IT and Telecommunications

When President Ilham Aliyev established the new Ministry for Communications and Information Technology in February this year, replacing the former Ministry of Communications, he signaled a new focus on adopting free-market principles and world-class standards in Azerbaijan’s telecommunications sector.

New communications ministry opts for fair and competitive environment

Ali Abbasov, Minister of Communications and Information Technology

Ali Abbasov, the new Minister of Communications and Information Technology, explains that the communications sector was dominated by the government under the previous ministry, and that the ministry was criticized for serving as a regulator of the industry while also having commercial interests in it. Today, the government has determined to change this approach. Minister Abbasov says, “Under the previous Ministry of Communications, the sector was heavily regula-ted and the state competed in the private sector, which is an unacceptable situation. Within the field of ICT a monopoly situation existed that many blamed on the previous ministry. One of our key goals today is to create a fair and competitive environment in the telecommunications sector overall.”

Azerbaijan’s telecommunications sector is one of the fastest-growing sectors in the country’s economy and a major contributor to GDP. Investment in telecommunications over the past decade has totaled some USD 465 million, according to a recent study by Ernst & Young, while earnings in the telecommunications sector rose by 57 percent between 1997 and 2001 alone and continue to rise.

The telecommunications sector has been marked in the past by phenomenal growth of mobile telephony, particularly since the installation of a GSM 900 network in 1994. Azerbaijan has one million subscribers for mobile services in a population of 8 million, the highest rate of mobile penetration of any former Soviet Union country. Pre-paid mobile communications services, mobile banking, Internet services and other value-added services have allowed mobile communications operators to attract customers from other telecom sectors, such as paging and trunking.

The growth of mobile communications in Azerbaijan is in part related to inadequacies in the country’s fixed-line network, which is particularly insufficient in outlying regions, in some of which only around 10 percent of the population has telephone service. The new ministry aims not only to upgrade the country’s fixed-line system throughout the country, but also to encourage continued expansion of mobile telephony through reducing connection costs. “I am working with the main providers in the country, Azercell and Bakcell, to address the issue of high prices. We also aim to drastically reduce tariffs for local calls and Internet servi-ces,” Abbasov says.

Internet penetration is growing in Azerbaijan, and the completion of the Trans-Asia-Europe fiber-optic cable link through Azerbaijan will allow local Internet users to access global communications channels throughout Europe and Asia. Internet service providers (ISPs) are concentrated in Baku, but increased use of satellite services should allow ISPs to operate more effectively outside the capital.

The need for satellite connectivity re-presents a significant opportunity for United States equipment manufacturers and network integrators. There is also a thriving market for data transmission equipment and expertise as well as for the latest information technologies and services. The market already supports a number of strong local firms that provide hardware, software, systems integration and consultancy services for leading local and international clients.

The government’s decision to further reduce its holdings in the telecommunications sector will create even more opportunities for foreign investors. Minister Abbasov explains, for example, that the government’s shares in Azercell, the leading mobile communications provider, are due to be privatized by the end of 2004.
Minister Abbasov is also planning to adopt international-standard legislation concerning the sector to encourage investment and on-going development. “We are ready to take our place in the world of international communications,” he says.

Bakcell

“A young, private company with great growth potential.”

Haim Maimon, General Manager

Bakcell, a telecommunications leader in Azerbaijan, has become a symbol for the great potential of the country’s non-oil sector. Founded in 1994 and fully privatized last year, the company was the first foreign non-oil-sector firm in Azerbaijan; today, it has achieved a 20 percent market share which it aims to increase to 50 percent over the next five years. Bakcell offers SMS, MMS, voice mail, fax, data and roaming services to over 93 countries, including the United States and Canada.

It has just opened a GPRS platform to offer additional value-added services and will soon offer Internet-based services. Bakcell is owned by GTIB, based in the British Virgin Islands and headed by Dov Slook and Alon Nathan, who was one of the first foreign investors in Azerbaijan.

Haim Maimon, General Manager, points out that Bakcell works closely with Azerbaijan’s Ministry of Telecommunications, which has been instrumental in supporting the implementation of an international-standard regulatory environment. Bakcell has 150,000 clients on pre-paid plans and its services are available to 75 percent of the local population; the company aims to increase that to 95 percent by the end of the year.

Explaining Bakcell’s success, Maimon says, “Bakcell’s management is flexible to respond to the changing telecommunications market, and invests in the latest technologies.” He adds that the company is investing USD 25 million in new equipment and is currently seeking partnerships with foreign investors to help it achieve its goals.

Bakcell represents an excellent investment opportunity. As Maimon says, “As a result of the deregulation of the telecommunication sector, there are many opportunities. Bakcell can offer foreign investors the advantage of being a young, private company with great growth potential. Azerbaijan’s future is very bright.” Owner Dov Slook adds, “This is the best time to invest in Azerbaijan, because the economy is just about to take off.”