STAKES AND PERSPECTIVES OF THE PORTABLE TELEPHONES MARKET IN CENTRAL ASIA
CAP PAPERS 176 (ECONOMIC PAPERS SERIES) October 2016
Sebastien Peyrouse1
Since the 1990s, mobile telephony has undergone a global expansion. Central Asia is no exception: at the start of the decade, the mobile telecommunications sector had an annual growth rate of 17.2% in the region.2 Governments, companies, actors of civil society, and sponsors all quickly came to realize the potential of these new technologies. The economic stakes of mobile telephony are high: it dynamizes markets; it makes up for the inefficiency of fixed telephony, which was underdeveloped in the former Soviet Union; it helps with job creation; and it generates revenues and creates services. In developing countries, mobile telephony is considered to be a fundamental factor of progress in the same way that fixed telephony was in developed countries in the 1970s-1980s. According to a World Bank study examining 120 countries, a 10-point increase in penetration of mobile telephony corresponds to an increase in economic growth of 0.6% in developed countries, and of 0.81% in developing countries. In addition, the social stakes of this sector are significant: they are positive when considering the links they help forge between populations living in isolated regions; but they are potentially negative on account of the inequality of utilization and the expenses it generates for households with diminishing resources in an increasingly difficult socio-economic context for Central Asia.
This paper puts forward an analysis of mobile telephony’s stakes, companies, and populations in Central Asia. The first part presents an overview of the development of this technology and its operators in each state of the region. The second section analyzes the various strategies of market capture chosen by the operators, which have resulted in increased network coverage and the development of new services and new technologies. In concluding, this paper discusses the stakes and risks involved in the development of cellular telephony for governments, companies, and consumers in Central Asia.
1 Sebastien Peyrouse, PhD, is a research professor at the Central Asia Program (IERES, GWU) and a senior fellow at the EastWest Institute (EWI). His main areas of expertise are political systems in Central Asia, economic and social issues, Islam and religious minorities, and Central Asia’s geopolitical positioning toward China, India and South Asia. 2 UNESCAP, "Statistical Yearbook for Asia and the Pacific - 2012," http://www.unescap.org/stat/data/syb2013/H.1-ICT.asp
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Overview of the state of mobile telephony in Central Asia
During the past ten years, the rate of market penetration has increased throughout the region. However, these rates are probably overestimated, largely due to the high number of inactive SIM cards. Moreover, considerable differences between states may also be observed.
With close to 28 million subscriptions, market penetration is particularly high in Kazakhstan at 169%,3 and it could reach close to 180% by 2017. Kazakhstan is closely followed by Kyrgyzstan, which has a rate of 134% with about 7.5 million subscriptions in 2014, a rapid increase relative to 2010, when rates stood at only 99%.4 Growth has nevertheless slowed in recent years, and will probably not exceed 10% in the years ahead.5 In Tajikistan, market penetration rates are calculated at 99% for 2014, or about 7.2 million subscribers. The increase in mobile phone use in this country has therefore been strong since 2012, at which time penetration rates were only 82%, or around 6 million subscriptions.6
In the very authoritarian regimes, i.e. Uzbekistan and Turkmenistan, communications technologies are kept under strict control by the political authorities, but they have still made some advances. In 2014, Turkmenistan’s market penetration rate stood at 134%, which is a strong increase relative to 2010’s rate of only 63%.7 Lastly, Uzbekistan is the only state in the region in which mobile telephony has declined, since in 2012 the government cancelled the license of the main operator, Uzdunrobita (partly controlled by the Russian company MTS), which listed about 9 million subscribers. Dropping from 90% in 2011 to 74% in 2013 and 2014, this rate is nevertheless bound to rise again now that the conflict has been settled and the Uzbek market is again open to MTS.
In all the states of the region, mobile phones have broadly replaced fixed telephones—the penetration rates of which oscillated in 2014 between only 5.3% in Tajikistan, 9% in Kyrgyzstan, 10.7% in Uzbekistan, and 26.1% in Kazakhstan.8 Growth is especially strong in the countries with high migration rates, in which the mobile telephone has become an essential tool for communicating with the country of origin, being both more effective and less costly than the fixed telephone.
