Kazakhtelecom OJSC (Kazakhstan): distribution market and competition

/IRBIS, Apr 4, 01/ - Following material about Kazakhtelecom (Astana) was prepared based on the conclusion of the Kazakhstan Stock Exchange (KASE) Listing commission, which was compiled due to the admittance of the first issue bonds (KZ2CUY03A347; KZTKb1; $100; $25 mln; March 13, 01 - March 15, 04; semiannual coupon at 10% APR) of the company into the official list of the KASE securities under category "A". The information is presented, since it might deserve the potential investors' attention. TELEPHONE COMMUNICATION Based on existing license, Kazakhtelecom has an exclusive right to work as an operator of the general use network for offering local, long distance and international communication through any telecommunication networks, except for a specially assigned networks. As of October 1, 2000 the Ministry of Transportation and Communication issued about 600 licenses on conducting entrepreneurship activities on offering telecommunication services. Of this number 150 licenses were issued for local communication networks and accompanying services, 150 - for radio communication and paging services, more than 120 - radio broadcasting and television, 20 - services on specially assigned satellite networks. More than 70 licenses were issued to the companies engaged in data transmission and the Internet services, of which 20 were granted to IP-telephony. Telecommunication network of Kazakhstan covers all Kazakhstan. The company provides about 90% of services related to telecommunication. It is a great barrier for the competitors to get into the market, especially in local and long distance telephone services. Major changes are expected, in the opinion of the company's management, in international communication area, which is due to the development of IP- telephony. In this area Kazakhtelecom may face a severe competition from the major operators which can provide with necessary traffic at an acceptable service quality and low cost of services. The main competitors here are Nursat CJSC, Arna CJSC and other less powerful providers. However, considering expected changes in the company's marketing policy, it should be noted that the decrease in the company's proportion of international communication market will not be significant in near future. Proportions of Kazakhtelecom in telecommunication markets of Kazakhstan -------------------------------------------- Proportion, Services % ------------------------------- ----------- Local telephone services regional centers 88% other cities 84% rural areas 97% ------------------------------- ----------- Long distance telephone network telephones 95% channel leases 94% ------------------------------- ----------- International telephone network outgoing 88% transit 100% incoming 100% ------------------------------- ----------- Lease of international lines 20% Telegraph 100% Teletype 99% Data transmission and Internet 40% -------------------------------------------- DATA TRANSMISSION AND INTERNET MARKET The fastest developing sectors are the data transmission and Internet sectors of the market. Now, the most of the market is occupied by 4 primary operators: Kazakhtelecom (trade mark - Kazakhstan on-line), Nursat CJSC, Astel LLP and TSMFT CJSC (trade mark - BankNet). As Kazakhtelecom forecasts, this situation should remain unchanged in coming years. The main competition will take place between Kazakhtelecom and Nursat CJSC, the two of which control the most of the market. The changes in this segment of the market will not have a significant impact on Kazakhtelecom income soon, as these services account for at most 2% of the company's gross income. However, in the long run their share will increase. The company's management presumes that Kazakhtelecom will remain at current positions or even moves upwards due to a corresponding changes in the marketing policy.