Kyrgyzstan and Kazakhstan heading towards 100% penetration

Mobile penetration in two central Asian countries is nearing 100% following healthy growth over the past decade. New information from Research and Markets details the telecommunications sectors in Kyrgyzstan and Kazakhstan.

The telecommunications sector in Kyrgyzstan is characterized by an open market that has welcomed both foreign and domestic investors. This has been effectively done in accordance with the requirements set down by the WTO.

Under the terms of the country’s accession to the WTO (which took place in 1998), full liberalization of the telecoms market had been expected to be achieved by end-2006. According to the ITU, Kyrgyzstan had implemented full competition across all segments of its telecoms sector by 2007.

The telecom sector has been part of the final phase of a large scale privatization program that has been steadily progressing in the country since 1992. The start of market reforms in 1991 saw the state telecommunications agency, Kyrgyztelecom, begin to expand and upgrade its legacy telecom network, which at the time was outdated and poorly distributed. With the expansion of the telecoms sector, upgraded standards have been adopted.

At the same time, a new regulatory authority – the National Communications Agency which later became known as the National Agency for Information Resources, Technologies and Communication – was set up to oversee the sector.

At an early stage, Kyrgyztelecom was restructured as a public corporation and the government moved towards a partial sale of the operator to the private sector. Around 10% of the company quickly passed into private hands. By mid-2010, after a series of failed attempts to sell off the government shareholding, the government was still holding almost 78% of Kyrgyztelecom.

Private operators, which actively operate in the mobile market and in the provision of Internet services, have been investing heavily in the relevant infrastructure. Whilst there are four mobile networks in operation, the two big GSM operators, Bitel and MegaCom, have been dominating the market, between them claiming 86% of the total mobile subscriber base by March 2009.

Since the first GSM network was launched in 1998, the number of mobile subscribers has grown rapidly from a few thousand in 1999 to around 4.3 million in early 2010. By this stage it was heading for 100% penetration (probably achieving this in early 2011). Growth in the country’s mobile market into 2010 remained moderate compared with the general growth in recent years. Nonetheless, there are positive indications that the market will continue to steadily expand for some time yet.

Meanwhile, Kazakhstan has been experiencing a booming telecom market that included almost 100% mobile penetration by early 2010, despite growth slowing in 2009. This has come about on the back of a growing economy and a program of positive regulatory reform in the telecom sector. Legislation adopted in 2004 laid the foundation for the liberalization and development of the telecom sector and put an end to the monopoly enjoyed by Kazakhtelecom, the state-controlled telecom operator.

The rapid and successful development of telecommunications in the country encouraged several foreign suppliers to establish a presence in this emerging market. Since 1992, international operators and manufacturers have been active in Kazakhstan in providing services and installing state-of-the-art equipment, especially as part of the country’s international telecom network. Companies such as Motorola, Lucent, Siemens, Alcatel, Nokia, Daewoo and Nortel Networks have all been active in the market. Recognizing the long-term potential of this market, many foreign telecom companies were looking to invest and form partnerships with local telecom companies.

By 2005 four private operators had been licensed to provide international and long-distance services in competition with the incumbent Kazakhtelecom. They were state-railway subsidiary TransTelecom, KazTransCom (a subsidiary of the national oil company), Ducat and Astel. Up to 1,500 new telecoms service providers of various kinds had been licensed by end-2005.

The key drivers in the telecom sector included:

• the deployment of Kazakhtelecom’s fully-digital national telecom network based on local and long-distance switches and fibre optic lines linking all major cities in the country;
• efforts to improve international connectivity and increase both mobile and fixed-line subscribers;
• the continuing digitalization of exchanges;
• the further reform of telecommunications legislation;
• the process of accession to the World Trade Organization. Kazakhstan had a relatively strong fixed-line penetration (24 telephone lines per 100 inhabitants by end-2009), with six operators providing fixed-line telephone services to about 3.8 million subscribers.

There had been long waiting lists for fixed-line telephone services over the years. The country’s mobile market entered a boom phase in 2000, no doubt boosted to some extent by the long delays in obtaining fixed-line services. The number of mobile services had exceeded fixed-lines by late 2004. Demand for mobile services was so strong that in 2006 that the government went on to auction a third GSM license (and fourth mobile operator license), which was duly awarded to NeoTelecom, a subsidiary of Kazakhtelecom. NeoTelecom then launched its mobile service in early 2007.

Of particular note has been the recent healthy growth in Internet activity in Kazakhstan, with the move to broadband access in particular taking place at a rapid rate. Broadband subscribers as a proportion of the population had reached 10% by early 2010, with the market likely to continue its expansion by 100% annually.

After Kazakhstan’s mobile market delivered annual growth of 36% in 2008, the 2009 year saw a major slowdown in the market with net growth almost negligible. With a mobile penetration approaching 100% in early 2010, the country’s mobile market was continuing to grow but was expected to start saturating in the not too distant future. Broadband Internet was quickly expanding on top of a general upturn in demand for Internet services, with the number of broadband subscribers increasing tenfold from a relatively small base in 2006/07, then doubling in 2008 and again in 2009.

There had been a significant shift to broadband access in 2009 as the proportion of Internet subscribers using broadband shifted from 43% to 76% in that twelve-month period. Kazakhstan, despite the considerable presence of incumbent Kazakhtelecom across the market, was continuing to benefit from a diversified market that offered an energetic and competitive environment, especially in respect of the mobile market.

On the economic front, after an eight-year period in which GDP had been growing at an annual rate in excess of 8%, 2008 saw a major slowdown in the Kazakhstan economy with GDP growth falling to 3%. 2009 saw growth fall even further (to around 1%) as the full impact of the global financial crisis hit.