Diversification of markets under control
The success of mobile telephony has fueled competition. In recent years, most states in the region have seen the emergence of new operators. Markets nonetheless remain dominated by one or two companies. In Kazakhstan, the two main operators, K-Cell (TeliaSonera) and KaR-Tel (owned by Russian company VimpelCom) control more than three-quarters of the market shares, with 41.5 and 36.7% respectively. Two other operators, Altel and NEO (Tele2), are trying to establish themselves, but have only 7.7 and 14.2% market share respectively.9 However, at the conclusion of two years of negotiations, Tele2 signed an
3 World Bank, "Mobile cellular subscriptions (per 100 people)," 2015, http://data.worldbank.org/indicator/IT.CEL.SETS.P2 4 Ibid. 5 "Kyrgyzstan - Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses," Budde.com, http://www.budde.com.au/Research/Kyrgyzstan-Telecoms-Mobile-Internet-and- Forecasts.html#sthash.IlnHOIWr.FGHPtL1C.dpuf 6 World Bank, “Mobile cellular subscriptions (per 100 people),” 2015. 7 Ibid. 8 "Kazakhstan and Central Asia Telecommunications Report," Business Monitoring International, Q1 2016. 9 "K chemu prikratitsia ob''em telekommunikatsii," Kursiv, September 10, 2015, 6.
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agreement with KazakhTelekom to create a joint venture in Kazakhstan.10 By merging the assets of Altel and Tele2, this joint venture ought to attain a market share of 20%.11
Table 1. Operators in Kazakhstan Operator Launch date Kcell 1998 / 2010 Beeline/KarTel 2008 Tele2/NEO 2006 / 2011 Altel (Kazakh Telecom) 1994
Kyrgyzstan is the country most open to the diversification of the telephony market. The Atambayev government has laid special emphasis on encouraging competition, likely due to concerns about the quasi-monopoly situation of its two main providers, Megacom and Sky Mobile (which operates under the Beeline banner and, since 2010, as a subsidiary of VimpelCom). Together, these two companies have around three quarters of the country’s market share.12 The totality of Megacom’s share, a company initially belonging to Maxim Bakiyev, the son of the president deposed in 2010, was acquired by the state upon judicial decision in July 2014.13 The state has since announced its intention to privatize the company.14 These two main providers were joined by Nur Telecom (O!), which grabbed a 20% market share by 2014.15 The same year, however, another company, Aktel, went bankrupt. Aktel operated under the Fonex brand and ran up a debt of US$144 million with FinanceCreditBank.16 Two other small operators are also active: Nexi and Sapat Mobile. Lastly, in 2015, a new rival arose on the market, the Megacom-owned Kyrgyz Mobile Company.
Table 2. Operators in Kyrgyzstan Operator Launch date Bitel/Beeline 1998 / 2010 Nurtelecom (O!) 2008 Megacom 2006 / 2011 / 2015 Nexi 2007 Sapat Mobile 2003
Four other operators are active in Tajikistan. The two largest, Babilon-Mobile (a US-Tajik joint venture) and Indigo-Somoncom (Tcell), have together stitched up 60% of the market. However, both firms are coming under increasing competition from MegaFon (75% of whose shares belong to Russian company MegaFon), which has seen strong growth since 2012 and today claims to have close to 20% of the Tajik market.17 A fourth operator, Tacom, which is
10 Kazakhtelekom will have a majority stake (51% ), the remainder being allocated to Tele2. 11 Dina Ermanganbetova, "Ot konkurentsii - k sotrudnichestvu," Kursiv, March 11, 2016, 5. 12 "Kyrgyzstan - Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses." 13 "Kyrgyzstan takes control of remaining Megacom shares," Telegeography, July 29, 2014, https://www.telegeography.com/products/commsupdate/articles/2014/07/29/kyrgyzstan-takes- control-of-remaining-megacom-shares/. 14 Tat'iana Kudriavtseva, "Deputaty parlamenta soglasilis' na privatizatsiiu MegaCom," 24.Kg, June 29, 2015, http://24.kg/parlament/15263_deputatyi_parlamenta_soglasilis_na_privatizatsiyu_MegaCom/. 15 "Kyrgyzstan - Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses." 16 "Kyrgyzstan disconnects bankrupt Aktel," Telegeography, November 4, 2014, https://www.telegeography.com/products/commsupdate/articles/2014/11/04/kyrgyzstan- disconnects-bankrupt-aktel/; Dmitrii Denisenko, "Spetsadministrator Fonex: Glava 'Kyrgyztelekoma' bankrotit kompaniiu," Vechernii Bishkek, October 31, 2014, http://www.vb.kg/doc/291967_specadministrator_fonex:_glava_kyrgyztelekoma_bankrotit_kompa niu.html. 17 "Kazakhstan and Central Asia Telecommunications Report," 61 and 63.
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owned by the Russian VimpelCom and operates under the Beeline brand, exceeded 12% of Tajikistan’s market share in 2014.
