Competition healthy in Kazakhstan’s mobile market despite looming saturation

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. Despite this, Kazakhstan has been experiencing a booming telecom market that included almost 100% mobile penetration by early 2010, according to new information from Research & Markets.

This has resulted from a growing economy and a program of positive regulatory reform in the telecom sector. Legislation adopted in 2004 laid the foundation for the liberalisation and development of the telecom sector and put an end to the monopoly enjoyed by Kazakhtelecom, the state-controlled telecom operator. Despite the considerable presence of incumbent Kazakhtelecom across the market, the country continued to benefit from a diversified market that offered an energetic and competitive environment, especially in respect of the mobile market.

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. Recognising 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 telecom 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 digitalisation 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 licence (and fourth mobile operator licence), 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 Internet was quickly expanding on top of a general upturn in demand for Internet services; the number of broadband subscribers increased tenfold from a relatively small base in 2006/07, then doubled in 2008 and doubled 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. 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.

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. A modest recovery in the short term has been forecast by the IMF with a GDP growth rate of 2% expected in 2010 and 4% in 2011.

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