ARMENIA READIES THIRD MOBILE LICENCE TENDER

Business Monitor International
Emerging Europe Telecommunications Insights
August 1, 2008

The Public Services Regulatory Commission (PSRC) of Armenia is reported
to have approved the mechanism for tendering the country's third mobile
network operator licence. It is expected that the selection process
will take more than four months to complete, according to a report
posted on the news portal Armenialiberty. Candidates will be expected
to offer a minimum of EUR10mn for the nationwide GSM 900/1800 licence
and invest at least EUR200mn in the initial stages of network rollout.

The aim is to increase competition in the sector as well as raise
mobile penetration in a country that is poorly served by fixed-line
infrastructure and has only limited mobile phone availability at
present. The government also hopes that the country's two existing
operators will reduce their tariffs and raise the quality and range
of the services they offer in the new competitive environment.

Previously, it had been reported by the newspaper Panorama that
the Armenian authorities were keen to award the licence to Russian
operator, MegaFon; the suggestion that the results of the auction
had already been decided in advance caused us some concern. While
BMI welcomes the prospect of a new operator in Armenia, potential
investors in the mobile and other sectors (such as broadband) may have
been deterred from entering the country if they felt that government
influence over the telecoms market remained a significant potential
constraint to growth.

Third Licence Could Tempt MegaFon Armenia: Cellular Market Shares By
Operator, Q108 Telecoms2_20080718 Source: BMI Research

The Armenian mobile market is shared by just two operators. The
largest of these is VivaCell, a company that is majority-owned by
Mobile TeleSystems (MTS), Russia's largest mobile operator. It had
1.42mn subscribers at the end of March 2008, which would give it an
approximate 73.2% market share. Incumbent fixed-line operator ArmenTel
accounted for a further 520,000 active subscribers at that time;
this would give it a market share of 26.8%. ArmenTel is controlled
by Russia's second largest mobile operator, Vimpel Communications.

In 2007, VivaCell and ArmenTel were awarded 3G UMTS licences, which
they seem likely to exploit as quickly as possible to improve their
customer retention schemes. 3G is also seen as useful in selling a
broader range of value-added services and premium rate content. As
yet, it is not known whether the third licensee will also be offered
access to 3G spectrum.