Table 3. Operators in Tajikistan Operators Launch date Babilon - Mobile 2002 / 2005 MegaFon 2001 / 2006 Indigo-Somoncom (T-Cell) 2001 / 2006 Beeline 2006 / 2008
In Turkmenistan, the mobile telecommunications sector was hit hard by the suspension of MTS Turkmenistan’s mobile license in 2010, resulting in about 2.5 million individuals losing their provider. The state-owned mobile operator Altyn Asyr-TM Cell, the sole remaining mobile operator in the market place, intensely struggled to meet the demand.18 In 2012, it found itself in a monopoly situation and claimed to have some 3 million subscriptions. MTS’s return that same year stimulated the market again. By the end of 2013, 15 months after MTS was re-launched, about 4.3 million mobile subscribers were reported. In 2014, the market was alleged to have grown by nearly 20% with respect to the preceding year. Altyn Asyr was transformed into a Joint Stock Company in October and was set to be privatized,19 but given the government’s reluctance to lose all control over such a sensitive sector, this plan should be understood with a level of wariness. In April 2015, Turkmenistan announced that its first telecommunications satellite would be launched to help develop the Internet and other means of communication.20
Table 4. Operators in Turkmenistan Operators Launch Date TM CELL “Altyn Asyr” MTS Turkmenistan 2006
In Uzbekistan, two main companies, Unitel and Ucell (Coscom), share 90% of the market. These companies have amply benefitted from the juridical spats around Uzdunrobita (MTS). The state has unsuccessfully attempted to privatize the company twice, and it took away its license in August 2012. However, MTS soon found itself reintegrated into the Uzbek market, thanks to an agreement for the creation of a joint venture with the Uzbek government and MTS in August 2014 under the name Universal Mobile Systems (UMS). However, in August 2016, MTS sold its 50.01% stake in Universal Mobile Systems (UMS) to Center of Radio Communication, Radio Broadcasting and Television under the Ministry of Development of Information Technologies and Communications of Uzbekistan.21 UMS can hope to take some of the customer base acquired by Unite and Ucell after MTS’s suspension, but the absence of Mobile Number Portability (MNP) in Uzbekistan diminishes the chance of such prospects. Apart from the three GSM operators, Uzbekistan has two CDMA operators, namely Perfectum Mobile (owned by a US-Uzbek joint venture Rubicon Wireless Communications) and Uzbektelecom Mobile.
18 "Turkmenistan - Telecoms, Mobile, Broadband and Digital Media - Statistics and Analyses," Budde.com, http://www.budde.com.au/Research/Turkmenistan-Telecoms-Mobile-and- Internet.html#sthash.16oP1RUz.dpuf. 19 "V Turkmenistane nachinaetsia privatizatsiia operatora sotovoi sviazi 'Altyn Asyr'," Mobinfo.uz, http://mobinfo.uz/11262-v-turkmenistane-nachinaetsja-privatizacija.html. 20 "Amerikanskaia kompaniia Space-X zapustila pervyi turkmenskii sputnik," Lenta.ru, April 28, 2015, http://lenta.ru/news/2015/04/28/falcon9/. 21 "MTS prodala svoi biznes v Uzbekistane," Lenta.ru, August 5, 2016, https://lenta.ru/news/2016/08/05/mtsums/.
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Table 5. Operators in Uzbekistan22 Operators Launch Date UMS 2014 UCell (Coscom) Unitel (Beeline) Perfectum Mobile Uzbek Telecom Mobile
Operators await new challenges: the quest for a new customer base
The strong development of telephony does not provide companies—or even the market itself—with any guarantee of sustainability. In Kazakhstan, K-Cell announced a growth rate of 0.8% in 2014 relative to the previous year, but was significantly affected by the emergence of new rival companies.23 Its stock price plummeted 28.5% in September 2014.24 The Kazakh market of mobile telephony endured an overall decline over two years, going from 297 billion tenge in 2012 to 296 billion in 2013 and 281 billion in 2014.25 The market also slumped in Tajikistan in 2015, probably as a result of the economic crisis and the falling number of migrants leaving to Russia.26 To deal with this instability, companies have been elaborating new strategies:27 they have extended their networks to provide coverage in areas previously without it, and they have diversified their services in a bid to attract a broader customer base—including in the countries most resistant to liberalizing means of communications.
