WikiLeaks – Armenia No 27
C O N F I D E N T I A L YEREVAN 002505
SUBJECT: GOAM TELECOM DEAL SUBSIDIZES N-K PHONE NETWORK
Classified By: DCM A.F. GODFREY FOR REASONS 1.4 B AND D
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SUMMARY
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¶1. (C) On November 19 the Armenian Government published the details of a second mobile license that it granted to Karabakh-Telecom during a six hour tender process during the night of November 4 (Reftel). The government granted the license rights very cheaply, with no investment commitment inside Armenia, but, curiously, an investment commitment inside Nagorno-Karabakh. The terms of the deal show that although the GOAM [Government of Armenia] claimed it sought to end Armentel’s monopoly in order to improve phone service in Armenia, they used the opportunity of a second license to subsidize telephone service in Nagorno-Karabakh. End Summary.
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GOOD DEAL FOR K-TELECOM
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¶2. (SBU) According to information published on a GOAM website, Karabakh-Telecom, the Lebanese firm that was selected as Armenia’s second mobile phone operator paid only USD 7 million for the license. Of that seven million, it must pay USD 5 million to the GOAM over the next four years, and USD 2 million to the All-Armenian Hayastan Fund, a Diaspora-funded private charity whose mission is to build up Nagorno-Karabakh. In a break with expectations and practice, the GOAM did not specify a minimum investment level for K-Telecom in Armenia, but did call for an additional USD 10 million investment in Nagorno-Karabakh’s telephone network, which it has run since 2001. (Comment: The investment commitment for mobile service in Armenia is likely unnecessary, as investment will be in the company’s interest. The commitment for Karabakh is necessary to compel K-Telecom to continue investment in its unprofitable fixed line service there. End Comment.)
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GOAM MADE DEAL TO PROTECT KARABAKH’S TELEPHONE NETWORK
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¶3. (C) The Lebanese Ambassador to Armenia told the Ambassador November 16 that the owner of K-Telecom, Pierre Fatouch was a personal friend. Fatouch is a wealthy Christian Lebanese with no particular Armenian connection except that he is friendly with both President Kocharian and Defense Minister Sargsian. According to the Lebanese Ambassador, Fatouch has lost upwards of fifteen million investing in Nagorno-Karabakh telecommunications and told the Armenians that he would have to pull out of Nagorno-Karabagh unless there was something for him in Armenia proper. As noted in Reftel, Azerbaijan is pressuring international bodies regulating telecommunications and private telecom companies to exclude K-Telecom from roaming agreements. The Lebanese Ambassador said that President Kocharian, Defense Minister Sargsian and the government of Armenia basically “gave” the license to Fatouch, expecting that he would bring down rates for Armenian users. He has also been asked to look at water and electricity in Nagorno-Karabakh.
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ARMENIA’S MOBILE USERS TO SUBSIDIZE KARABAKH PHONE SYSTEM
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¶4. (C) COMMENT: Under the Armentel Monopoly, profitable mobile service subsidized unprofitable fixed line service in Armenia. Now, a second mobile service in Armenia will subsidize unprofitable fixed line service in Nagorno-Karabakh. The deal to end Armentel’s monopoly was an opportunity to pursue the GOAM’s stated goal of moving to a more liberalized telecommunications sector where relative prices of fixed and mobile services would reflect relative costs and competition could be less restricted. With this deal the GOAM scotched that opportunity and took a step backwards. Because K-Telecom is counting on its profits in Armenia to compensate for losses in Karabakh, it is unlikely that the deal will bring down Armentel’s high prices. Because Armentel is already oversubscribed, creating a black market for new SIM cards, K-Telecom can easily absorb excess demand without improving services or reducing prices.
EVANS
Photo – Ralph Yirikian
