Institute for War and Peace Reporting | Giving Voice, Driving Change

Armenians Get Mobile Phone Choice

ArmenTel loses mobile phone monopoly as government ushers in Karabakh-related company.
By Naira Melkumyan

Following years of wrangling with the Greek company that owns 90 per cent of Armenia’s telecommunications monopoly ArmenTel, the government has finally moved to allow competition.


However, although the arrival of newcomer on Armenia’s poorly developed telecoms market may herald improved services, some are questioning the selection process.


The tender was won by K-Telecom, a firm affiliated to Karabakh-Telecom which is the sole telecoms operator in Nagorny Karabakh, the Armenian-held territory still claimed by Azerbaijan.


The Armenian government, which owns a residual 10 per cent of ArmenTel shares, last week signed a truce with the majority owner OTE, ending four months of often-difficult negotiations over its licence.


The agreement means ArmenTel's licence will be changed so that it loses exclusive rights to provide GSM, satellite, and mobile radio communications services, as well as internet access. But it will retain sole rights to internet telephony and the use of fibreoptic cables.


The decision follows growing dissatisfaction over the performance of the telecoms network.


OTE has been in control of ArmenTel since 1998, having paid 142 million US dollars for a 90 per cent stake and what amounted to a 15-year monopoly over communications.


This year, the government tried to change the company's license with a view to removing its monopoly, arguing that ArmenTel was not meeting its investment obligations – an accusation the firm has rejected. The latest deal means the firm has lost its monopoly in most areas.


However, the way the government moved swiftly to select a competitor has proved controversial.


Parliamentary deputy Victor Dallakyan says that in an “unprecedented” move, the government set up a commission to award the GSM licence, which took just one day to pick K-Telecom in a rushed tender process.


Prime Minister Andranik Markaryan told journalists that the commission had the power to change the tender rules in exceptional cases.


Many observers disagree. Dallakyan believes the commission violated various rules, such as the need to advertise the tender in the press, and to seek and review bids.


Other companies were said to be in the running, but the communications ministry insists that K-Telecom was the only one that actually applied.


Even members of the ruling coalition are confused by the process.


"We are not against K-Telecom being chosen as a second operator, but the government should explain… so that we know whether there was another choice," Levon Mkrtchyan, head of the pro-government party Dashnaktsutyun's faction, told IWPR.


Government representatives say that the decision to go for K-Telecom was more political than commercial.


"This government decision was strategic and political, not a choice in favour of the best operator,” justice minister David Arutyunyan told journalists. “By giving K-Telecom the license, we are helping the people of Karabakh overcome their isolation. Maintaining the existing quality of communications is extremely necessary for security reasons."


Arutyunyan implied that K-Telecom’s parent firm in Karabakh would benefit from the deal, and get round the Azerbaijani government’s objections to the unrecognised Karabakh state being allowed to have GSM communications with the outside world.


Some politicians think the government should have gone further and deprived ArmenTel of its license altogether.


According to National Democrat bloc leader Arshak Sadoyan, the government should have implemented a January 1999 ruling by Armenia’s constitutional court that ArmenTel should lose its monopoly within five years.


Ovsep Khurshudyan, an economic expert at the Centre for National and Strategic Studies, believes that one reason why this did not happen is that OTE has been pursuing a case against Armenia at the International Court of Arbitration in London, in a dispute in which each side accuses the other of breaching the ArmenTel contract.


If OTE win, the Armenian government would have had to pay 300 million dollars in damages. But the latest agreement with ArmenTel appears to end claims by either side.


"It is clear that the steps that were taken to deprive ArmenTel of its monopoly were populist in nature, while the real negotiating process was taking place behind the scenes," said Khurshudyan.


ArmenTel has largely abstained from commenting on the deal, but a spokesman told IWPR that the company was not against competition, as it has its own client base.


Naira Melkumyan is an independent journalist in Yerevan.