Georgia Telecommunications Report

 

April 2007

Author: Kartlos Gviniashvili, BISNIS Representative in Georgia                                                  

 

INTERNATIONAL COPYRIGHT U.S. DEPARTMENT OF COMMERCE, 2006. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES

 

Brief Market Overview

Georgia’s economy has been experiencing significant growth for a number of years with the average annual GDP growth rate at 8% for the last five years (2002-2006).  One of the hottest industry sectors that have been leading this growth has been telecommunications with an annual growth rate of 31%. The contribution of the telecommunication sector to the Georgian GDP increased from 4% in 2002 to 7% in 2006. Data on the communications sector is given in the following table:

 

Telecommunications Sector of Georgia in 2002-2006

 

Year

2002

2003

2004

2005

2006

FIX Services

 

 

 

 

 

Total Revenue FIX, GEL, million

       133

       170

       208

          247

          299

Mobile Services

 

 

 

 

 

Mobile subscriber services, GEL million

       189

       265

       354

          425

          650

Total Revenue (GEL, mln VAT included)

       322

       435

       562

          672

          949

GDP, GEL billion

        7.8

        8.9

      10.3

         11.6

         13.4

Total Revenue as share of GDP

4%

5%

5%

6%

7%

Total Revenue annual growth rate

27.7%

36.1%

29.7%

19.5%

42.3%

Subscriber MOB Active

 429,709

 572,416

 840,645

 1,151,559

 1,703,888

Subscriber FIX

 511,871

 519,581

 532,755

    544,417

    553,105

FIX Penetration per 100 household

         12

         12

         12

            12

            13

MOB Penetration per 100 inh.

         10

         13

         19

            26

            39

Subscriber ADSL

           6

       452

     4,254

      15,263

      27,675

Source: Georgian National Communications Commission

 

 

According to the Department of Statistics of the Ministry of Economic Development of Georgia, capital investments in the sector amounted to GEL 114 million, GEL 146 million and GEL 65 million in 2004, 2005 and 2006 respectively.

 

 

Fixed-line Market

The fixed line market size is about GEL 300 million. Total number of active fixed line phone subscribers is approximately 500 thousand. The market penetration was 13% by the end of 2006.

 

There are two major players on the market: newly privatized United Georgian Telecom and Akhali Kselebi. Those two companies together with Akhtel Communications control 90% of the market.

 

United Georgian Telecom is the market leader. It controls 75% of local fixed line networks and serves 72% of local calls. It has 350,000 fixed line subscribers (including 220,000 in Tbilisi). The company was privatized in June 2006 when the Georgian-Kazakhstan private company Black Sea Telecom Holding B.V. became 90.65% shareholder of the company for USD 90 million.  Black Sea Telecom Holding B.V. and Central Asia Logistics B.V. later entered a deal, and the latter became owner of 40.65% of the company at the cost of USD 52 million. The new management of the company has indicated future plans for digitalizing their network as well as a provision of new services (DSL and CDMA), Internet, and cable TV. They are planning to provide cellular services as well by 2009-2011.

 

The other major fixed line operator is Akhali Kselebi (New Net), one of the premier partners of T&T (Telecommunications & Technology) Group. The company is constructing its own private network throughout Georgia. At present the number of Akhali Kselebi subscribers is about 130,000. The company is planning to construct a “Next Generation Network” (NGN) which will enable customers to get Triple-Play services, or combined services such as: Telephone, Internet and Multimedia services (TV, Video-on-demand, games, etc). Plans also include equipping IP networks with VPN, MPLS and other state-of-the–art technology.

 

 

Mobile Market

The mobile market penetration was 39% by the end of 2006. The GEL 650 million market is shared by three mobile communication companies. There were two mobile communications providers – MagtiCom and Geocell - on the market until earlier this year when new company – Mobitel - entered the market.

