The passing year has been pretty intense for the telecommunications sector. This is both the appearance of new cellular players on the market which provoked intensification of competition, and the deployment of 3G standard by network operators, and active preparations for the introduction of 4G, and the launch of communication satellite KazSat-2, as well as a sharp increase in Internet services consumption. As a result – after three years of recession the market dynamics restarted its acceleration.
Recall that last year the communication market has grown by 5 % only (by comparison: in 2009 increase amounted to 8.3 %, in 2008 – 10.4 %, and in 2007 – 33 %). Of course, it is still too early to talk about the indexes of 2011 because it is not finished yet, but the figures for 10 months are encouraging. Thus, according to the Statistics Agency, in January–October communication enterprises provided services for the amount of 453.9 billion tenge which in comparable prices is by 17.8 % more than during the same period in 2010. The income from long-distance telephone services amounted to 37.48 billion tenge (which is by 9.9 % more than during 10 months of last year), local telephone services – 32.9 billion tenge (minus 1.1 %), the Internet – 68.5 billion tenge (plus 62.5 %) and cellular communications – 246,700,000,000 tenge (+13.5 %). Thus, the greatest contribution to the total incomes of the enterprises made cellular communications services (54.5 %), internet (15.1 %), long-distance (8.3 %) and local telephone services (7,2 %). We can assume that it is most likely that the overall growth of the market by the end of 2011 will be in the range of 17–20 %, especially taking into account that during the New Year eve period the industry profits traditionally increase.
As we see, today the main driver of the market is the internet showing the highest rates although still the segment has relatively small share. However, during the coming years we will observe a rapid increase in its share. Especially, taking into consideration that the increase in the cellular market almost reached its limit in the voice services part, so its further development will be achieved by increasing revenue from data transmission.
Apparently, precisely this fact had some affect on the decision of Kazakhtelecom to sell its share (49 %) in the cellular operator GSM Kazakhstan (trade mark Kcell, Activ and Vegaline). Although this step as it is was a complete surprise for the market since the asset provided Kazakhtelecom with a considerable share of the profits. By the way, according to the consolidated financial indexes, the net income of Kazakhtelecom for the first 9 months amounted to 39.9 billion tenge, revenues from implemented services – 125.9 billion tenge, and EBITDA – 52,6 billion tenge.
As the company explained, the decision to sell was caused by the desire to concentrate on the work for implementation of the 4G standard. "In terms of increasing competition on the mobile market JSC Kazakhtelecom plans to focus on the development of its own mobile segment. Taking into account the analysts’ forecasts in the telecommunications industry, Kazakhtelecom is already preparing to pass to the next generation of communication standards (4G). From this point of view selling the minority holding of shares in this operator is the logical step in implementing our own mobile strategy. We believe that the terms of the memorandum are sufficiently beneficial to both parties," – the Chairman of the Board of Kazakhtelecom Kuanyshbek Yesekeyev said commenting on the decision to sell.
We would like to note that the terms of the memorandum signed by Kazakhtelecom and Telia Sonera suppose that the national company will sell the owned shares during the planned national IPO. The exception here will become the package "24% +1 share" which will be purchased by Telia Sonera or by controlled company Fintur Holdings BV which is the direct participant of the LLP GSM Kazakhstan OJSC Kazakhtelecom. It is expected that the planned IPO will promote further development and revitalization of the domestic stock market.
However, after selling the share in GSM Kazakhstan the national operator does not completely leaves the mobile business: Kazakhtelecom wholly owns the shares of the single Kazakh cellular operator using the CDMA standard – the company Altel (trade marks Dalacom and Pathword). And, apparently the fourth generation services will be introduced on the base of Altel.
Meanwhile, other players – GSM Kazakhstan and Kar-Tel (trade mark Beeline) has repeatedly stated their willingness to build networks in 4G standard and even already deployed the test zones. Now the matter depends on the distribution of the frequency range and the issuance of licenses. As the work of the Ministry of Defense on the release of frequencies still continues, the frequency ranges for 4G-communication in Kazakhstan have already been identified. According to the statement of the Minister of Communications Askar Zhumagaliyev, the frequency ranges will be issued for fee to the companies which will undertake the investment obligations to cover the territories with the mobile communication of the fourth generation.
At the same time, the key to successful implementation of any new services is the demand. Kazakhstan cellular communication consumers are not ready to consume 4G yet. One of the reasons is the high cost of 4G customer terminals while the 3G standard is supported by almost all modern mobile phones. Some doubts about the feasibility of launching 4G are currently expressed also by the cellular market participants. "There are different opinions when it is best of all to do this. The 3G standard is evolving, including such important factors as prevalence, the cost of terminal equipment, etc. All the opportunities available in a package of HSPA+ or 3G are not used yet. Operators will actively implement the technology in about three years. The current version of LTE which is implemented now has no significant advantages in speed of data transmission compared to HSPA+ of the latest version", – as the director of business development “GSM Kazakhstan" Nurlan Sargaskaev put it in an interview to Profit.kz.
While the issues with the frequencies for 4G are finally resolved, operators actively implement 3G standard. Dozens of cities are already covered by the communication of the third generation, and the operators record a significant increase in data traffic. Thus, according to the statements of Beeline representatives, 2011 was an unprecedented year for the company on data communication growth: the introduction of 3G traffic has increased four-fold.
Moreover, the main service based on 3G became access to the Internet while video calls were absolutely not in demand by the market. As for other potentially interesting services, they still are not offered. Most likely, this will be the next step after the market gets saturated with mobile Internet access.
