Telecommunications: Connections improving
In spite of the general economic downturn caused by the financial crisis, the telecommunications sector has not suffered setbacks and continues to demonstrate steady growth. Indeed, the 2007 results show that the market volume has maintained the characteristic average growth of recent years, achieving a financial increase of 33%, totalling 356.8 billion tenge, according to the Statistics Agency data.
However, representatives of the Information and Communication Agency (ICA) have claimed rather different figures. According to Interfax, Kuanyshbek Yesekeyev, Chairman of the ICA, stated in late January that "The Telecommunications turnover amounted to 3% of GDP in Kazakhstan in 2007, which is nearly 323 billion tenge, giving an annual growth rate of 30%". A few days earlier, during the ICA meeting, his deputy Askar Bishigayev also claimed the Telecoms income accounted for 3% of GDP, though he referred to a different sum of 314 billion tenge. It is inevitable that the figures will be approximate and the difference of a few percentage points is not critical, since the general situation is clear: the growth rate in telecoms has been maintained.
Askar Bishigayev has also identified the leading Telecoms Operators for 2007, viz. Kazakhtelecom, GSM Kazakhstan, KaR-Tel, Altel, and Transtelecom. Inevitably, the lion's share belongs to the national operator which is still the main provider of Telecoms services. Summing up last year’s results, Askar Zhumahaliyev, Chairman of the board of Kazakhtelecom JSC, noted that the corporate earnings had amounted to 144.5 billion tenge which included revenue of 128.4 billion tenge from the provision of Telecoms services. The net profit reached 32.5 billion tenge which exceeds the target figure by 11.4%.
It is easy to see that today’s figures show the national operator with a 36% share of the total industry income. However, Kazakhtelecom's share has slowly but steadily decreased from its 50% share in 2005. This is mainly due to the dynamic growth of mobile phone usage within the range of Telecoms services. However, it should not be overlooked that Kazakhtelecom is well-established in this sector as well. The Company is a 100% owner of the two cellular companies:
1.CDMA operator Altel, with the Dalacom and Pathword trademarks
2.GSM operator Mobile Telecom Service with its NEO trademark
Kazakhtelecom also has 49% interest in GSM Kazakhstan, the leader of the Kazakhstani cellular market. Only the cellular operator KaR-TeL (Beeline) belonging to the Russian Vympelcom has so far managed to operate the Kazakhtelecom capital.
It should not go without mention that the national operator has carried out extensive work in the field of telephone communication provisions. Last year Kazakhtelecom installed 331,735 phones, exceeding the target by 41,500 (+14%). In addition to this the Company provided telephone connections to 395 villages during the last year, thus ensuring communication facilities in all rural settlements with a population of over 50 people, thereby increasing the distribution of telephones to 20 per 100 citizens.
In the private sector, Internet and Telephone service providers such as Arna JSC (DUCAT trademark) increased their revenues by 8.8% in 2007. Gulmira Rakhimzhanova, Director General of Arna JSC, noted that "growth has amounted to 11.42% for its Internet client base and 18.95% for its Telephone client base".
Generally the whole sector continues to develop, although the first few months of 2008 saw some slowdown. During January and February, 2008 the Kazakhstani Telecom Companies provided services totalling 64.5 billion tenge, a 25.4% increase on the same period for the previous year. For comparison, the year on year increase for January and February 2007 was 32.1%.
Mobile saturation
One of the causes of the slowdown may be the saturation of the cellular market which used to be the driving force in the Telecoms sector. In financial terms, the market volume increased by 45.8% in 2007 alone. As a result, the industry income share of mobile operators in the market today is significant: 52.2% in 2007, and 53.1% in January and February 2008.
These facts imply that the period of unrestrained growth of the subscriber base is already over and the base has effectively been established. Thus further income growth must be achieved by developing new services and increasing the average revenue per user. This has led domestic operators to focus more on non-voice services.
The iKS-Consulting Analytical Company has provided the following figures from its regular iKS-rating on the cellular market, together with market development results for the first quarter of 2008, in Kazakhstan:
· Number of subscribers on 1 January: 12.55 million (market penetration of 80.7%)
· Number of subscribers on 1 April: 13.4 million (market penetration of 86%)
Since the beginning of the year, the total number of registered cellular subscribers in Kazakhstan has grown by 6.5%, whilst the growth for the same period in 2007 amounted to 9.8%. This slowdown is indicative of the market reaching its maturity phase.
The distribution of the subscriber base amongst cellular operators (according to the number of registered subscribers) is presented in the table below. It can be seen from the figures, GSM Kazakhstan has witnessed the biggest upsurge in the number of subscribers (+7.5 %).
For the active user sector, iKS-Consulting reports that operators now use various methods to record active cellular subscribers. Thus, the number of active subscribers in KaR-Tel LLP on 1 April 2008 amounted to 4.8 million people. Overall, iKS-Consulting estimates that the number of active subscribers in Kazakhstan has already reached 10.45 million people, i.e. 78% of all registered subscribers.
The long awaited tender for GSM-1800 frequency, which has already been postponed several times, could introduce the necessary incentive to the cellular market. Late in January, Kuanyshbek Yessekeyev stated that the tender was to be carried out this year. "Once the Ministry of Defence confirms that the frequency is free, the 1800 band tender will be considered," said the ICA chairman, "The complete tender package is now being developed." For reference, the GSM-1800 range includes 1710-1720 MHz and 1805-1815 MHz bands (total 20 MHz).
