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 1 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. 2 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. 3 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.