 

MagtiCom (US capital) is the major provider of mobile communication services. It serves 1,200 thousand subscribers out of 1,700 thousand subscribers in Georgia. MagtiCom started operations in 1997 on 900 MHz frequency and now operates dual-band system – GSM 900/1800 MHz. Presently MagtiCom offers its customers 3G services like MagtiVideoCall, MagtiMobileTV, MagtiHigh SpeedInternet along with full range of GSM services. MagtiCom covers about 97% of the populated area of Georgia.

 

Currently MagtiCom is owned TelCell Wireless LLC and ITC LLC.

 

Back in 1996 Geocell became the first GSM operator in Georgia, operating on 900 MHz. The company was founded by Turkish and Georgian parties. The Georgian party was the holder of the controlling package of the Company.


After the merger of Geocell and Georgia’s third GSM operator GT Mobile, in March 2001, Geocell became an authorized holder of GT Mobile (working on 1800 MHz frequency).

In 2003, the holder of the controlling package of Geocell was TeliaSonera, a Swedish-Finnish company and one of the leaders in the world communication market. Accordingly, Geocell together with 4 GSM operators, functioning in Azerbaijan, Moldova, Kazakhstan became a member of the leading group Fintur Holdings B.V.

 
In May 2006 Geocell acquired a UMTS license (2100 MH frequency). In the near future this UMTS license will give subscribers the opportunity to become part of 3rd generation technologies, and use such services as high speed data transfer (up to 2mb), video calls, mobile TV and many other services. Its coverage is almost close to that of MagtiCom. Geocell has approximately 400,000 mobile subscribers. Geocell covers about 95% of the populated area of Georgia.

 

LLC Mobitel launched its service in March 2007 with a “Simple” tariff rate of 0.02 GEL/min within the network, and 0.28 GEL/min for calls using other operators. At present, the company’s service covers Tbilisi and Rustavi (city close to Tbilisi with a population of 120,000). The company will open its service center in Batumi (a Black Sea Port of Georgia) on May 6, 2007. At the time of this writing, Mobitel has approximately 15,000 mobile subscribers in Georgia.

 

LLC Mobitel, Daughter Company of Russian Vimpelcom group (Beeline brand), has just declared plans of launching EDGE technology in the network which will enable a high-speed internet connection (17% of its subscribers use mobile internet). According to LLC Mobitel, GPRS/EDGE service is free in Beeline network. The GSM/GPRS/EDGE network operates on 1800 MHz and was built on Alcatel base stations in 6 months.

 

 

Current Telecommunication Legislation

The legislative bases for the telecommunications sector is found within the Constitution of Georgia, the Law of Georgia on Electronic Communications, international agreements that Georgia is signatory and other normative acts. The law on Electronic Communications was adopted in 2005 and it is in compliance with all five European Union communications directives. Instead of an ex-post regulation approach, an ex-ante regulation approach was adopted. Another improvement is the use of an asymmetric approach with regard to regulation instead of a symmetric approach, which was used previously.

 

It should be noted that without the adoption of the Law on Electronic Communications it would have been impossible for the third mobile operator, Mobitel, to enter the market with its present strategy (price damping). By law, the Georgian National Communications Commission (GNCC), will not interfere until the third operator reaches a market share, which is considered high enough (15% of market share in present situation) to exercise significant influence on the market (see next section on sector regulation).

 

 

Standardization, Licensing, Certification

According to the Law on Electronic Communications, the President of the country shall lead the policy formulation for the sector. The Department of Information Technologies and the Telecommunications department of the Ministry of Economic Development is in charge of preparing policy, strategy, and main directions for the development of the sector to be discussed and implemented by the Government of Georgia. An independent entity, the Georgian National Communications Commission (GNCC) is in charge of regulation of the sector. The GNCC was established on the bases of the 1999 Law of Georgia on Post and Communications. The GNCC is a legal entity of public law and the President of Georgia appoints its members for a six-year period. The GNCC is accountable to the Parliament and the President of Georgia. It is an independent regulatory agency with its own revenue source – license and regulation fees.

