Fast and Generous
Mobile operators have traditionally proved to be the main newsmakers in telecommunications sector in the first half of the year. This is not surprising. Forming more than half of industry revenues, they are rivals in the increasingly competitive market. It is noteworthy that even the most high-profile events of the half of the year – payment of generous dividends to shareholders by Kazakhtelecom - was a direct consequence of selling its stake in Kcell.
Let us start traditionally with statistics. In general, revenue growth in the sector continues to show good dynamics, although somewhat slower. Thus, according to the current data of the Agency for Statistics, in the first half of the year Kazakhstan telecommunications agencies provided services in the amount of 286.25 billion tenge, which is 12.8% more than in January–June 2011 in comparable prices. If we compare the dynamics of the market for the last five years, we get the following picture: in 2011 the telecommunication services market grew by 18.7%, in 2010 – by 5%, in 2009 – by 8.3%, in 2008 – by 10.4% and in 2007 – by 33%. In this regard, it can be assumed that the growth at the end of 2012 will be in the range of 12–14%.
Returning to the results of the first half of the year, note that revenues from Internet services continue to show the highest rates, although there is also an observed slowdown (thus, according to the results of 2011, the growth in this segment was 63.2%). The situation is as follows: revenues from the long-distance telephone communication services in January–June 2012 amounted to 20.48 billion tenge (which is 7.1% less than in the corresponding period last year), from local telephone service – 21.89 billion tenge (+4.4%), the Internet – 47.75 billion tenge (27.5%) and cellular communications – 148.7 billion tenge (+9.3%).
As a result, the revenues of the telecommunications sector in Kazakhstan currently have the following structure: mobile telecommunications – 52%, Internet – 16.7%, local telephony – 7.6%, long-distance communication – 7.2%, and other communication services – 11.8%. As we can see, the main trends of recent years remain: revenues from “long distance” fall, the Internet is growing steadily, and the share of mobile telecommunications, though varies, but still remains at a level of more than 50%.
The results, shown by Kazakhtelecom, the main player in the sector, in January–June 2012, look rather curious against this background. Thus, according to the preliminary data of the company, its consolidated revenues from the sales of services are 85.968 billion tenge, and the net profit – 215.41 billion tenge. This discrepancy is the result of high-profile sale of the interest in GSM Kazakhstan by the national operator. Recall that in the I quarter of the year JSC Kazakhtelecom has successfully completed the sale of 49% of the GSM Kazakhstan OJSC Kazakhtelecom LLP to the European telecommunication holding TeliaSonera A.B. for $1.519 billion (225.8 billion tenge).
It was decided to distribute a record profit (for comparison: in 2011 Kazakhtelecom realized a net profit of 50.2 billion tenge, and in 2010 – 33.7 billion tenge) among the company owners. In particular, according to its press service, at the general meeting of shareholders held on May 8 this year, the amount of dividends on ordinary shares of JSC Kazakhtelecom in 2011 was approved in the amount of 1,328 tenge per ordinary share, and at the end of the I quarter of 2012 – 18,559 tenge per ordinary share. In this regard was agreed that the dividends accrued on preferred shares of JSC Kazakhtelecom will amount to no less than the dividend rate on ordinary shares for the relevant period. Taking into account that the number of ordinary shares of JSC Kazakhtelecom is 10,922,876 shares and of preferred – 1,213,653 shares, it is easy to calculate that all the money raised from the sale of GSM Kazakhstan were spent for payment on dividends.
Here is how Mr. Arnur Nurkatov, the chief financial officer of JSC Kazakhtelecom, explains the decision of company shareholders to pay record dividends. In his opinion, the main reason was the excess liquidity of the company after the sale of an equity interest in GSM Kazakhstan: “In this situation, when the company has sufficient liquidity, large enough airbag in terms of cash (...), and filling it with another flow of funds that we are not able to spend, would have been wrong”.
After the dividend announcement the grown share price of Kazakhtelecom on KASE dropped almost in three times – from 29,000 to 9,000 tenge. Although, afterwards quotes have been somewhat adjusted and now ordinary shares are listed in the range 13–13.5 thousand tenge per share. But as far back as in February, commenting on the company share sale, the Chairman of the Board of JSC Kazakhtelecom, Mr. Kuanyshbek Yessekeyev said: “We are satisfied with the results and conditions of the completed transaction. So, as a result of its conclusion the company shareholder value has increased significantly. We continue to expect in the future a positive investors response, based on the successful results of the implementation of our strategic investment projects, including a project for the construction of LTE (4G) networks.