Developing Network Coverage
For the operators, technological progress has been a key factor of growth. Modernization in terms of spectral efficiency and network optimization has enabled reductions in operating costs for relatively limited investments. In all five states, the installation and operating costs for base stations have diminished in recent years. However, these costs continue to be high in isolated areas (around US$1 million each). Companies have extended their networks and now provide coverage for the majority of Central Asian territories. In Kazakhstan, Tele2, for example, announced it had set up its 4,000th base transceiver station, and maintains that its services today reach 85% of the country’s population.28 In Uzbekistan, Beeline notably developed its network in the Fergana Valley, which is the country’s most populous region, and, therefore, of major commercial interest. In Tajikistan, 95% of the territory is reported to be covered today, enabling the populations of the most isolated villages—particularly in the Pamir Mountains—to access new communications technologies, including the Internet, via telephone.
However, several regions continue to be isolated or have poor coverage: the deserts of Karakalpakistan in Uzbekistan and Karakum in Turkmenistan, mountainous areas in Tajikistan and in Kyrgyzstan, and some regions of the steppe far away from the major urban centers in Kazakhstan. In Kyrgyzstan, plans are in place for the entire territory to be covered
22 Source: Central Asian cellular forum, http://3gca.org/operators/. 23 Berik Akkozov, "Aktsii Kcell upali na 28%," Kursiv, November 26, 2014. 24 "Kcell podvel itogi 2014 goda," Profit.kz, February 2, 2015, http://profit.kz/news/23074/Ksell- podvel-itogi-2014-goda/. 25 "K chemu prikratitsia ob''em telekommunikatsii," Kursiv, September 10, 2015, 6. 26 "Tajikistan mobile, internet subscriber base declines in 2015," Central Asian Cellular Forum, http://3gca.org/tajikistan-mobile-internet-subscriber-base-declines-in-2015/. 27 "Kcell podvel itogi 2014 goda," Profit.kz, February 2, 2015, http://profit.kz/news/23074/Ksell- podvel-itogi-2014-goda/; "Telekommunikatsii v Kazakhstane - rynok poka rastet," Profit.kz, January 21, 2015, http://profit.kz/news/23041/Telekommunikacii-v-Kazahstane-rinok-rastet/. 28 "Tele2 Kazakhstan switches on 4000th base station," Central Asian Cellular Forum, http://3gca.org/tele2-kazakhstan-switches-on-4000th-base-station/.
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by mobile telecommunications services by the end of 2016, though some 128 agglomerations are still without any services. The director of the State Agency for Communications has negotiated with three operators (Beeline Kyrgyzstan, Megacom, and O!) for them to divide these agglomerations among themselves in order to accelerate the process of coverage. O!, a subsidiary of Nur Telecom, has intentionally aimed at developing its networks in the country’s most remote regions, where the main operators balk at investing in the necessary infrastructure, which is deemed too costly. New energies are also being used to compensate for the shortage of electricity supply, which forms a major obstacle in some states. Thanks to the use of solar energy in Tajikistan, new base stations have been deployed in the remote region of Badakhshan, and solar energy-powered base stations have been upgraded in the Sogd and Khatlon regions.29
Developing New Technologies
The second string of strategies being promoted by operators has consisted in extending broadband and new technologies, often less developed in Central Asia than in other regions of the world. This backwardness projects an image of the Central Asian republics as having remained in the margins of telephonic modernity, an image that even the most authoritarian governments would like to counter. In each of the states, several companies have made announcements about investing in 4G technologies and Long Term Evolution (LTE). Obtaining a 4G license is a way to attempt to achieve quick progress on the market and outdo rivals that have not been able to get hold of this precious door-opener.
