View Full Version : Uzbekistan mobile market: Hit by MTS Uzbekistan allegations of tax evasion & use of unlicensed infrastructure

VoIP News & PR
09-17-2014, 07:56 AM
September 13, 2014

For many years Uzbekistan's telecom infrastructure remained outmoded and inadequate. The country has been struggling to bring its telecommunications system up to the standard found in developed markets. Over the last decade or so, the situation has been steadily improving. This has in part been due to the government's decision to give national priority to the telecom sector. The result has been a definite upward trend in the country's telecom market, with increased investment in infrastructure, expanding subscriber bases and rising revenues. The government's strategic policy was to privatise the incumbent operator Uzbektelecom and to open the market to competition.

The telecom market in Uzbekistan ran into a period of considerable difficulty in 2012 and the aftermath was being felt in 2013. In a dramatic turn of events the government took strong action against mobile operator MTS Uzbekistan after alleging a range of violations, including tax evasion, failure to meet regulatory standards, and the use of unlicensed infrastructure. The conflict escalated dramatically in August 2012 with the cancellation of MTS Uzbekistan's operating licence. MTS held 40% of the mobile subscriber base at the time; the government's action saw the 9.5 million subscribers to MTS suddenly without mobile service. These disconnected subscribers were forced to find service elsewhere. By mid-2013 MTS had been declared bankrupt and there had been no final resolution of the complicated dispute between the government and MTS. In the meantime, the mobile market had been severely damaged by the dispute and especially the way it had been managed. The disastrous process was certain to be viewed negatively by potential foreign investors.

Uzbekistan's telecom sector has been regulated by the Uzbek Agency for Communications and Information (UzACI) since the creation of the agency in 2002/2003. In 2005 the UzACI approved a telecommunications investment program for the period 2005-2010. Among other things, the program aimed to increase the total number of fixed lines to 2.2 million and achieve 100% digitalisation of the network by 2010. The fixed line subscriber target was not achieved with subscriber numbers still sitting below 2 million by 2012. Only about two-thirds of the network was digital by 2007, but by 2009 this has been lifted sharply to 90% moving closer to achieving the target.

The five year telecom investment program also aimed at accomplishing marked improvements in mobile telephone and internet penetration. By 2011 both these segments of the market had shown significantly gains, with the mobile market in particular having expanded rapidly over the previous five years. Subscriber numbers had jumped from around one million to 21 million over the plan period. Funding for the investment program was provided by loans and foreign investment, the internal resources of operators and providers, as well as from government funding. However, as already noted, the mobile market was badly hit by the MTS licence cancellation and after peaking at around 25 million subscribers the mobile market fell to around 20 million by end 2012. Some uncertainty was continuing to weigh on the market coming into 2013.

The state-owned national telecom operator, Uzbektelecom, has been responsible for the fixed-line network and services throughout the country. It was originally granted a monopoly on international voice services and VoIP until 2007. In the meantime, it controlled around 98% of local fixed-line telephony services and 96% of international fixed-line services. Little progress had been made in the government's plans to privatise Uzbektelecom despite several attempts over the last decade to sell off a sizable stake to a foreign investor. The alternative fixed-line providers were Buzton and East Telecom, but they were servicing only a limited numbers of subscribers.

While the country's internet market had enjoyed considerable growth since 2002, actual internet subscriptions have remained limited for the majority of the country's population. Fixed broadband subscriptions in particular were small in number. By 2005 internet user penetration stood at just over 4%; by early 2013 it had reached a reported 37% user penetration. (It is noted that the various sources for statistics on internet subscribers in Uzbekistan provide limited or contradictory information.)