Significant recovery, in addition to 3G launching, was caused by the beginning of active operations in Kazakhstan of a new player – the Swedish Tele2 which bought the company Mobile Telecom-Service with the brand Neo from Kazakhtelecom last year. Being distinguished with aggressive marketing policy Tele2 provoked real price wars. The most radical response to the expansion of Tele2 became the launch of new brand of low-cost provider "Dos" by Kar-Tel company. The start of Dos was carried out at the same time as the launch of Tele2 in Almaty – on May, 28.
However, Tele2 does not despair in spite of either aggressive competitive environment or unsuccessful attempts to bring down the rate of interconnection. As it is known, at the current rate of 19 tenge per minute of connection with other GSM-operators, the company has to operate at a loss keeping prices at the level significantly below 19 tenge.
Nevertheless, Tele2 shows results above planned. "We have stated that our rate of return will be minus 500 million SEK, now it turns out to be minus 400 million SEK because we earn more and spend less", – the chairman of the board of Tele2 Kazakhstan Andrew Smelkov commented the outcome of the first 9 months of 2011. The company's result on efficiency according to EBITDA is scheduled for the second half of 2013. "We understand that first we need to invest, to increase user base, revenue, and profit will come only after. This is quite a normal process when the company comes to a positive EBITDA after two years from the start of its business.” By the way, the company's user base exceeded the 1.122 million people according to the data on September 30, 2011, which, as Andrew Smelkov admits, exceeded the expectations of Tele2.
Taking into account that not the entire territory of Kazakhstan is covered by the services Tele2, the growth of subscriber base is guaranteed to continue with the new regional presence. We will be able to estimate the real interest of users to the new player by mid-spring 2012. Until the end of this year, Tele2 will launch its network in all areas, and next year growth at the expense of customers taking the SIM card of new operator "just to try", will hardly be possible.
So far, feedbacks on the quality of communication for Tele2 vary – from enthusiastic cheers to statements such "threw out their Sim-card". However, the number of complaints against members of cellular "duopoly" – operators Kcell and Beeline also increased. This is confirmed by the results of EPSI Rating study (independent project on the measurement of pan-European index of consumer satisfaction) carried out in Kazakhstan in September–October 2011. According to the survey, average weighted index of customer satisfaction of cellular communications users in our country fell to the level of 77.5 points over the past year which is 4.3 % lower than in 2010.
It should be noted that during the study the quality of their operators over the past 12 months was estimated by about 750 users. Data analysis was carried out for the major brands with the largest share of the market and taking into account the dynamics of the past years. As a result, the rating included both independent brands – Kcell, Activ, Beeline, and the consolidated group "Others", including Tele2, Dalacom, Pathword.
It is noteworthy that satisfaction fell even in spite of the fact that operators have launched a lot of new services. The greatest decrease in customers’ satisfaction is seen in Beeline – the index fell by 6 % – to the level of 75.6 points that is worse than during the first measurement conducted in 2009. Satisfaction index for Kcell decreased by 4.4 % to 79.1 points, while for Activ the index remained at the same level of 80.6 points (taking into account measurement error plus / minus 2.6 points).
Thus, in Kazakhstan the brands Activ and Kcell remain the leaders in terms of customer satisfaction. Appearance of Tele2 on our market did not still change much the position for the group. Here the satisfaction has declined by 3.8 % and stands at 73.8 points (plus / minus 2 points). However, in comparison with the results of 2009 consumers of the group "Others" were still more satisfied with their operators’ work.
With the introduction of 3G the competition in the market of Internet access intensified – more and more users use the mobile phone as the device for access the World Wide Web. Even the Statistics Agency now marks out this group separately in their reports. Thus, in October 2011 the number of fixed telephone lines reached 4.17 million units, the number of mobile subscribers – 22.47 million, the number of mobile subscribers with access to the Internet – 8.14 million, and the number of fixed line Internet subscribers – 1.17 million units.
As a result, Kazakhtelecom pays more and more attention to online services. During the first 9 months of this year the company carried out a series of measures to improve the performance of consumer services of access to the Internet with emphasis on active development of Kaznet and increase in the speed without changing the level of payment.
In a previous review we have already mentioned that since the 1st of July the parameters of tariff plans Megaline Hit / Light / Box have been improved. In addition, since the 1st of August, the parameters of tariff plan Megaline Turbo have been changed: monthly fee was reduced (from 5,845 to 4,600 tenge, including VAT) and the threshold of traffic to external sources was increased (up to 40 GB). Since the 1st of September, for all settlements below the level of regional center the speed of access to external resources was increased from 1 to 2 Mbit/s, and to the internal ones – from 2 to 4 Mbit/sec. However, with the absence of technical capacity to provide services under the specified parameters, the application of a reduction factor 0.75 to the monthly payment is applied. The national operator has also launched two new tariff plans: since the 1st of September when has been introduced Megaline Drive (with tariff 5,600 tenge), and since the 1st of October with Megaline Optima (3,500 tenge).
It is curious that on this background Kazakhtelecom postponed the plans to enter the foreign markets. Recall that in the second half of September the commercial director of management of information systems Kazakhtelecom Anatoly Bachikalov reported: that due to the fact that Kazakhstan has now entered the Customs Union the company intends to compete on the promising markets of Russia and Belarus. However, a few weeks later the chairman of the board of Kazakhtelecom Kuanyshbek Yesekeyev said that it was better to focus on issues of communication within the country. "We plan to conduct internal restructing processes, participate on the domestic market where we still see a potential. I think we first have to exhaust it." It is clear that the focus of Kazakhtelecom will also be the implementation of 4G-projects the main functionality of which is wireless data transfer.
In general, if we talk about the forecasts for next year, then taking into account given current trends and upcoming plans of the operators we can assume that the Kazakhstan telecommunication market will increase at approximately present level – about 17 %. This will mainly contribute to the further internetization of the country in all its manifestations.
