Georgia could become a telecommunications hub uniting Asia and Europe. Its strategic geographical location has contributed to the interest of leading telecommunication companies from Azerbaijan, Germany, Ukraine and Russia. From its side China is offering Georgia the opportunity to switch to the “Silk Road Economic Belt”. Meanwhile, the decreasing life expectancy of technologies is the main challenge for the sector. Companies need to invest a huge amount but have increasingly less time to recoup the investments.
“The neighbouring relationships of Georgia and Azerbaijan are very important. Georgia is an important transit country for reaching Turkey and Western Europe. That is why we are here. I have very strong relationships with several operators in this country. I came to look at the whole market to find out who is active,” Sietse Lettinga, International Sales Director at Azertelecom, told The FINANCIAL.
According to Lettinga, the telecommunications business in Georgia is more liberal than in Azerbaijan, but there may be a few years of difference regarding that. “If we compare it to Western Europe, a lot more should be done. Sometimes having less regulations helps. The importance of both Azerbaijan and Georgia is that both are geographically well-positioned, between Asia and Europe and the CIS and Middle East. There are some interesting routes that are possible to use. That is a great advantage for both countries,” he said.
The FINANCIAL met the representatives of world leading telecommunication companies at the fifth Telecom Meeting in Georgia (TMG). The meeting brought together the representatives of 50 of the big players of the industry. During the event Georgian telecommunication companies were offered the opportunity to meet potential investors.
Competitive prices, having networks that are very reliable and enduring, making connections to all the important operators, on both sides of the Caspian Sea - are what should be the reasonable advantages for Georgian and Azerbaijani companies, Lettinga believes. “We can do that. We can make a new road between Asia and Europe. It will be interesting for many operators around the world,” Lettinga added.
“Azerbaijan is better known for its gas and oil sectors. Most people are working on those industries. However, they still have to communicate. Oil and gas is financing the whole economy in Azerbaijan, but also in Azerbaijan officials are trying to stimulate our industries to develop more. In the future this industry can recoup rates, maybe the potential loss of gas and oil; as one day there will be no more gas and oil, or the prices will go down. So the country needs to have an economy which is not only based on oil and gas. Its officials are being very active. They have a very big state fund trying to invest in having a better economy,” Lettinga said.
Matthias Hartmann, Managing Director at NewTelco, first came to Georgia four years ago. As a result of the successful cooperation with local partners, he founded NewTelco here. While the majority of foreign investors remain focused on the Russian, Chinese or Indian markets, Hartmann is trying to realize the potential of the Georgian, Ukrainian and South African markets.
“When we established our company in Ukraine 6-7 years ago, everybody was surprised. However, for now we are very successful there. This is what we are planning to achieve in Georgia as well,” said Hartmann.
For businesses looking for a virtual presence or a physical end-to-end solution, German-based NewTelco offers a broad array of exceptional products and services, including: colocation, VPoP (Virtual Point of Presence), LMR (Local Meetme Room), GMR (Global Meetme Room), Neutral Carrier Ethernet Exchange (NCEX) platform, technical services, Interconnection Services, integration services and consulting.
“NewTelco is not a millionaire in Georgia, but we will be successful. Our business in Georgia is slowly growing,” said Hartmann.
“Telecommunications is one of the most developed business sectors in Georgia,” believes Vakhtang Abashidze, Chairman of the Georgian National Communication Commission (GNCC).
On behalf of the Silk Road Economic Belt, initiated by China, Abashidze met with the Chinese delegation. “We discussed a data exchange system, so-called transit. It strives to connect the infrastructure of four poles together. There are over 10 world- leading companies that are interested in carrying their connecting infrastructural lines through Georgia. Georgia is one of the shortest ways to connect Asia to Europe,” he said.
“In general, our geographical location is one of our main advantages. So, we need to use this advantage and make Georgia a telecommunications hub,” Abashidze added.
From spring 2015 Georgian telecommunication companies will switch to the 4G system. GNCC has bid on a 800th frequency score at auction. It is used for the implementation of 4G so-called LTE technologies. Those operators that already have relevant frequencies, like Magticom and Geocell, are not required to purchase a new license. They will just modify their resources.
An LTE network is quite expensive, varying from GEL 200-250 million. The cost of the license will be an additional cost for companies.
“The world is facing a new stage of development that comes around once every decade. Currently this stage is about the implementation of 4G services and technologies. This trend has been a bit delayed in Georgia. The absence of a legal and regulation basis as well as internal problems within the country are what have contributed to this delay,” Abashidze explained.
“The development in telecommunications is going much faster, to make sure that customers consume more. Now people want 4G on their mobiles. That means that they want to see live television. However, the cost should be reasonable. People will not be able to pay too much money for that. Those two worlds should come together. We are trying to bring down the prices so that this can be delivered to customers. There is a problem in the fact that the life expectancy of technologies is getting shorter and shorter. For instance, we had GSM, then 2G, 3G and now we are getting 4G. All those technologies have not had enough time to recoup the investments. For example, in 3G you need another 5 years of life to make sure that all the investments are paid back. So that means that there is a new need also in telecom regarding financing. The telephone cost itself cannot finance all those new technologies continuously. So they have to look for external sources, investors, who will help them to do that. This is the new world. I am also very interested in that part, bringing finance to telecommunications together,” said Lettinga, Azertelecom.
like Lettinga, Hartmann also agrees that against a background of required investments, the recoup in the telecommunications sector is becoming lower.
“In the West we hear a lot about how wireless connections, the internet, should be for free. As we know, nothing on this planet is for free. Currently every company is fighting for little margins. In such countries as Georgia or South Africa there are still some possibilities for making margins. I find it hard to predict how this trend will end up in Europe. For telecommunications, as a carrier today, you have to carry content. It is not a network anymore. Internet calls should be for free. Companies still earn money from roaming. However the EU is now working on reducing the amount for roaming. So, how should investors earn money?
People are investing a lot of money in modem technologies, which is changing. Not long ago everybody was proud to run 3G. Now, everybody has switched to 4G. When we talk about free internet and phone connections, this is the biggest challenge,” said Hartmann.
On its side Hartmann said that as the free product is never of high quality, consumers face a dilemma between price and quality. “From my own experience I would say that free connections with my partners are not a good option for me, especially when we talk about business negotiations. We need to pay for quality. There is no option for that. Even in the U.S. where the phone services are for free, the quality is very bad. You have to dial several times in order to get connected. For me this is unacceptable. I would rather spend one extra Euro but waste less time and be able to manage any issues better. Everybody goes to the mass market, where everything should be free. Meanwhile there is small demand for quality. In Germany there are only three telecommunication companies left. How can one compete? Customers do not have the option of choice. It is the same in the USA where there are only four operators. The big companies eat up the smaller ones. So, for those who can afford to spend an extra Euro, quality is the advantage,” Hartmann told The FINANCIAL.
The FINANCIAL
By MADONA GASANOVA