It may be recalled that the tender for provision of DCS-1800 cellular connection services conducted in 2004 was ruled illegal and revoked by the Astana Court. This ruling was approved during the hearing on the suit of the Kazakhstani company – the potential participant of the tender – that has questioned the legality of some of the conditions stipulated in the tender documentation. However one year later, in 2005, the then Prime Minister Danial Akhmetov announced the Government's intention to invite tenders for GSM-1800 in 2006. However, this was never carried out and although the reason is unknown, it may be attributed to the difficulties encountered in coordinating this process with the Ministry of Defence, which is now using the GSM-1800 spectrum for its own purposes.
Bypassing wires
With the complete Telecoms wiring infrastructure belonging to Kazakhtelecom and channel rental costs growing alarmingly as a result of increased competition, alternative operators are inclining more and more to wireless technologies, thus allowing them to bypass the monopoly holder. Apart from high speed internet access, wireless networks offer connections to a fixed telephone line and a local city telephone number, as well as access to long-distance and international communication or services such as unification of remote offices into a single network. As well as this, network subscribers benefit from mobile television and voice communication services, within their network. Other advantages include ease of installation, mobility in the event of a move to a different office, and independence from service operators and wired connection operators.
Thus, in Atyrau the WiMAX technology-based wireless broadband internet access network has been operating since autumn of last year, and in the spring Arna JSC announced the launch of a wireless broadband internet network based on the same technology.
"Testing and commercial operation of the network covered by the Ducat communications network will begin in June or July 2008 in three cities in Kazakhstan", said Yerzhan Budenov, First Deputy Director General of Arna. During the first stage, WiMAX networks will be built in Almaty (40 stations), Astana (25), and Atyrau (15). During the second stage, in 2009, the network will be extended to include major oblast centres: Karaganda, Shymkent, Aktau, Aktobe, and Pavlodar. All the oblast centres and large cities throughout the country will be covered by the network during the third stage which will take place between 2010 and 2012. The estimated cost of the project is 3.5 billion tenge with a payback period of 5 years. Arna anticipates average revenue per user (ARPU) of 5-6 thousand tenge per month. 40% of the project costs will be funded through borrowing with the remainder being obtained from the Company's own capital and overdraft loans of equipment suppliers.
Foreign companies, Russian in particular, have also shown an interest in the wireless access market. Last summer, Summa Telecom LLP opened an associate company in Kazakhstan, and on 19 December 2007 it obtained its frequency range of 2.5–2.7 GHz in 7 oblasts of Kazakhstan, with administrative centres located in Rudniy, Atyrau, Kokshetau, Pavlodar, Semey, Temirtau, and Uralsk. The company is seeking to obtain WiMAX frequencies in the remaining oblasts as well. The Kazakhstani branch office, like its parent company, is in favour with the regulating bodies and in addition to WiMAX frequencies, the operator is authorised to use local and long distance telephone lines, data communication and internet access, and is also licensed to provide internet (IP) telephony services throughout the territory of Kazakhstan.
However it is not known for certain whether Summa Telecom is planning to construct WiMAX based networks in our country. In the meantime, Irina Glukhova, a partner of ComNews Research, says: "There have been no frequencies allocated for 3G, so WiMAX features will be very welcome in this market."
Kazakhtelecom has initiated activities regarding wireless technologies. In particular, Vostoktelecom, the national operator's affiliated Company, has begun an implementation programme to ensure the provision of telephone communication in rural areas of Kazakhstan using the CDMA-450 wireless technology. The data-transmission rate in CDMA networks is 153 kbps which significantly exceeds the GSM rates, which range from 9.6 to 114 kbps. Radiotelephony communications will operate within a radius of 25-30 km from the base station. The technology is very similar to the cellular connection, apart from the fixed location for telephone apparatus. Monthly subscription fees will be the same throughout Kazakhstan and the tariff will be the same as that for a conventional telephone. Once implemented, the project will fully eliminate the shortage of communication services, and will provide internet access in rural areas.
A new growth generator
Meanwhile, the larger companies have started to create their own fibre optic networks in a drive to eliminate rental charges for communication channels, and thus lower their outgoings. In particular, cellular operator Beeline is actively engaged in establishing new, as well as expanding, the existing fibre optic lines. Following the purchase, by Vympelcom, of the largest CIS internet provider and network operator, Golden Telecom (represented in Kazakhstan by the affiliated company, CA-Telecom) Beeline has gained the potential to become a major player in the internet market as well.
It is worth noting that the Telecoms sector is showing an increased interest in the internet market, and operators have begun to reduce tariffs for internet access for legal entities. No doubt, this will have an impact on internet penetration level as a whole, as it is no secret that free access to the web from a workplace attracts new users to the network. By using Internet in the workplace, employees realise the benefits of the system and may well decide to install internet access in their homes.
From 1 April 2008, Kazakhtelecom reduced broadband access tariffs under the special Unlimited Plan (regardless of traffic) for user groups such as legal bodies and persons engaged in entrepreneurial activities, who do not qualify as legal bodies. In particular, for a port capacity reaching 256 kbps or more, the monthly fee has halved to 55,500 tenge from 111,983 (excl. VAT) and for a 128 kbps port capacity, it has reduced by a factor of 4, from 62,226 to 15,500 tenge.
The continued decrease in tariffs corresponds to the emergence of new players in the sector, as well as the introduction of new access technologies in the context of an extremely low penetration level (total approximately 8%). This clearly indicates significant development potential in the internet market and over the next couple of years there is likely to be a 5-7 year plan to drive development and growth of the Telecoms industry in the internet services market, rather than the cellular market.
In conclusion it should be noted that, in spite of the minor recession, the sector has maintained positive trends. This is largely thanks to new players entering the market, as well as new services being introduced. The Information and Communications Agency estimates that growth in the telecoms market will reach 25-30% in 2008. However, given the general slowdown of the economy and saturation of the cellular communication market, this percentage can be expected to be somewhat lower, at approximately 20%.
by Alexander Vassilyev
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