 

According to the Law on Electronic Communications, the GNCC has the following objectives:

            a) to provide services by means of electronic communications networks and facilities and to establish, maintain and develop a competitive environment in the electronic communications sector;

            b) to ensure that authorized undertakings provide users (including disabled users) with good quality, a wide range of electronic communication services and affordable tariffs.; and

            c) to encourage authorized undertakings having the ownership of electronic communications networks and facilities to efficiently invest in innovative technologies.

             

These objectives shall be achieved by undertaking the following actions by the GNCC:

            a) to authorize the pursuit of activities in the field of electronic communications;

            b) to manage exhaustible resources and ensure their efficient use. To ensure that in acquiring rights to use radio spectrum and/or numbering resources, transparent and non-discriminatory conditions and rules are used and relevant licenses are issued and revoked;

            c) to carry our analysis on relevant segments on the electronic communications market, to define authorized undertakings with significant market power, to ensure competition by imposing, pursuant to the present law, specific obligations and to supervise and control their fulfillment;

            d) to ensure the provision of certification, standardization and metrology services

            pursuant to the statute on certifying radio facilities and telecommunications terminal equipment;

            e) to regulate access to the electronic communications network elements and/or technical, economic and legislative relations relevant to interconnection;

            f) to regulate, within its competence, disputes between authorized undertakings, as well as, between authorized undertakings and their customers;

            g) to supervise compliance with the conditions of licenses for authorization and use of exhaustible resources in electrical communications sector, and in case of breaches, impose sanctions pursuant to the present law;

            h) to supervise authorization of activities in the electronic communications sector and observe conditions for the use of radio spectrum and/or numbering resources as well as the execution of measures against their breach provided for in the present law;

            i) to ensure open and transparent relations with the public;

            j) to coordinate electromagnetic compatibility of radio-electronic facilities as well as measures for their protection pursuant to international legislation;

            k) to represent Georgia in international organizations actively engaged in the electronic communications sector and protect Georgia's interests within its competence and within the competence delegated by the Government of Georgia to the Commission;

            l) to define guidelines for the use of amateur radio communications and amateur radio stations; and

            m) to execute other functions defined in the present law and consistent with the objectives of the Commission.

            n) To solve disputes arisen between license holders using the radio frequency spectrum and/or numbering resource, within its competence, pursuant to rules determined in chapter VI of the present law (28.12.2005 N 2564)

 

Neither the GNCC nor any other agency regulates the import of telecommunications equipment in Georgia. According to Regulations on Radio-telecommunication, Terminal Equipment certification of telecommunications equipment imported in the country is not mandatory although any company can voluntarily submit an application and appropriate documentation for certification of its equipment. 

 

 

Market Trends and Competition

Entry and operation barriers have been reduced by the adoption of more liberal legislation. Competition is becoming more and more fierce, improving quality of service and reducing costs. New services and technologies are being introduced permanently. Georgia is moving toward complete integration of international telecommunications infrastructure and can serve as an international communicational highway connecting Europe and Asia.

 

 

Best Prospects and Current Buyers

The sector is growing very quickly, creating demand for modern, high-tech telecommunication technologies.

 

Obsolete telecommunication equipment will be updated. Digitization of fixed phone lines is low – about 30%. The process has been started and it will progress quite rapidly due to ambitious plans of the telecom service providers. This creates opportunities for the export of telecommunication equipment in the country.

 

Additionally, Georgia’s government has declared the development of the telecommunications sector as one of its priorities and Georgia aspires to become the ‘telecommunications hub’ between Europe and Asia.

 

 

 

Kartlos Gviniashvili
BISNIS Representative, Tbilisi, Georgia
Tel: (995 32) 277 000 ext. 7132
e-mail: gviniashvilik2@state.gov

 

For more information on Georgia, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/Georgia.cfm.

 

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).