The Caspian and Central Asia region, from Turkey to Russia, is the next telecoms boom area. Western investors and vendors are coming in droves. As privatization of telcos flourish, increasingly western businesses are looking eastward from Europe.
AThey're not discounting the problems posed by the region: poor regulation, less than optimum terrain, lack of infrastructure and a dearth of technologists. Rather, they're helping overcome those problems.
Russia is experiencing a long-term investment boom with Westerners leading the way. The main
emphasis here is on expanding the variety of IT and telecoms services. Total information and communications technology
(ICT) revenue in 2001 exceeded $6.5 bn.
Its recent and anticipated continuing growth is largely a result of government directives defining development
strategies for the next decade. These include ten-year plans for Telecom services generally as well as for satellite
communication and for cellular/mobile development.
These, and other recent laws have lead to some inconsistency and confusion, but mostly provide a structure on which to build. Problems of with pricing and payments between operators are in the process of being solved by programs of tariff reform.
Surprisingly, incumbent regional operators, while controlling about 90 percent of the communications infrastructure, account for just a little more than 45 percent of the total revenues. Alternative operators, on the other hand, own only seven to eight percent of the infrastructure, yet their share of total revenues exceeds 50 percent. This is attributable to improved macroeconomics and to the booming cellular communication market, where subscriber numbers more than doubled.
Alternative companies are most active in the Moscow and St. Petersburg markets, where their share already amounts to 75-80 percent. In several industrially-developed, affluent regions they also boast a 30-60 percent share.
The Russian government's plans to restructure the country's natural monopolies call for merging more than 70 Russian PSTN operators (regional operators) into seven interregional companies. The final goal of consolidation is to make the Russian telecom sector more efficient and attractive to investors. The state currently controls regional operators through its 75 percent stake in Svyazinvest.
In 2001 alternative operators began to bundle fixed-line telephony services with mobile communication and Internet services. The four biggest players are Moscow-based System Telecom, St. Petersburg's TelecomInvest, and Golden Telecom and Telenor, which is the strategic partner of Combellga and VimpelCom.
Turkey is far and away the most liberalized country in the area, with the WTO looking to open its markets and accession into the EU just around the corner. There's also been strong growth in foreign investment and great potential for that to continue.
Turkey benefits from its position as a central point between Asia and Europe and as a nexus for cables going to and from various countries in the region. While one recent study shows Turkey's ICT spending in 2001 lost ground compared with the previous year, it noted, however, that the region was gaining share of global ICT spending.
Central Asia realized significant growth last year in cellular phone use. Substantial opportunities
for competitive local exchange providers (CLECs) will lead to the opening-up of the fixed-line market to competition
even while regulatory and political problems in the region may have retarded fixed-line privatization
Poised for further privatization
Most Former Soviet Union (FSU) governments were upbeat last year about the prospects for privatizing public telecommunications
operators (PTOs). The outlook for sell-offs in 2001-2002 is viewed more positively than the results for 2000-2001
might indicate.
Kazakhstan is one of the biggest FSU markets. Some 40 percent of the incumbent is in private hands. Much Foreign Development Investment is coming into the county. For example, Korea's LG Electronics will supply digital telecom equipment worth $13 million to KazakhTelecom, Kazakhstan's top telecom service provider. The company will build the telecom facilities in Almaty, Kazakhstan's largest city, in the first half of this year.
One reason for the country's success is its tremendous gas and oil resources, which are being developed rapidly. That's causing a huge need for telecoms and many of the big telecoms players are getting in thereto fill that need.
Despite, or perhaps because of, the US sanctions against it, Iran is the next most important country in the region. It managed to install 7.3 million digital lines in 1999 giving it one of the most developed telecom infrastructures in the region.
The US embargo has spurred internal development in Iran. And that technology and those technologists (home-grown and home-trained) are now being exported to other countries in the area. But as one might expect, the government runs industry and there are not many foreign players in there.
Yet.
The trend among the mostly smaller FSU nations (Azerbaijan, Georgia, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) was that their history as former Soviet republics means foreign companies are hesitant to go rushing in. So regional development bodies have had in and kickstarted fund investment. Foreign vendors are now coming and providing the necessary improvements and investment.
For example, a fibre-optic cable, the Trans-Asia-Europe (TAE) going from Frankfurt to Shanghai traverses all these countries along its route: Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan, Iran, Turkey, Ukraine, Belarus, Poland, Romania, Hungary, Austria, Georgia, Azerbaijan, Armenia, Pakistan and Afghanistan. In each country the local telecoms companies fund part of the venture.
At 27,000 kilometers the TAE provides digital circuits for transmitting the entire range of telecoms for hundreds of cities along its route. Often called the Silk Road Line, it follows the ancient trading route linking China to Europe. TAE will carry voice data traffic with a 155 Mbps capacity at a cost of about US $560 million.
Kyrgyzstan and the cash-strapped Caucasian republic of Georgia are hardly massive telecom markets and have had little exciting happening. They've now succeeded in doing much to reverse that situation. For example, they got their regulatory situations sorted, even to the point of putting regulators in place. In doing so they've succeeded making themselves more inviting to the big players.
This region is the next hot spot in the telcoms world, to view it as anything less would be a serious error of judgement. It has more than potential. It has more than problems (none of which appears to be insurmountable). By fully covering developments here, The Times can provide the information investors and vendors need to leverage their moves into the region. By recognizing the region for what it is, investors and vendors can help move the region onto a level playing field with the West.