Kazakhtelecom OJSC (Kazakhstan): characteristics of the activities
/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.
ORGANIZATIONAL STRUCTURE
Administrative structure of Kazakhtelecom consists of four major bodies, including the General shareholders meeting, Board of directors, Board and the Revision commission. The Board of directors and the Board controls the branches through the Central unit of the company. The company's branches include 14 regional, and city (Astana, Almaty) telecommunication units, "Dalnaya svyaz" (Long distance unit, radio-technical unit, data transmission network unit and etc. The head office is located in Astana.
Subsidiaries and dependent companies of Kazakhtelecom (all located in Almaty, following are their proportions in Kazakhtelecom): GSM Kazakhstan LLP - 49.0%; Altel JSCOT - 50.0%; Arna CJSC - 32.5%; Umit APF CJSC - 20.0%; Arna Sprint Data Communications JV LLP - 50.0%; Kaznet SLLP - 100.0%.
TELECOMMUNICATION NETWORKS
Kazakhtelecom assets include city and rural networks and stations, automatic international communication equipment, television transmitters and television senders, satellite communication equipment. Kazakhtelecom is the only operator of the country offering rural communication services.
The company owns and controls all general use telecommunication networks (GUTN) in Kazakhstan. GUTN includes 3,099 local telephone stations, 21 long distance and 2 international stations and is based on the primary network, which covers all the country and provides access to international communication portals. The primary network consists of connection stations, transmission equipment and access equipment, as well as telephone stations themselves. As of early 2001 this network embodies 102.5 th km of air-borne lines, 137.2 th km of cable lines (including 24.2 th km of fiber optic cable).
The GUTN has 3-level hierarchical structure, divided into local, regional (intrazone) and trunk networks. Total length of trunk telecommunication networks equaled 37.9 th km as of late 2000, including 25.2 th km of cable and 12.6 th km of radio-relay lines.
From July 1998 Kazakhtelecom, along with the Israeli Gilat Satellite Networks, is installing a multichannel satellite communication equipment based on DAMA technology. Presently, 182 stations have been installed in 12 regions of the country. Installation of this equipment is timely in those areas (primarily in Western and Central Kazakhstan), where many settlements are located far from the wire telecommunication networks. Satellite stations are being installed in rural communities, at customs and mines.
TELEPHONE COMMUNICATION SERVICES
Kazakhtelecom is a natural monopoly on the country's telephone market. As of January 1, 2001 total capacity of the Kazakhtelecom stations equaled 2.34 mln numbers (including 638 digital), of which 1.85 mln were in use (79%). Unused lines are mostly in rural areas. Total number of telephone lines and average usage coefficient practically did not change during the last 6 years in the country.
Offering telephone services provides the company with the most of the income. Thus, in 2000 these services accounted for about 94% all sales. In kind, most of the traffic (87.4% in 2000) is created on local (intracountry) telephone lines, though the local communication accounts for only 31% of income. About the same proportion of income originates from the communication services offered to non-CIS foreign countries, though they account for only 1.5% of outgoing traffic.
Income structure of Kazakhtelecom in 2000 (mln KZT)
------------------------------------------------------------------ Services - income source 1998 1999 2000 ------------------------------------- ------ ------ -------------- International and long distance comm. 13,825 18,989 24,682 (64,0%) Local telephone communication 8,853 9,803 11,901 (30,8%) Data transmission 28 109 622 (1,6%) Smartcards - 127 350 (0,9%) Telegraph 358 446 620 (1,6%) Satellite communication - - 1,938 (0,5%) Wire broadcasting 243 165 139 (0,4%) Other income 221 213 77 (0,2%) ------------------------------------- ------ ------ -------------- Total 23,528 29,853 38,585 (100%) ------------------------------------------------------------------
For outgoing calls the clients of Kazakhtelecom pay by themselves, and for incoming calls the settlements are made with foreign telecommunication companies.
In 2000 total volume of outgoing traffic created in Kazakhtelecom networks equaled 845 minutes. The growth of total volume relative to 1999 reached 27%, whereas total increase for the year 1999 reached 6.3%. The most significant growth (31%) was observed in 2000 on intracountry traffic.
Based on Kazakhtelecom data, the most dense telephone lines (numbers) are in Almaty (32 lines per 100 people) and Astana (20.5), as well as Pavlodar (17) and Karagandy (16) regions. The least density is in South- Kazakhstan (6.4) and Almaty (7) regions.
Kazakhtelecom controls 19 international stations, of which 18 stations are digital. The stations have a built-in capacity of 62,798 channels. The most dense international and long distance traffic is typical to Astana (21.5 th minutes per 100 people) and Almaty (14.8). The least - to Western- Kazakhstan (3.1) and Almaty (4.0) regions. The most per line return was registered in 2000 for Astana (KZT31.7 th), Mangistau region (24.8) and Almaty (20.6). The least - for Almaty, Pavlodar and North-Kazakhstan regions (10.6 each).
