Kyrgyzstan to privatize major mobile operator

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BISHKEK (TCA) — The Kyrgyz Government plans to offer its shares of a major player in the country’s telecommunication market, Alpha Telecom CJSC (MegaCom brand), for sale through auction. The state owns 100% of the company’s shares. The company covers 98 percent of the country with mobile communication and has more than three million subscribers.

The Government wants to sell MegaCom while it is attractive to buyers to get the maximum price for it. The Economy Ministry warns the company may eventually become low-income.

Starting price

According to the State Property Management Fund, the company’s starting price is 18 billion soms (about $306 million). There are already companies from Turkey, Mongolia, Azerbaijan, and Russia which are interested in Alpha Telecom.

In 2008, the state planned to sell the company for $1 billion, but there was little competition in the telecom market then.   

Public procurement

The Law “On public procurement” hinders the development of state owned companies, including Alpha Telecom, which has to fulfill the requirements of the law that is not customized to entities operating in a competitive environment.

According to the law, the company has to publish all information about its planned procurement, and it can be used by competitors to their advantage. At the same time, this requirement does not apply to private companies.

Another reason to sell the company is that it is involved in several court proceedings with Russian companies. If Alpha Telecom is sold, the legal liabilities will be transferred to a new owner.

Good financial results of the company refute allegations of its mismanagement by the state. According to the company’s financial reports, its revenue for 2014 was 8.5 billion soms, an increase by 6% compared to 2013 and 46.9% compared to 2010. The number of subscribers has increased 29% since 2010.

Forecast

Global trends in the telecom industry show that revenues from sales of voice services may be reduced to 50% of previous levels by 2017 due to growing popularity of alternative communication tools.

According to Juniper Research, voice and messaging traffic lost to OTT (Over the Top) players such as WhatsApp, Facebook and Skype cost network operators $14 billion in revenues globally in 2014.

In a number of markets, including Italy, Spain and the UK, operator mobile voice revenues had fallen to 60% of their value five years ago.

So, there is every reason to forecast that the year 2014 was the last record one for MegaCom revenue, and the changing pattern of consumption of voice services does not leave hopes for the previous profit.

Background

Alpha Telecom CJSC was established in 2009 by Alexey Eliseyev, a close friend of Maksim Bakiyev, the son of the then President Kurmanbek Bakiyev. Assets of BiMoCom LTD, former owner of MegaCom trade mark, were transferred to Alpha Telecom. After the change of power in Kyrgyzstan in 2010, 49% of Alpha Telecom shares were nationalized by a decree of the interim government, and the remaining 51% belonged to Southfield Management Inc. and Vesatel United Limited offshore companies.

In December 2013, the Bishkek Inter-district Court declared the purchase and sale of shares invalid, and 51% of shares were returned to Eliseyev. Later, the Osh City Court convicted Eliseyev and confiscated his property, including the stake in the company. In July 2014, the Supreme Court handed over 51% of Alpha Telecom shares to the state. Thus, the Government became the full stakeholder of the company.

Different opinion

Since June 2014, the media and society debated the inclusion of Alpha Telecom in the privatization program. There were arguments about a “goose that lays golden eggs”.

Alpha Telecom is a dynamically developing company, and to be competitive, the telecom industry has to constantly improve its technical base, some MPs said.

View of business

The International Business Council (IBC), based in Bishkek, noted the long-standing need and advisability of Alpha Telecom’s sale.

According to IBC executive director Temirbek Azhykulov, open and transparent sale of one of the largest market players to private ownership will improve the investment attractiveness of Kyrgyzstan and contribute to the development of the company by strengthening its competitive advantages. In addition, the company will be put on an equal footing with the other players in the market, while the legislation on public procurement is now largely slows the company’s activity and creates additional obstacles. Experience shows that, unfortunately, not one state-owned company is really successful in the country, he added.

“Of course, if we will think only about short-term benefits, then the company could remain further under the state control. However, there are global trends of falling profitability of mobile operators, therefore, taking into account figures for the last few years, it is possible to calculate how much revenue the state-owned company will be bringing in two or three years, and vice versa. The conclusion is obvious — further development is possible only in case of withdrawal of the company from under the state’s care. Investment will be attracted and growth of jobs ensured. Kyrgyzstan will benefit from it. But again, all this will be possible only if the sale of shares take place openly and transparently, with all participants of the auction treated equally,” Azhykulov concluded.