In Kazakhstan, buoyed by the growth of the middle classes and the success of 3G, operators have shown a distinct interest in developing 4G LTE. However, until 2016, only Altel, a subsidiary of Kazakhtelecom, had gained an LTE license, thus enabling its continued dominance of the country’s broadband market. After acquiring a loan from Sberbank in 2012, Altel opened LTE networks in Astana and Almaty, hoping to extend them throughout the country. In May 2015, it confirmed that its 4G LTE network offered 56% population coverage.30 The Altel and Tele2 merger also enabled the latter to develop LTE.31 For its part, KCell negotiated a 4G LTE license in 2013, and has stated its readiness to launch 4G services in order to aid the development of infrastructure, the economy, and Kazakhstani business. In February 2016, it launched the trial of its LTE/4G networks in several shopping malls in Almaty, Astana, Shymkent, and Aktobe. KaR-Tel (Vimpelcom), which provides communications services using the Beeline brand, also set up a pilot project for an LTE- based 4G network in Almaty.32 In July 2016, it announced the commercial launch of 4G LTE services in the cities of Astana, Aksai, and Uralsk, with plans to extend to eleven other cities by the end of this year. 70% of the population could well be taking advantage of these services by the end of 2017.33
The government supported plans to develop broadband, in particular through the intermediary of the Development Bank of Kazakhstan. In December 2014, it opened a credit line to expand the 4G (LTE) mobile broadband to all cities of the country. A first phase, to be
29 "Megafon Tajikistan expands solar energy use in base stations," Central Asian Cellular Forum, October 12, 2015, http://3gca.org/megafon-tajikistan-expands-solar-energy-use-in-base-stations/. 30 "Altel reveals LTE progress; plans July CDMA shutdown," Telegeography, May 22, 2015, https://www.telegeography.com/products/commsupdate/articles/2015/05/22/altel-reveals-lte- progress-plans-july-cdma-shutdown/. 31 "Tele2 Kazakhstan Altel merger deal to close soon," Central Asian Cellular Forum, February 11, 2016, http://3gca.org/tele2-kazakhstan-altel-merger-deal-to-close-soon/. 32 "Beeline launches LTE-700 in Kazakhstan," Beeline Press Release, October 19, 2010, http://www.mforum.ru/arc/20101019_LTE_Kazakhstan_MForum.pdf. 33 "Beeline launches 4G in Kazakhstan," Telegeography, July 7, 2016, https://www.telegeography.com/products/commsupdate/articles/2016/07/07/beeline-launches-4g- in-kazakhstan/.
6 completed by 2018, will involve setting up a new generation of wireless communication in cities of 50,000 habitants and more, and a second phase, to be done by 2022, will make LTE networks generally available to all cities and villages in the country.34
In the other states, the development of 4G LTE technologies is hampered by tariffs that, for populations with much less purchasing power, remain prohibitive. All the states are nevertheless attempting to open new networks.
Through two companies, MTS and U-Cell, Uzbekistan became the first Central Asian state to install LTE in 2010. Beeline claims it was the first operator to commercially launch the technology in Tashkent in September 2014 and that it is committed to extending it to the entire country.35 In June 2016, UMS also reported it had launched 4G services in Tashkent.36 In Kyrgyzstan, Nurtelecom (O!) announced in May 2014 that it was launching a 4G LTE service in Bishkek, which is to be extended to other towns before the year’s end. At present it is the only one to have obtained a 4G license, an advantage that its competitors are without and are trying to counter: MegaCom has thus announced its intention to develop an LTE network.37 4G has become particularly developed, however; MegaCom reached Active Mobile-Broadband Subscriptions of 68.5 per 100 inhabitants in 2014, a rate higher than in Kazakhstan. In Tajikistan, Babilon-T became the first state to introduce 4G (LTE) nationwide,38 which initially remained restricted to Dushanbe and then extended to Khujand, Kurgon Tepe, and Kulob in 2016.39 Following in Babilon-T's footsteps, Indigo Tajikistan, operating under the brand name Tcell, began offering 4G services in Dushanbe, Khujand and its suburbs—Chkalovsk, Gafurov, and Kairakkum—in April 2014.40
Lastly, in Turkmenistan, Altyn Asyr is the only operator to have been granted a 4G LTE license. It provides 4G services in Ashgabat and Turkmenbashi, while its rival MTS has kept focused on enhancing its 3G services. Altyn Asyr’s 4G service was prohibitively expensive, costing around US175 (TMT500) for a 5GB tariff package.41 It has since revised its price downward in order to encourage more users to switch to the newer technology, and now charges the same as it does for its 3G tariff plans,. Despite this effort, mobile Internet in Turkmenistan remains among the most expensive not only in the region but in the entire world. According to data from Central Asia Cellular Forum, the cost of 1MB of data through a mobile Internet connection ranges between US$1.5-3.5 in Turkmenistan, far ahead of Kazakhstan where mobile firms charge US$0.21-0.48. The Turkmen authorities continue to restrict 4G services in order to control both tariffs and Internet access.
