Despite an economic downturn Azerbaijan is still growing its telecom sector

Coming into 2012, Azerbaijan’s mobile subscriber base had passed the 10 million milestone (109% penetration), according to Research & Markets. Mobile subscriber growth had moderated to 10% per annum in 2011 and similar growth was continuing into 2012. Operator Azercell continues to lead the market, but its earlier dominance was being slowly eroded and market share had fallen to 44%, down from the more than 50% it held in years past. The second and third ranked operators, Bakcell and newcomer Azerfon, were both throwing out a big challenge to Azercell’s number one ranking.

Although the fixed network provides good national coverage, there was little sign of a growth surge in this market but the country could still claim a positive fixed-line penetration of 18% by the start of 201, and growth was continuing along a reasonable path. Around 80% of the fixed lines are in urban areas, despite 50% of the population living in rural areas.

In the meantime, the number of internet users in the country, having increased by 100% between 2008 and 2010, was approaching an estimated 5 million in 2012. Broadband subscriptions had increased to 100,000 by 2009 and then the market saw a further 400,000 broadband subscribers added in 2010, according to International Telecommunications Union (ITU) figures; the 500,000 broadband subscribers at the start of 2011 was up from just 15,000 three years earlier. The broadband market more than doubled in size again in 2011.

On the back of a strong economy, Azerbaijan has made good progress in the building of its telecommunications and information technology sectors. It has had to overcome a number of major problems in the process, including poor telecom infrastructure inherited from the past; low public awareness and understanding of computer technology; the high cost of computer equipment in comparison to the average salary; and very high tariffs for satellite connections due to a monopoly held by the Ministry of Communications and Information Technologies (MCIT).

A substantial platform for the ongoing development of Azerbaijan’s telecom sector was put in place more than a decade ago. By 2001 there were four joint-ventures offering telephone services, two mobile operators, and a number of Internet Service Providers in the country. All these ventures, established under the MCIT, were providing a range of basic telephone services, including mobile services. Prices varied considerably depending on the different cost of services offered to these companies by the ministry.

Government-owned Aztelekom has long been the country’s main provider of basic telephone services, being directly controlled by the ministry. A second operator, AzEuroTel, won a licence to provide international communication services as long ago as 1999.

The expansion of the country’s telecom sector has taken place in the context of a very strong developing economy. Azerbaijan has seen rapid economic expansion in recent times, recording annual GDP growth levels of up to 30% a few years back. However, the economy suffered a major setback following the Global Financial Crisis. The poor state of the global economy saw a big drop in Azerbaijan’s oil and gas exports; real GDP grew by just 0.1% in 2011. Into 2012, however, there were all the signs of a recovery, as the country adjusted to the global realities. Most certainly the telecom sector was continuing to grow.

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