In the first half of 2007 the market growth rate slowed by 14.6 percentage points compared to the observations for the same period of the previous year. Thus, in the first six months of 2007 the number of mobile subscribers increased by 37.6% to 3.74 million compared to 52.2% in the first half of 2006.

The fastest growth in the number of subscribers was observed in January-February (231,900 and 242,700 people respectively) and June (207,100 people), and the lowest in April (62,100 people). If to analyse the growth rate of the client base of individual companies, the number of Uzdunrobita’s subscribers increased 1.34 times, of Unitel’s – 1.6 times, and of other companies – 1.14 times.

Especially high client base growth rate was observed at Unitel (Beeline trademark) in January-March. This is explained by the company’s aggressive promotion campaign, which coincided with Coscom’s temporary termination of services and the resulting loss of subscribers. Unitel quickly gained a large number of new subscribers for its new "Vse svoi" tariff plan, which made all calls from mobile phones free.

However, Uzdunrobita quickly reacted by introducing the new "First" tariff plan offering the same conditions on 14 February 2007, which substantially narrowed the gap between the growth rates of market leaders’ client bases.

Soon after, Coscom recommenced its operations and launched a campaign to attract former and new clients, and restore its market position. As a result in April Unitel’s client base shrank by nearly 39,000 people.

Uzdunrobita’s client base saw fast expansion in May-June, which according to Avesta Research analysts is the result of the company’s efforts to expand the network of dealer points across the country and improve the quality of services compared to other GSM operators, particularly in the regions.

The month of June saw a substantial increase in the pace of market growth and a sharp increase in the number of subscribers of all operators. It appears that the population has responded to the active promotion of new tariff plans – Uzdunrobita’s Red, Unitel’s City, Coscom’s Circle of Communication, Family and Very Good, and Perfectum Mobile’s Leader and Region.

The market for mobile communication services of Uzbekistan is currently observing the process of industry consolidation; small operators are being forced out. Since 2001, the market shares of Uzdunrobita and Unitel companies increased by 16.32% and 5.29% respectively, while the aggregate share of smaller operators decreased by 21.62%. The last six years have seen the drop-outs of UzMacom and SkyTel, a sharp decline in the share of Coscom from 22.2% in 2001 to 11% now.

In January-June 2007 Uzdunrobita’s share shrank by 1.33%, whereas Unitel’s share grew by 4.53%. In the reporting period, the aggregate share of Coscom, Perfectum Mobile and Uzbektelecom Mobile operators decreased from 18.5% to 15.3%. At this time the market share of Coscom company makes up about 11%, of Perfectum Mobile – 4.5%, and of Uzbektelecom Mobile – 0.3%. In the second half of 2007, the experts of Avesta Research expect Uzdunrobita’s share of the market to remain above 50%, Unitel’s – to reach 32%, and Coscom’s to remain at 11%.

Large market deals

In the reporting six months of the year two major merger and acquisition deals were made in the telecommunications market. On 29 June, Russian MTS announced its acquisition of the remaining 26% stake in Uzdunrobita LLC (MTS-Uzbekistan trade mark) from private investors for US$250 million, thereby gaining full ownership of the largest mobile company of Uzbekistan.

MTS was the first Russian company to enter the Uzbek mobile market in August 2004. The company then purchased 74% stake in Uzdunrobita for US$121 million. Within three years, the company’s value grew on average 5.9 times, and is currently estimated at about US$1 billion. This increase in the company’s value was largely due to fast growth of the mobile market of Uzbekistan and positive development outlooks. At the same time, while in 2004, MTS paid about US$777 for every subscriber, this time it paid only US$520.

Another large deal was made in early July of this year, when the Swiss-Finnish TeliaSonera announced 100% acquisition of the American MCT Corp., the owner of several large operators in the Central Asian region, including Coscom in Uzbekistan, Indigo-Tajikistan and Somoncom in Tajikistan and Telecom Development Company Afghanistan (Roshan) in Afghanistan. The deal cost TeliaSonera US$300 million. The price per one subscriber was about US$385. The estimated value of Coscom JV made up US$151.5 million. At the same time, the value of every subscriber of Coscom JV was somewhat lower than of the subscribers of other mobile operators of Uzbekistan. To compared, in August 2004 MTS paid US$777 for a subscriber, when purchasing 74% shareholding in Uzdunrobita, and in June of this year it paid US$520 for every subscriber, when purchasing the remaining 26%. Also, in the early 2006, Russian Vympelcom purchased 100% stake in two Uzbek mobile operators – Unitel and Bakri Uzbekistan Telecom (Buztel trademark) for US$270 million, paying about US$735 for every subscriber. Earlier in September 2004, a consortium of Greek investors and the EBRD acquired full control over Daewoo Unitel, by paying about US$73.5 million, on average US$250 for every subscriber.

TeliaSonera is the leading telecommunication community in Scandinavia and Baltic. Its main shareholders are the Governments of Sweden (37.3%) and Finland (13.7%), as well as Swedbank Robur (2.2%), Cevian Capital (1.6%), SEB (1.5%), Nordea (1.3%), SHB/SPP (1.2%), and Skandia Liv (1%). The Company’s turnover in the first quarter of 2007 exceeded US$3.35 billion, and net profits comprised US$587 million. In May of this year 8% stake in TeliaSonera was sold for US$2.68 billion. Thus, the company’s total value is estimated at some US$33.5 billion.

TeliaSonera’s entry into the market of Central Asia, according to Avesta Research experts, is explained by the falling growth rates of the European telecommunication markets, particularly the market for fixed telephone connection, due to high saturation, and secondly by the growing attractiveness of Central Asian markets, particularly the market of Uzbekistan, demonstrating fast growth.

Market potential

As of 1 July 2007 the mobile penetration rate in Uzbekistan made up 14%. Avesta Research experts expect the number of mobile subscribers to reach 4.9 million by the end of the year. From this year on, the market growth rate will start to slow down. By 2010, the number of mobile users is expected to reach about 13.2 million people (penetration rate – 47.4%) and by 2015 – 15.2 million (penetration rate – 53.6%). Taking into account the fact that the Accelerated Revenue Per User (ARPU) makes up about US$12, the total market capacity currently comprises about US$538 million. By 2012 it is expected to reach US$2.2 billion.

The researchers of the Avesta Research agency expect that TeliaSonera’s entry into the Uzbek market will substantially toughen the competition and reduce the shares of current market leaders – Uzdunrobita and Unitel. However, taking into account the time it will require TeliaSonera to complete the deal and develop its strategy for Coscom JV, a substantial increase in competition is not expected until 2008.

Source: Avesta Research