34 "DBK finances 4G network expansion project in Kazakhstan," Times of Central Asia, December 25, 2014, http://www.timesca.com/news/14797-dbk-finances-4g-network-expansion-project-in- kazakhstan. 35 "Beeline zapustil 4G v kommercheskuiu ekpluatatsiiu," Gazeta.uz, September 4, 2014, http://www.gazeta.uz/2014/09/04/beeline-4g/. 36 "UMS launches LTE in Tashkent," Telegeography, June 21, 2016, https://www.telegeography.com/products/commsupdate/articles/2016/06/21/ums-launches-lte-in- tashkent/. 37 "Go O! Nur Telecom launches 4G," Telegeography, May 12, 2014, https://www.telegeography.com/products/commsupdate/articles/2014/05/12/go-o-nur-telecom- launches-4g/. 38 "Number of Tajik cell phone users grows," Cellular News, December 16, 2014, http://www.cellular- news.com/story/67129.php. 39 "Babilon-M expands 4G network outside of the capital," Telegeography, February 17, 2016, https://www.telegeography.com/products/commsupdate/articles/2016/02/17/babilon-m-expands- 4g-network-outside-of-the-capital/. 40 "Number of Tajik cell phone users grows." 41 "Kazakhstan and Central Asia Telecommunications Report," 2015 Q3, 87.
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Table 6. Active Mobile-Broadband Subscriptions per 100 inhabitants42 Kazakhstan 58.8 Kyrgyzstan 68.5 Tajikistan 9.5 Turkmenistan 10.9 Uzbekistan 23.9
Despite the unquestionable progression, rates of 4G penetration in Uzbekistan, Tajikistan and Turkmenistan is reportedly far lower than in Kazakhstan and Kyrgyzstan, and in many other post-Soviet states and states of Central and Eastern Europe (47% in Slovenia, 59.9% in Slovakia, 65.1 in the Czech Republic, 114.2 in Estonia).43
New Services
To get established in this evolving yet precarious context, companies have run relatively aggressive advertising campaigns, resulting both in a price war and the provision of increasingly innovative services.
Development is being driven thanks to the diversifying of payment methods so they are more attuned to local contexts, as well as to the democratizing of tariffs for devices and communications. Per second billing has also made it possible to lower costs and thus to open mobile telephony to larger segments of the customer base. Several states in the region are legislating for, or have already authorized, Mobile Number Portability (MNP), which promises to provide a fresh impetus for competition and a restructuring of the markets.44 In Kazakhstan, for example, two lessor operators, Tele2 and Altel, were able to attract, respectively, 25,000 and 15,000 new subscriptions in the three months following the launching of the service. This occurred to the detriment of the two largest operators— particularly Kcell, which lost 26,000 subscribers at the time.45 Further, as we see in Tajikistan, the Mobile Virtual Network Operation (MVNO) is being launched through firms such as the Russian Multiregional Transit Telecom, which operates under the Aiva Mobile brand.46
Several segments of the customer base have been especially targeted. Youth and younger population segments, the largest consumers of new technologies, are the main focus of operators. Several operators, such as KarTel, offer student rates. Migrants are also targeted with special communications rates with Russia and Kazakhstan, the main destinations of Central Asian workers. Due to Turkey’s role as an important destination for Kazakhstani businessmen and retail traders, Tele2 also has tariffs for calls to Turkey for domestic call rates. With a gradually—though modestly—emerging, middle class that is consuming services and looking to travel, discount rates are offered for the most popular tourist destinations (Tunisia, Turkey).
Lastly, Central Asian society’s religious component is also targeted. During the period of Hajj, special rates to Arabia are available in each of the republics, with the exception of Turkmenistan, where any such commercial operation would be unprofitable as the number
42 International Telecommunication Union, and UNESCO, The state of broadband 2015, 88-89. 43 See OECD Broadband Portal, http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm. 44 "Kazakhstan connects subscribers through MNP," Central Asian Cellular Forum, January 12, 2016, http://3gca.org/kazakhstan-connects-subscribers-through-mnp/. 45 "Kcell biggest loser from Kazakhstan MNP," Telegeography, April 15, 2016, https://www.telegeography.com/products/commsupdate/articles/2016/04/15/kcell-biggest-loser- from-kazakhstan-mnp/. 46 "MTT launches MVNO services in Tajikistan over Babilon-M network," Telegeography, October 21, 2014, https://www.telegeography.com/products/commsupdate/articles/2014/10/21/mtt-launches- mvno-services-in-tajikistan-over-babilon-m-network/.
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of pilgrims is restricted to 170 persons per year. Information services are also offered during Ramadan.
With the rapid development of high-speed wireless, portable communications devices have gone from being simple tools of spoken communication and messaging to so-called ‘intelligent’ services, which open up a highly varied range of applications. Banking services and remote payment, mostly aimed at migrants, have been implemented. In Kyrgyzstan the MegaCom company, for example, offers an electronic wallet by which it is possible to carry out payments, money transfers, and even investments via mobile phone. In Tajikistan, TCell allows money transfers of modest amounts (200 tjs per day).47 The possibility now exists to pay some bills by phone, such as for gas in Uzbekistan or for some types of taxes in Kazakhstan.
