscriber growth exceeded 100% in 2007; ~U With the launch of two new
mobile operators, Unitel and G-Mobile in 2006 and 2007 respectively,
mobile subscribers in Mongolia passed 1 million going into 2008,
representing an annual growth of just under 50%.

~U Nepal Telecom initiated an ambitious program in 2007 to increase
total telephone penetration (fixed plus mobile) to 20% by 2010;
the plan came as Nepal entered a more stable period politically; the
mobile market is growing at an annual rate of around 140%; ~U With
a population of just over 7 million, Tajikistan’s busy mobile sector
(7 operators) continued the major growth surge that started in 2006;
the subscriber base jumped by more than 100% in 2007.

~U Compared with most of the other Central Asian markets Uzbekistan’s
mobile penetration of 20% towards end-2007 was modest; however the
year saw subscriber growth exceed 120%.

Central Asian markets ranked by GDP per capita – mobile penetration
& annual growth – September 2007 Country Penetration Annual growth
GDP per capita (US$) Kazakhstan 75% 65% 8,800 Mongolia 35% 53% 2,900
Azerbaijan 51% 40% 2,500 Armenia 54% 79% 2,300 Bhutan 6% 111% 2,000
Turkmenistan 7% 88% 1,400 Georgia 49% 25% 1,000 Uzbekistan 16% 120%
800 Kyrgyzstan 34% 120% 600 Nepal 6% 104% 400 Tajikistan 22% 119%
300 (Source: BuddeComm) Data in this report is the latest available
at the time of preparation and may not be for the current year.

This report provides a comprehensive overview of the trends and
developments in telecommunications and digital media markets in 11
countries in Central Asia (Armenia, Azerbaijan, Bhutan, Georgia,
Kazakhstan, Kyrgyzstan, Mongolia, Nepal, Tajikistan, Turkmenistan
and Uzbekistan). Subjects covered include: Key Statistics; Market
and Industry Overviews; Regulatory Environment; Major Players (fixed
and mobile); Infrastructure; Mobile Voice and Data Markets; Internet,
VoIP, IPTV and Broadband development.

Researchers:- Peter Evans and Lisa Hulme-Jones Current publication
date:- June 2008 (14th Edition) Next publication date:- June 2009.

Author: Mike King