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Think Digital! Think digital! 2018 Annual Report CONTENT Introduction 1 THE COMPANY TODAY 4 Brief Overview 6 Address of the Chairman of the Board 8 of Kazakhtelecom JSC Address of the Chairman 10 of the Management Board of Kazakhtelecom JSC 2018 Event Calendar 13 Corporate Profile 19 OPERATING RESULTS 92 STRATEGIC REPORT 32 Orleu Transformation Program 94 Mission, Vision 34 Operating results 97 2018 Company values 36 Financial results 116 Strategic directions of the Group’s 38 development An overview of the telecommunications 40 SUSTAINABLE DEVELOPMENT 122 ANNUAL REPORT market for 2018 Sustainable Development Strategy 124 Industry regulatory review 46 Initiatives in the field of sustainable 124 Company status in the industry 49 development Personnel Administration 125 CORPORATE GOVERNANCE 50 Recruitment and Staff adaptation 126 Corporate Governance Structure 52 Training 127 The Board of Directors 54 Talent Management 128 of Kazakhtelecom JSC New internal portal 4telecom 128 Committees under the Board 65 Environmental Protection 129 of Directors of Kazakhtelecom JSC Health & Safety 130 Corporate Secretary 69 The contribution of Kazakhtelecom JSC 131 The Management Board 73 in social development RISK MANAGEMENT AND INTERNAL 84 ADDITIONAL INFORMATION 132 CONTROL Glossary 132 Risk management system 86 IFRS Consolidated Financial Statements 134 Participants of the risk management 87 (Annex) process Risk management and internal control 90 plans for 2019 1 INTRODUCTION The modern world is unthinkable without information Striving for implementation of the goals to speed up communications technologies and Internet which the technological modernization of economy and have penetrated nearly every field of human life and provide conditions for the country-wide access to activities from all angles and directions. Nowadays, fiber-optic infrastructure, in 2018, Kazakhtelecom the unbelievably intensive development of JSC has started to realize the largest project to information and telecommunications technologies provide all rural settlements of the Republic of plays a significant role in economy, science, Kazakhstan with the broadband access through industry, communications between countries, the fiber-optic communications lines (RS FOCL). information management, and data flows exchange. This project will make it possible to bring the At the same time, the need in increasing volumes access to the highspeed Internet to 2.5 thousand and speed goes up with every day. Thus, for the governmental entities in 828 rural settlements. past year the world has witnessed another round The Company is facing a challenge to lay out over of growth in the number of consumers of ICT- 15,000 kilometers of fiber-optic communications services as well as organizations specialized in line within a bit more than two years. computer technologies and delivery of services in IT and telecommunications sphere. It is not only One of effects of project framework will be ordinary users and end consumers who have been expanding innovative services and improved level embraced by this amazing process – the scale of of their dissemination within rural settlements along the digitization has reached the country level, when with the provision of the access to such services a number of states has already started the so-called as tele-medicine, opportunities of the online- format of “the digital society”, in which the mankind education, and e-commerce services. Being will not be able to reject numerous benefits of the implemented, the project will have a favorable technological progress and solutions that globally impact on the level of employment both within the contribute to the maintenance of the comfortable course of its construction works for the network and safe living. deployment and after the works are accomplished. Digital technologies provide undisputable Based on the outcome of 2018, the first stage of the advantages, such as, a simplified access of the RS FOCL Project brought the highspeed Internet population and entrepreneurs to governmental access to 27 state entities in 7 rural settlements of services, accelerated information exchange, Aktobe, West Kazakhstan, East Kazakhstan and introduction of additional opportunities for doing Pavlodar oblasts. business, and creation of new digital products. In order to bring these ambitions into life as directed by On the progress rate of the availability of the access the President of Kazakhstan Nursultan Nazarbayev, through optical lines, it should be emphasized that the entire country has proceeded with the over 1 mln ports have been installed under the implementation of the state program named “Digital GPON technology by now, while the number of Kazakhstan”. Its fundamental goal resides in the active users has exceeded 700 thousand, and the acceleration of the national economic development utilization of the copper infrastructure is intensively and improvement of the living conditions for the going on. However, the infocommunications population through the use of digital technologies operator intends to retain the classical telephone and also by creating an environment where the business, despite the overall global migration of the economy of Kazakhstan will step into the brand-new fixed telephone users towards mobile networks. trajectory of development to ensure the evolution of The Company places its bet against the services digital economy of the future. 2 that allow utilizing all advantages of both a mobile repeatedly presented at international sectoral and fixed telephone connection. conferences and exhibitions. In addition to the construction of network on the In parallel with covering new territories with the basis of fiber-optic cable, another promising fiber- optic lines, the Company has been paying a business direction resides in the development of the lot of attention to the development of new assets. new general connection technology, namely, 5G. In Thus, one of the symbolic events was the signing this regard, several memorandums on joint research of the agreement between Kazakhtelecom JSC, of the opportunities and testing of this technology Telia Company, and Fintur Holdings BV on the have already been signed. acquisition of 75% of the voting shares of Kcell JSC, the Kazakhstani national cell operator. There is one more subject that has been included The acquisition of the voting stake will allow into the field of research of the experts of delivering several ambitious projects due to the Kazakhtelecom. Broad horizons emerging from the integration of the networks and experience of two application of the IoT, the Internet of Things, are operators. The effect of the synergy of two giants promising to become one of the key drivers of the will make it possible in the very near future to build revenue generation of the IT-industry in the very near a high-technology integrated network within the 2018 future. Pursuing the current trends, Kazakhtelecom territory of Kazakhstan. has realized a project on the construction of the Central-Asian largest М2М/IoT network based on Besides, the Company has shown positive LоRа technology. The wireless network with the low results in some new directions, specifically, in the energy consumption will cover all IoT segments: E-commerce, where we can name such products ANNUAL REPORT housing services and utilities, transportation, safety, as Chocomart, Intermarket, KТstore. Thanks to its and industrial facilities, as well as control over urban reliable and secure infrastructure and compliance territories, street lighting and collection of telemetric with the strict safety standards, the Company has data from energy consumption meters. In the course become the operator of fiscal data and provides of the first phase, the network has been already built for the connection of the enormous number of in the cities of Almaty, Astana and Shymkent, while cash register machines (CRM) across the entire the total implementation of the project provides for Republic. The infrastructure that allows making the installation of more than 400 basic stations of all major connections online has been installed the LoRa technology in all regional centers. within the course of the project, and the Company continues testing new cash machines and develop More than that, the Company continues to study, its own payment instrument. adapt and bring new services and possibilities related to the concept of Smart Home and Smart Taking into consideration the growing traffic City into the market. In 2018, the Company has between Europe and Asia, the Company has expanded the coverage to as many as 45 thousand been searching for additional options for existing video cameras connected to the Cloud Video telecommunications channels to ensure a more Surveillance platform within the B2C/B2B/ B2G reliable and stable operation of services, having segments on the basis on the optical urban GPON suggested a new route the telecom operators infrastructure. Those novelties have been actively which has turned to be a worthy alternative to the introduced into the cities and private homes of basic underwater data transmission between the Kazakhstanis, and the practical experience of Southeast Asia countries and Europe. the Company in connection therewith has been 3 That said, analysts of the leading rating agencies emphasize that the above-said transaction will help the Kazakhtelecom Corporate Group in raising its share at the mobile connection market to as much as 64%, increasing its business marginality and providing opportunities for future commercial
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