A national operator has really great plans. As reported Mr. Tleu Aytzhanov, the director of the project financing department of the company, in mid-May of this year, only in 2012 Kazakhtelecom intends to allocate a total of 60 billion tenge to the implementation of its investment program, half of which will be attracted through the borrowed funds. In turn, Mr. Nurkatov explained that one of the major investment projects of the company is the development of broadband Internet access using FTTH (Fiber-to-the-Home) technology. The total cost of the project, to be implemented over the period until 2014–2015, is about 65 billion tenge.
In addition, this year in Astana and Almaty, the company plans to launch in a pilot mode LTE standard mobile communications, and then spread the service throughout the Republic. In general, about $400 million should be directed for these purposes until 2015.
Thus, Kazakhtelecom decided to throw all their efforts to the development of 4G standard. However, market players are quite skeptical of the very high demand for these services. A number of experts believe that the Kazakhstan users have not yet required mass implementation of 4G network. Most likely, this standard will be primarily attractive for the corporate sector, which uses a large amount of data, but the real need to transmit these data via the mobile Internet is still difficult to imagine. The high cost of user terminals for the processing of 4G signal, is also a strong limiting factor, considering the fact that even the penetration rate of the 3G-enabled mobile devices still does not exceed 30%.
Particularly, commenting on the prospects for the 4G development for Tengrinews.kz, the acting Head of the Public Relations KaR-Tel LLP (trademark of Beeline) Mr. Bayram Azizov said: “Mobile Internet – is the trend of recent years, but the population of Kazakhstan is not as “savvy” in the field of new technologies, so that at least every fifth has started using new devices, especially since their price is quite high”. According to him, Kazakhstan users will actively use 3G for a long time.
However the officials in the Ministry of Transport and communications believe that high-speed mobile data communications services are already relevant today: in the last four years, the number of individual Internet users who connect to the network using wireless technologies, has increased almost in three times. Recall that two leading Kazakhstan’s mobile operators – Kcell and Beeline – have expanded demonstration zones of 4G network as early as 2010 and repeatedly stated their willingness to build commercial 4G-networks, but so far only Altel, a daughter of JSC Kazakhtelecom, has an appropriate license.
It is also noteworthy that the national operator is again considering the entrance to the foreign markets. According to Mr. Arnur Nurkatov, although Kazakhtelecom hold negotiations about a possible acquisition of several assets in Kazakhstan, nevertheless the transactions beyond it are still a priority for the company. “Our eyes are directed towards Russia, there is a vast market and a lot of fixed-line operators, which in general would positively affect our shareholder value. It is clear that we also study the CIS countries, looking at Kyrgyzstan, Uzbekistan and Tajikistan. This work is conducted on an on-going basis”.
Returning to the situation in Kazakhstan, note that the operators, building plans for the development of mobile Internet, do not forget about the fixed access. So, in late July, a real unlimited internet finally came to Kazakhstan’s users. On July 30 two providers – Kazakhtelecom (within the iD Net service) and Beeline (Internet at home) – simultaneously announced the launch of real unlimited tariff plans, that is no limit on the amount of download traffic and without threshold values, after which the speed of Internet access is reduced. Such a move, of course, will give a new impetus to the development of the Internet in Kazakhstan: new tariff policy will contribute both to the growth of the number of subscribers and the quality of the use of Internet-resources, because users will no longer worry about the volume of traffic.
However, as noted in the beginning, most of the market news are in some or another way connected with cellular communication operators, of which, in turn, Tele2 was the most active. The following can be highlighted as key events. First of all, the alignment of forces in the cellular market has slightly changed. Of course, it is too early to say about the “big three” but Tele2 has become a very significant player, and its position cannot be disregarded anymore. In the II quarter of 2012, this operator has completed covering of all the major settlements of Kazakhstan, coming to all regions, and its subscriber base following the results of the half of the year amounted to more than 2.5 million users.
By the way, GSM Kazakhstan has also shown a good growth in subscriber base – the operator finished the second quarter with 12 million subscribers. We had no recent data on the Beeline at the time of article preparation, however, judging by the previous quarters, the company stagnates, trying to prevent the outflow of customers and keeping its subscriber base at the level of 8.5 million.