INTERNATIONAL COMMUNICATION SERVICES
Presently, Kazakhtelecom has 2 international communication centers in Almaty and Astana, which use both ground-based and satellite communication channels for international communications. Satellite communication channels are being installed in Western-Kazakhstan region. International centers have direct access to 23 telecommunication companies in 20 countries and 10 operators in 7 CIS countries. Among the partners of Kazakhtelecom are the major providers of telecommunication services such as: MCI (USA), Deutsche Telekom (Germany), British Telecom (Great Britain), AT&T (USA), France Telecom (France) etc. Except for the CIS countries, the company has transit connections with 118 countries of the world. Kazakhtelecom can provide round-the-clock international calls and telex and telegraph message transmission to all the countries of the world.
International traffic equaled in 2000: incoming - 366.6 mln minutes, outgoing - 109.3 mln. International traffic consisted of 57.8 mln incoming calls from non-CIS countries and 16.6 mln outgoing calls to non-CIS countries (12.7 minutes of outgoing traffic or 57% were made by the company clients). The biggest outgoing traffic among the non-CIS countries were distributed in 2000 as follows: Germany (3.7 mln minutes), Turkey (2.1) and England (1.4);
for incoming calls: Germany (13.2), USA (11.1) and Israel (8.6).
MOBILE PHONE SERVICES
In addition to its base voice communication services, Kazakhtelecom offers data transmission, telex and telegraph services, Internet, wireless communication, satellite communication, as well as other services related to television and radio broadcasting. Now, the company is the major operator of the most of these services in Kazakhstan.
Kazakhtelecom owns 50% of shares in a single analog mobile communication operator in Kazakhstan, Altel, and 49% shares of K-Cell, the operator of mobile services in GSM format. Total number of customers of these companies exceeds 150 th.
OTHER SERVICES
Kazakhtelecom provides services on connecting other communication operators (owners of allocated lines, mobile telephone operators and others) to GUTN, as well as leases the channels. The revenues from leasing local, long distance, international and telegraph lines amounted to about $10.6 mln or about 4% of all sales in 2000.
The revenues from telegraph and telex services amounted to KZT602 mln, or less than 1.6% of total expenses of the company in 2000. Following the world trend these services are getting less popular in Kazakhstan.
Data transmission services are offered by subsidiary company of Kazakhtelecom, Kaznet SLLP, which works on the development of modern data transmission network in Kazakhstan. This network will provide high- speed satellite channels, digital connectors and other services.
The revenues from satellite services account for a minute part of the company's total income. However, the development of new technologies and growing demand for these types of services from major local and foreign companies should cause this segment to expand noticeably in a few years.
Kazakhtelecom has an exclusive right to control the network of pay phones. Now, there are 0.37 pay phones for 1,000 people in Kazakhstan. At present, the company has installed 3.7 th card pay phones, which work on a pre-paid cards, and till the year 2005 this number is expected to grow to 10 th. Average revenue from one pay phone is about $70 a month. The pay phone development works are done along with Schlumberger (USA-France) and Siemense Elasa (Germany).
MAJOR CONSUMERS OF THE SERVICES
Based on the materials submitted to the KASE, as of January 1, 2001 private legal entities accounted for 11.2% of all the users, providing 51.3% of the company's income. Thus, the line, given to the legal entity, on average, yields three time more income relative to a line given to a private individual. Therefore, the company is focusing on servicing and attracting corporate clients.
Kazakhtelecom offers digital transit services to some foreign operators. Thanks to a favorable location and flexible rates, the company is successfully competing with major foreign telecommunication companies in the region.
TARIFFS
Fixed monthly payment is collected for local telephone calls, since, now the network has not sufficient capacity to make a per minute billing system (except for a number of cities mentioned above). But, in the future a gradual transformation to per minute billing system is planned. By the year 2005 all local calls will be billed on a per minute billing system.
The tariffs on the company's services are to be approved by the Agency of Kazakhstan on natural monopoly regulation. during the last 3 years the growth rates of the tariffs and customer fees exceeded the growth of consumer price index on average. The growth of this index equaled 43% from late March 1997 through late February 2001, informs the National Bank. Meanwhile, tenge depreciated against the dollar by 95% during this period.
Tariffs on some Kazakhtelecom services in tenge (as of early 1997 and February 2001)
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For public For state entities For legal entities
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Tariff 1997 2001 Trend 1997 2001 Trend 1997 2001 Trend
----------------------- ----- ----- ----- ------ ----- ----- ------ ----- -----
Customer fee for phones 200.0 370.0 +85% 432.0 586.0 +36% 1090.0 950.0 -13%
----------------------- ----- ----- ----- ------ ----- ----- ------ ----- -----
Cost of one minute call (average tariff):
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within Kazakhstan 5.1 8.5 +67% 6.4 9.0 +40% 12.0 21.0 +75%
with Russia 29.7 58.1 +95% 39.4 145.3 +269% 95.2 145.3 +53%
to non-CIS countries 187.3 333.0 +78%
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Tariffs on international calls are recalculated in tenge at the exchange rate of the National Bank for corresponding period