Mobile phones have become a way of spreading political, economic, or social information, which is particularly valuable given the level of isolation in some regions. For example, at a time when the consequences and risks of climate change are causing greater concern in Central Asia, safety announcements for natural catastrophes have been set up. In Tajikistan, one operator, Taj Takom, has introduced an SMS Hurricane service.
Mobile telephony is also seeking to establish itself in the Internet sector. The Internet’s impact and the development of high-speed services is especially important as it can make a higher contribution to the growth of GDP than mobile telephony. Internet speeds are still slow in Central Asia, however. This is due not only to the technical difficulties involved in installing networks, but also to the reluctance from Central Asian governments, which continue to see it as a threat to their regimes. Web access via a mobile device is thus an attempt to make up partially for the poor development of cable networks in the region, and it facilitates access to the social networks demanded by a growing section of the population.
Lastly, in Central Asia—as elsewhere—operators are striving to strike a balance between the provision of commercially profitable services and the so-called over the top services OTT (TV and other services offered on the Internet), which are increasingly popular but generate no or little revenue. Entertainment services are the priority targets: online cinema services, which offer unlimited access to films and videos on a daily rate, Music player services, or even library services (Tele2 Kazakhstan) have been set up in several states in the region. Companies operating there have been developing precisely these services, as they comprise an important display case for promotion purposes and help to stimulate the mobile telephony market.
Conclusion: Risks and Prospects of Mobile Telephony in Central Asia
In Central Asia the terrain for mobile telephony has been favorable. As elsewhere, its advance resulted from increased competition between companies together with the setting up of new technologies. In Africa, for example, the simple announcement that new licenses are being put on the market is enough to keep the sector progressing, as it constrains operators to invest in their network and to reduce tariffs, as well as to diversify services. Many large companies today are active in Central Asia, where governments are encouraging the development of wireless technologies and 3G services, and they are gradually opening up to 4G technology.
Mobile telephony is a tool of transformation par excellence. Its impact on the daily life of its users is more significant and rapid than all the preceding technologies.48 It improves communications networks in states in which many regions, whether in the steppes or in the
47 "Kazakhstan and Central Asia Telecommunications Report," 76. 48 Christine Zhen-Wei Qiang, "La téléphonie mobile : un outil pour la croissance et le développement," Secteur Privé et Développement, no. 4, November 2009, 7-9.
9 mountains, are isolated and in which fixed telephony is inadequate. It facilitates households’ access to new services. In most of the Central Asian states, whose banking systems are still rather crude and decried by the population, mobile telephony comprises one of the rare secure ways to transfer money. For the political authorities, non-governmental institutions, and consumers, it is also a source of information access and dissemination, both in the economic (agricultural, trade, etc.) and social (health, education) sectors, and it helps in informing of some risks (natural catastrophes, human trafficking, etc.). Through the establishment of networks of agents, suppliers, and subcontractors, mobile telephony also contributes to the development of the job market. While no data is available for Central Asia, some studies conducted in developed countries such as South Africa, for example, showed that the introduction of mobile technologies generated a 15% increase in employment.49
The cultivation of mobile telephony is not risk free, however. Mobile telephones have considerably altered the behavior of consumers. They are seen as a factor of integration into the social fabric without which an individual feels ostracized. This element of irrationality in the value granted to mobile phones, which the companies themselves instrumentalize significantly in their advertising campaigns, has led to excessive expenses in many households. For populations with low incomes, they remain costly and often comprise the third-most expensive item after housing and food.
The telephone companies, for their part, have multiple obstacles with which to contend. States across the globe that have opted for independent regulatory authorities and have liberalized their markets, thus opening up to competition, achieve the best performances in the sector. In the Central Asian states, which are for the most part authoritarian, cellular technology is viewed as a potential tool to mobilize opposition, destabilize authorities, and give rise to possible ‘Arab Springs’. The governments have kept very tight control over most areas in this sector, and some have required telephone companies to submit to their censorship rules. In August 2015, the Tajik government is reported to have asked Tcell, the TeliaSonera brand servicing the country, to block several Internet sites and social networks, including Youtube and Facebook.50 The censorship that prevails in the region in turn gives rise to ethical questions, as some foreign investors display their disinclination to be the accomplices of local authoritarianism, not to mention of flagrant and recurrent violations of human rights and freedom of expression.