While the price competition between Kcell, Beeline and Tele2 becomes more intense, the DOS operator announced price increase of the “Cheap” tariff plan: since April 2 this year calls to Dos cellular communications subscribers that are connected to other tariff plans of the operator, cost in 8 tenge per minute. Recall that if previously it amounted to 0 tenge, now “free calls” are preserved only between subscribers of the “Cheap” tariff plan.
Price increase affected outgoing calls to other operators (Beeline, Kcell, Tele2, Pathword) too. If before the first minute cost 15 tenge, and the second and all subsequent ones – 5 tenge, now the subscribers have to pay in 15 tenge per a call minute. So, it turns out that the Kazakhstan brand, which started with a statement “Cheap rates”, began to increase them. Nevertheless, in an interview to Profit.kz last September, to the question, whether this, the low rates, is a temporary phenomenon – the press secretary of the Dos cellular communications Mr. Kayrat Sagynaev insisted: “The concept of Dos is a low-cost high-quality communications. Its repositioning as an expensive communications would be extremely difficult and absolutely disadvantageous in terms of marketing. The more so, as the cellular communications prices are not flexible to growth. It means that it is easy to reduce the prices, but very difficult to increase them backwards, because it will immediately cause the negative reaction of users. Due to these factors the increase of prices for services of Dos or a change of positioning are simply impossible”. Well, probably, the head of Tele2 Kazakhstan, Mr. Andrey Smelkov, who noted in due time that to be a discounter is a whole strategy, proved to be right.
Apparently, it is in the framework of this strategy Tele2 raised again a matter of interconnection rates, which is highly sensitive for them. It is now at the level of 15.3 tenge, which is significantly higher than in other countries. For example, in Singapore interconnection rate is (in terms of tenge) zero, in Turkey – 2.8 tenge, in Sweden – 4.5 tenge and in Russia – 4.8 tenge. According to Tele2, Kazakhstan should also reconsider this indicator: the reduction of rate to 5 tenge per minute will allow us to reach the same level as the performance of Europe and Russia. “At this point, we believe it is the role of the regulator is very important, which has to regulate the situation and bring it to the normal parameters for the growth of competition”, – said Mr. Smelkov.
It looks like the situation may really change soon. As the Minister of Transport and Communications, Mr. Askar Zhumagaliyev, posted in his blog, currently an international consulting company Ernst & Young is preparing for his agency a study on interconnection service in Kazakhstan. It is planned to prepare analysis till the end of the year. It will contain recommendations for regulation and the level of interconnection rates in Kazakhstan based on the international practice. When the Agency for Protection of Competition put operators of this service in the register of dominants, the Ministry of Transport and Communications will have powers to regulate interconnection prices. In the case of rates reduction the subscribers can expect a further reduction of tariffs for calls.
As for the other good news, it is likely that MNP technology (Mobile Number Portability), which allows subscribers to keep their telephone number when changing mobile operator will be introduced soon in Kazakhstan. The initiator of the idea was the same Mr. Askar Zhumagaliyev, who suggested the possibility of the introduction of this service at last year's meeting with the Lithuanian delegation. This technology is mandatory in the European Union. It is also used in the U.S., Canada, Turkey and countries of South-East Asia. In the post-Soviet territory this service operates in the Baltic republics, launched in Georgia this year and it is scheduled to introduce it in Azerbaijan and Ukraine.
Finally, we present some basic indicators of the development of communications infrastructure. Number of fixed lines of JSC Kazakhtelecom as of July 1 was 3.995 million units, including those in urban telecommunications network (UTN) – 2.863 million, and in rural telecommunications network (RTN) – 1.132 million units. The density of telephones per 100 inhabitants reached 24.34 numbers, including 31.95 numbers – on UTN and 15.19 numbers – on RTN. In total in the Republic for the first half of the year the density of telephones per 100 inhabitants increased by 0.19, for UTN networks – 0.37, for RTN networks – 0.19. Number of users of Internet access service for the Kazakhtelecom group of companies for the first six months of 2012 amounted to 2,902,811 people, including more than 2.796 million – users of broadband Internet.
In turn, the Agency for Statistics provides the following data: in January–June the number of fixed telephone lines was 4,297.8 thousand, mobile subscribers – 26,218.9 thousand, mobile subscribers with access to the Internet – 8,255.2 thousands, and fixed-line Internet – 1,484.9 thousand.
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