Our Telecoms Charge Ahead; Kaznet Grinds to a Halt!
By Alexander Vassilyev, Editor in Chief, Profit.kz
The telecommunications sector remains one of the most dynamic branches of Kazakh economy. According to the Informatisation and Communications Agency (ICA), in 2006 Kazakh telecommunication enterprises provided services to a total of 274.2 billion tenge, which is 20.4% more than the previous year. The figure includes services provided to the population to the sum of 99.5 billion tenge, which is 27.1% more than in 2005.
The branch had the following structure in 2006: cellular communications 45.9%, domestic long distance telephony 18.7%, local telephony 7.6%, Internet 5.2%, radio communications and broadcasting and TV broadcasting 3.4%, and mail services 1.8%. Thus, cellular communications occupy the biggest part of the market, and it has the fastest pace of development. The volume of cellular services in 2006 increased by 58.5% compared to 2005.
The growth dynamics of telecommunications market increased in 2007. In the first quarter, the total value of services provided amounted to 76 billion tenge, which is 32% more than in 2006. Among them, the services provided to the population totalled 30.4 billion tenge – that is 39.8% more compared to the same period in 2006.
Notwithstanding the quick pace of development, the overall performance of the sector is far from perfect. According to the deputy head of the ICA Mr Askar Bishigayev, the average telephone density among the population is 18%, and in rural area only 7-8%. In addition, there are about 300,000 requests for telephone line installation from all over Kazakhstan.
It is worth noting that the above-mentioned fact is beneficial for development of cellular communications as an alternative to the fixed phone lines. Having "defeated" regular phones in spring 2005, cellular has 60% coverage and about 9 million subscribers.
At present there are four cellular operators with eight trademarks: GSM Kazakhstan (with K’Cell and Activ brands in GSM standard), KaR-Tel (with K-Mobile and Beeline in GSM standard), Altel (with Dalacom and Pathword in CDMA standard), and Mobile Telecom Service (with NEO in GSM standard and Zharshi in CDMA standard). Subscribers are distributed as follows: KaR-Tel about 4.5 million people, GSM Kazakhstan about 4 million, Mobile Telecom Service and Altel 0.5 million people (of which Altel had about 450,000 subscribers by the end of 2006).
Early 2007 was marked by an important event – KaR-Tel with its aggressive marketing of Beeline brand finally exceeded GSM Kazakhstan in the number of subscribers.
No doubt, the front-page news of this year is appearance of the third GSM operator. Mobile Telecom Service entered the market in February 2007 with its GSM brand NEO. To approach this competitive sector, it had to offer something extraordinary to attract subscribers and make its own customer database. The company introduced a general tariff (32 tenge per minute) for all calls, including long-distance. According to the company, about 5,000 people subscribed to NEO during the first week, and the customer database is expected to include 700,000 people by the end of 2007. However, the promo planned until March 31 has been already extended twice (first for April and then for May), so it appears that the subscription rate is not high enough. In addition, potential subscribers are unaware of the tariffs that will apply after the promo is over.
Generally, the new initiative is wrapped in mystery that does not encourage potential subscribers' loyalty. It is also surprising that their advertising has reduced significantly, and there is almost no news about the company. It seems that the third GSM operator was launched in a rush, just "to have it there".
It is worth noting however that appearance of NEO had positive impact on the cellular market in general. KaR-Tel and GSM Kazakhstan had to take countermeasures to retain their customers. Shortly before NEO was launched, both companies introduced new tariff scales; GSM Kazakhstan even took decisive actions. K'Cell presented a new "Classic" tariff with no subscription fee, per-second billing, and 15% discount for calls within the network. Activ subscribers now enjoy five tariff schedules with per-second billing within the network as opposed to the previous general tariff and 30-second billing. The price of calls decreased on average by 20%.
In early 2007, KaR-Tel launched "SMS-mood" service with a tariff of 3.5 tenge per SMS and changed K-Mobile DEF code from 333 to 777. At the same time, 777 code became available for Beeline subscribers of "Say It Simply" tariff. It was the last step in merging K-Mobile and Beeline brands. Now Beeline has two codes – 705 and 777, the latter being more attractive serves as the key tool for Beeline advertising campaign.