Central Asia’s investment climate remains one of the most unfriendly in the world and continues to elicit massive reluctance among foreign investors. In states characterized by collusion between political and economic milieus, the cellular telephony business emerges as a considerable financial stake for the circles in power. Personalities among the presidential families or the high-level political authorities are invested in this very profitable sector, and have often curbed—and even prevented—the emergence of rival companies, viewing them as a potential threat to their profits. The granting of licenses, 4G licenses in particular, often results from the games between networks and rivalries between politico-economic groups. In Turkmenistan, the government maintains these services exclusively in the hand of the state- owned operator Altyn Asyr, thus preventing its rival company, MTS, from competing. The opacity of Central Asian economies in general, and of telephony in particular, is something investors have regularly denounced, such as when TeliaSonera complained of not being able
49 Jenny C. Aker, "Les impacts de la téléphonie mobile sur le fonctionnement des marchés en Afrique subsaharienne," Secteur Privé et Développement, no. 4, November 2009, 12. 50 Catherine Putz, "Why is TeliaSonera Leaving the Eurasian Telecom Market?" The Diplomat, September 24, 2015, http://thediplomat.com/2015/09/why-is-teliasonara-leaving-the-eurasian- telecom-market/.
10 to know the identity of the ultimate owners of its local partner companies in Uzbekistan,51 and of being prevented from repatriating some US$65 million.52
In addition, mobile telephony has been at the center of corruption scandals, which have sometimes tarnished foreign investors. In Kyrgyzstan, the interim president Roza Otunbaeva (April 2010 - December 2011) established a special commission in March 2011 to inquire into Eventis Telecom, which had been accused of embezzling about US$27 million from MegaCom since April 2010. The two Russian managers who represented Russian company Eventis Telecom, which owns 51% of MegaCom’s shares, fled the country before the inquiry began. In Uzbekistan, Russian company Vimpelcom is reported to have transferred US$114 million to businesses controlled by Gulnara Karimova, the elder daughter of Uzbek President Islam Karimov, in an effort to to obtain 3G and 4G licenses.53 TeliaSonera was accused of transferring some US$335 million in bribes to acquire Ucell in 2007. The company, which was specially shaken up by this scandal and the difficult investment conditions in the former Soviet Union, decided in September 2015 to leave six of the former USSR states in which it was a player, including three Central Asian ones: Kazakhstan, Uzbekistan, and Tajikistan.
Lastly, the market continues to fluctuate greatly. The particularly detrimental consequences of the economic crisis in Russia on the region, and the precariousness of the local political regimes, which is adjudged to have increased, contribute to dissuading investors. The considerable profits that some companies today are extracting are partly the result of the absence of any real competition thanks to the authorities’ policies of obstruction.
However, despite numerous obstacles, the necessity for the Central Asian states to keep developing cellular technology, as well as certain weaknesses in the local economic markets offer a considerable investment and development potential for foreign companies.
First, foreign companies benefit indirectly from the rigidity of the Central Asian political system. The risks of social unrest that a lack of mobile telephony can elicit motivates the governments to hold onto companies that have proved their worth in the sector, or, where required, open it up to new investors. Attesting to this are the clashes and violence in Turkmenistan in 2011 which resulted from MTS’ suspension and the failure of the state- owned company, Altyn Asyr, to put enough SIM cards on the market to compensate for this closure. The government was forced to have recourse to the army in order to control the crowd movements.
In addition, the refusal of many investors to engage in the region has limited competition, and makes it a sort of virgin ground as compared with many other states in the world. Telia Sonera’s announced departure from all the states of Central Asia54 opens a new space for foreign companies. Lastly, the sector is set to develop further thanks to improvements of technologies and the provision of new services, a challenge that once again opens up many development prospects for foreign companies. Broadband is only in its infancy in the region, and the population—along with businesses, companies, local and international associations—is clamoring after new services. So mobile phone companies may rightly see an investment terrain in Central Asia that is currently difficult and risky, but which will also provide significant prospects in years to come.
51 "TeliaSonera To Exit Troubled Markets In Ex-Soviet Union," RFE/RL, September 17, 2015, http://www.rferl.org/content/teliasonera-exits-eurasia-uzbekistan-ex-soviet-space/27254021.html. 52 Catherine Putz, "Why is TeliaSonera Leaving the Eurasian Telecom Market?" 53 "VimpelCom fined $795m in corruption case," Financial Times, February 18, 2016, http://www.ft.com/cms/s/0/e5f63772-d693-11e5-8887-98e7feb46f27.html#axzz4F4tLzIqv. 54 "TeliaSonera To Exit Troubled Markets In Ex-Soviet Union."
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