Kyrgyztelecom - Q1 2013


SWOT Analysis

Strengths

  • Operates effective monopoly of fixed-line services in Kyrgyzstan.

  • Holds a licence to offer GSM1800 mobile services.

  • Leading ISP/data service provider.

Weaknesses

  • Dependence on domestic and international long-distance revenue likely to result in marked fall in overall revenue as market liberalisation gains momentum.

  • Network digitalisation levels remain less than 50% in rural parts of Kyrgyzstan.

Opportunities

  • Increased FDI in Kyrgyzstan and Central Asia will increase potential size of corporate market.

  • Low fixed-line penetration provides limited incentive for expanding the service in urban areas.

  • Data network market (for dial-up, xDSL, web-hosting) likely to increase significantly in short and medium term.

  • Potential for massive expansion through investment into Wi-Fi, WiMAX and CDMA technologies as well as use of its mobile operator licence.

Threats

  • Continued liberalisation in the internet sector will see the operator come up against fierce competition.

  • Increased competition in domestic and international long-distance market likely to grow in the long term.

  • Licensing of additional ISPs should see dial-up market share decline in short and medium term.

  • VoIP could undermine lucrative ILD revenue.

Company Overview

Kyrgyztelecom is the incumbent fixed-line operator in Kyrgyzstan. The operator was 77.84% owned by the government, while the government's Social Fund owned a further 12.51% stake. Company employees and management (6.0%) and private shareholders (3.65%) own the remaining equity. In February 2010, it was announced that a consortium of investors had acquired the government's stake. The four companies were Investment Company of Kazakhstan, Nimisco Holdings and Colimar Holdings, both Cypriot companies, and local company Ala-Too Keni. However, in April 2010 the tenders were cancelled following political upheaval, with the interim government claiming the stake was sold at an unreasonably low price. However, interim president Roza Otunbayeva announced that the government would seek to privatise the company, although no deadline was given.

Strategy

Kyrgyztelecom has been expanding the reach of its fixed-line network, taking advantage of its dominance in the sector. Its strategy for development for 2012-2015 includes the maintenance of its leading position in fixed telephony, increase its market share in internet access and invest in new markets including digital TV.

In recent years the operator has been working on digitalising its fixed-line network, reaching 92% in 2011. In addition, the development of internet and broadband services has been a key feature. While internet and broadband subscriber figures for Kyrgyzstan are hard to come by, the potential for Kyrgyztelecom to grow its revenue in the sector is massive, and we believe this will be its key focus in future.

In January 2011, Kyrgyztelecom launched an IPTV service, offering Kyrgyz and foreign TV channels. The operator plans to raise the offer more channels at a later date. The offer is accessible via PCs and TV sets in Bishkek and in the Chuya region. The following month, in February 2011, Kyrgyztelecom announced the inauguration of a single call centre, along with cuts in the value-added service (VAS) rates on fixed-line services. The single call centre deals with enquires related to all the services offered by the operator. The call centre offers its services in the Kyrgyz and Russian languages. Meanwhile, the operator announced that it has reduced rates for VAS information services provided using its premium numbers.

In March 2011, it was announced that Kyrgyztelecom planned to increase speeds of its unlimited ADSL internet packages, by an average of 25%, from April 1. Subscription rates will remain the same.

Recent Financial Performance

Kyrgyztelecom provides local, long-distance and international telephone services, as well as internet and data services and radio and TV broadcasting. In 2010, the operator reported revenue of KGS2.445bn (US$46mn). This figure was up by 13.1% y-o-y from KGS2.161bn in 2009.

In 2009, the single largest source of revenue (KGS1.073bn, or 49.7% of the total) came from the provision of national long-distance and international telephony services. However, revenue from this segment was down by 14% on the previous year. Income from local telephony services brought the operator KGS442.7mn, or 20.5% of total revenue; local telephony service revenue was up by 5% y-o-y. Meanwhile, revenue from internet services amounted to KGS317.8mn or 14.7% of Kyrgyztelecom's total income for 2009. Internet service revenue was up by 43% on 2008, when it accounted for KGS222.8mn, or 9.8% of Kyrgyztelecom's total income.