Altel was the only company to disregard the launch of the new operator. Most likely, it decided not to interfere with their "younger sister" (by that time Altel and Mobile Telecom Service were daughter companies of Kazakhtelecom, but later on 49% of Mobile Telecom Service was sold to the minority shareholder). However, there is no way to avoid market pressures, and thus Altel announced a tariff decrease in early March.
As far as communication tariffs are concerned, their general reduction should be pointed out. The prices of regular telephone service and Internet are decreasing as well.
Over the previous year, Kazakhtelecom halved their Internet tariffs. The prices lowered by 26.1% during the first half of 2006, and by 25% more over the next period. These measures were meant to support the governmental projects of "electronic government" and reduction in the information inequality of the population. Since the local Internet market is very competitive, many private providers had to lower their rates subsequently.
Tariffs for cellular communications decreased slightly due to the interconnection of cellular networks in 2006. It allowed SMS-exchange between subscribers of all operators and 10-second billing for inter-network calls, which helped to save 20% of inter-network call costs. On 1 November, Kazakhtelecom introduced 10-second billing for calls from fixed-line phones to cellular operators (GSM Kazakhstan, KaR-Tel and Altel).
The tariff reduction trend continued this year. In early 2007, Kazakhtelecom decreased prices for long-distance calls to near-abroad countries by an average of 50%. The cost of calls to Germany, France, Canada, England, and the USA was reduced by 46.5%, to Turkey and Italy by 61.6%, and to China by 52%.
In April 2007, Kazakhtelecom reduced tariffs for long distance calls (by 48%) and calls to cellular phones (by 15%) made via calling cards from call boxes. As a result, the tariff for each minute of domestic long distance calls is presently 8.95 tenge; each 10 seconds of call to cellular numbers of GSM Kazakhstan, KaR-Tel and Altel cost 5.52 tenge and Mobile Telecom Service 4.04 tenge.
It is remarkable that the cost of calls to cellular numbers from call boxes is now 15% cheaper than that of calls from fixed phones.
Internet in Quiet Patch
Notwithstanding the considerable decrease in Internet rates, there has been no sharp fall yet. According to www.internetworldstats.com, Kazakhstan is third last among the 15 CIS countries in the Internet coverage survey, ahead of Turkmenistan and Tajikistan. The website details Internet statistical surveys and it provides up-to-date information on the number of Internet users in different countries and their share in the total population size.
As far as Kaznet statistics are concerned, there is no exact data on the number of users and websites. It appears that the market is too small for the serious research as yet. Official figures often differ – Internet coverage is usually estimated as 4%. Meanwhile, the ICA forecasts that the number of Internet users will total 800,000 by the end of 2007.
We should admit that interesting Internet resources are required for the development of Kaznet and satisfaction of people's demand. Unfortunately, there are currently few of these, which is why 90% of the Internet traffic accesses Russian web sites. According to Computer Club Magazine, the total number of Kaznet websites was 5,500 in early 2007, of them 20 had about 1,000 visitors daily.
The only Kazakh website competition is in little demand, although it has been held annually for four years. In 2006, Award.kz had only 580 applicants (compared with 612 in 2004 and 611 in 2005). Most applications were in the Corporate Sites category (115), My Web Page (58), and Network Services (52). The least participants chose E-commerce (15; it was a part of Network Services in 2005) and Leisure and Travel (16; in 2005 it was combined with sports and medicine resources). The distribution of applicants by cities shows a reduction in Almaty’s share: 198 from Almaty (334 in 2004; 235 in 2005), 105 from Astana (23 in 2004; 40 in 2005), 80 from Karaganda (23 in 2004; 18 in 2005), 30 from Petropavlovsk and 24 from Kostanay.
Nevertheless, there is significant potential interest in Kaznet, as evidenced by the large amount of domains registered under ".kz". According to PROFIT Online, 9,134 domain applications were submitted in 2006. Most of them are registered "for future" or for sale. There is also an increased number of domains for corporate websites that contain company names or abbreviations. It is a good sign – enterprises have finally realised the importance of their presence on the Internet.