Operational Developments

Prior to the February 2010 announcement that a consortium of four investors won a tender for the government's 78% stake in Kyrgyztelecom, the Kyrgyz fixed-line operator had been at the centre of several unsuccessful privatisation attempts, first in 1999, and then in 2003, when the Swedtel consortium was provisionally awarded a 51% stake in the company, only for the sale to be suspended later that year. More recent moves to re-offer the stake for sale were met with opposition from deputies in the country's lower house of parliament.

In November 2005, it emerged that the Kyrgyz government intended to offer the company for sale in 2006. In January 2006, the government approved a ruling that would put 77.8% of Kyrgyztelecom up for tender. According to a spokesperson for the Kyrgyz Committee for State Property Management, the tender would also include a GSM licence and was expected to fetch more than US$20mn. It was reported at the time that Russian telecoms companies Sistema and Rostelecom were interested in bidding. Although the sale of Kyrgyztelecom shares began in March 2006, the tender was cancelled three months later.

In June 2008, Kyrgyzstan's State Property Committee announced a new tender for Kyrgyztelecom's privatisation. Although Turkish incumbent Türk Telekom declared in August 2008 that it was considering bidding in the tender to acquire 78% of Kyrgyztelecom, it was reported in September 2008 that the Turkish operator had been eliminated from the tender along with Russia's Rostelecom and Germany's Axos Capital Partners. Kyrgyz officials were reported as saying that Türk Telekom had been rejected from the tender because the operator did not provide the security deposit requested by the tender commission in time.

As noted above local media sources, citing the state property minister, Tursun Turdumambetov, reported that a consortium of four investors won a tender for the government's 78% stake in Kyrgyztelecom. The consortium members; which includes Investment Company of Kazakhstan, Cypriot companies Nimisco Holdings and Colimar Holdings, and local firm Ala-Too Keni Company; reportedly offered US$40mn for the shareholding and pledged to invest US$200mn in the fixed-line operator. Organisers of the tender reportedly received a total of six applications for the stake, including bids from interested parties in Turkey, Russia and Germany.

Once the government's 77.84% stake is finally sold, it is understood that the remaining Kyrgyztelecom stock will be distributed in the following manner: 12.51% to the Kyrgyz Social Trust, 1.0% to Kyrgyztelecom managers, 5.00% to employees and the remaining 3.65% sold via auctions. According to Kyrgyztelecom's website, the company has 5,865 employees.

In June 2011, MP Ata-Zhurt Azamat Arapbaev said in a parliamentary session: 'If today we do not change leadership of Kyrgyztelecom OJSC, then tomorrow there will be nothing left from the strategic company.' He went on to argue that people's deputies have repeatedly raised question on illegal actions of company's management. It was subsequently announced that the Prosecutor General's Office of Kyrgyzstan would make an evaluation of the legality of actions of Kyrgyztelecom's management that will be conducted by Dair Kenekeev, acting Minister of State Property of the Kyrgyz Republic, at a Parliamentary meeting. Further, according to Kenekeev, all sale operations of strategic enterprise's premises have been stopped.

Mobile Services

In December 2006, subsidiary KT Mobile reportedly received frequencies for GSM 900 and GSM 1800 services. The licence was awarded without tender in a move that seems designed to boost Kyrgyztelecom's value ahead of its eventual privatisation. No announcement has yet been made on when KT Mobile will launch commercial services.

At the end of 2008, the installed capacity on Kyrgyztelecom's network was reported as 721,600 lines, with 67.8% of the network being digitalised. The national rate of digitalisation has almost doubled since mid-2005, when it was reported to be 36.6%. However, the level of network digitalisation remains lower in rural parts of the country - according to the operator, rural digitalisation stood at 43.8% at the end of 2008.

Financial Data

  • Annual Revenue: (December 2006): KGS2.131bn

  • Annual Revenue: (December 2007): KGS2.114bn

  • Annual Revenue: (December 2008): KGS2.262bn

  • Annual Revenue: (December 2009): KGS2.161bn

  • Annual Revenue: (December 2010): KGS2.445bn

Operational Data

  • Fixed-line Subscribers (June 2011): 449,000

  • Internet Subscribers (June 2011): 20,000

Company Details

  • Kyrgyztelecom

  • 96 Chui avenue

    Bishkek

    720000

    Kyrgyzstan

    Tel: + 996 312 68 16 16

  • Fax: + 996 312 66 24 24

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