The first Kazakh telecommunications satellite KazSat launched on 18 June 2006 was officially activated on 15 December 2006. After several months of testing, the Katelco satellite network had a live broadcast of the official meeting devoted to the 15th anniversary of the nation’s independence.
According to Kazakhtelecom, the satellite testing results met the standards of the International Telecommunications Satellite Organisation. The full capacity of KazSat is 864 MHz; 760 MHz are meant for lease, 8 MHz are left for the guard band, and 96 MHz in store.
At present, the satellite load is 40%. Seven telecommunication companies, such as Astel, Katelco, Nursat, Today Telecom use KazSat. It is planned to achieve the satellite load of 70% by the end of 2007.
The prices for satellite services were set at a competitive level to create favourable conditions for Kazakh operators. They depend on the bandwidth and contract period, but are on average 5% lower than those of international satellites.
It is planned to launch five telecommunications satellites by 2020. The launch of KazSat-2 (designed by the Khrunichev State Research and Production Space Centre in Russia) is scheduled on 2009, KazSat-3 on 2013. The main control centre will be located in Akkol (Akmola Oblast) and a secondary control centre near Almaty.
According to Mr Gabdullatif Murzakulov, vice president of the Republican Centre for Space Communications and Electromagnetic Compatibility, it is planned to launch KazSat-4 (to replace KazSat-1) in 2016, KazSat-5 in 2020, and a new satellite to replace KazSat-2 in 2023.
The Liberalisation Discussion is Over
Since Kazakhtelecom is the key provider in the Kazakh telecommunications market, it is worth individual mention – especially as its development prospects and the future of the entire market have finally been settled. In autumn 2006, the government finally rejected the plan to restructure the company for the sake of the market liberalisation. It was planned to pick out the backbone network of domestic and long distance telephone communications and entrust it to a separate managing body. This initiative was caused by numerous complaints about Kazakhtelecom's unwillingness to provide other telecommunication companies with open and equal access to the backbone network. Recently a small parcel of Kazakhtelecom shares was placed with Kazakh investors. The number of shares totalled 497,597 (or 4.6%), divided into two parts: 90% were distributed among the general public and 10% in the organised market, including pension funds. These measures were explained as positive incentives for the development of the domestic stock market. In this view, the company’s restructuring resulting in split-off would have had negative influence on investment attractiveness of its shares. The discussion of liberalisation was closed on these grounds.
How Much is a Share?
A new discussion was initiated instead. It is concerned with international placement of Kazakhtelecom shares. At the press conference held in Almaty on 21 December 2006, the president of Kazakhtelecom Mr Askar Zhumagaliyev said, "We need to take measures to increase our capitalisation in order attract significant resources through IPO".
The second parcel of 98,410 shares was traded in the regional financial centre on 21 March. The parcel had more shares than initially expected, because 48,650 shares from the first parcel had not been sold. According to the chair of Kazakhtelecom and the head of Samruk Mr Beibit Akhabayev, this was caused by "inactivity of retail investors, who did not pay up the requested shares". The total shares bought by the public amounted to 399,187 with an average cost of 30,561 tenge per share.
At the second stage, all shares were sold through 20 transactions to the total of $40 million. According to the IRBIS stock-exchange information agency, the share value was increasing during the auction. Pension funds had the best buy of 48,965 tenge per share, while the most expensive share cost 51,050 by the end of the auction. The average transaction price was 50,238 tenge per share.
At present, Samruk considers selling Kazakhtelecom's share in GSM Kazakhstan to reduce its influence on the cellular market. In addition to 49% share in GSM Kazakhstan, Kazakhtelecom has 51% in Mobile Telecom Service, 100% in Altel, and it manages the Nursat company. To ensure transparency of the transaction, it is planned to transform GSM Kazakhstan into a joint stock company, while at present it is a limited partnership with 51% belonging to the Finnish-Swedish-Turkish FinTur.
As we can see, the telecommunications market in Kazakhstan is in full swing. The fast pace of development and large volumes of investment indicate its stability and attractiveness, while planned corporate restructuring with international placement proves its maturity. The only branch falling behind is Internet, but let us hope that further economic growth and market development will bring about a boom in this sector.
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