Transitions Online

'Easy-Cards' Made Hard

by Emil Danielyan
30 September 2004

You might be able to buy it from any newspaper kiosk in Moscow, but in
Armenia buying an activation card for your cellphone either takes months or
costs up to $200.

YEREVAN, Armenia--Felix Sahradian looked frustrated after scanning the
numbers on a notice board outside the Yerevan office of Armenia's only
telephone company. Again, he was not among the lucky ones whose number had
come up, a number that would have granted him the right to one of the most
coveted goods in Armenia: a prepaid SIM card to activate a mobile phone.

Prepaid SIM cards may be cheap and readily available for sale around the
world, but, in Armenia, you have to register with ArmenTel, the deeply
unpopular national telecommunications operator, and wait for at least a year
in order to be able to buy one at a reasonable price.

Sahradian signed up in January and is one of tens of thousands of people who
remain on ArmenTel's waiting list. "They say I'll get a card in the near
future," he said skeptically. "But why should I wait for months and years?
You can buy them in any newspaper kiosk in Moscow."

The 51-year-old civil servant could buy this tiny chip without any wait, by
turning to speculative traders. But few people in this impoverished nation
can afford the black-market price, normally $120 but, this summer, as much
as $200. ArmenTel charges only $24 apiece. That includes 27 minutes of free
local phone calls.


This Soviet-style rationing underscores the underdeveloped state of mobile
telephony in Armenia. The problem is a key bone of contention in the
Armenian government's long-running dispute with Greece's Hellenic
Telecommunications Organization (OTE) which purchased ArmenTel in 1998.
Exclusive rights to all telecom services were a key clause of the $200
million deal. ArmenTel is now on course to lose its monopoly rights to
mobile-phone services.

The Greeks pledged to modernize Armenia's obsolete telecom infrastructure
and claim to have already invested $200 million. The authorities in Yerevan,
however, say that figure is grossly inflated. They also accuse ArmenTel of
abusing its monopoly. The dispute intensified early this year, when the
government deciding to unilaterally revoke the company's exclusive rights to
provide cellphone and international internet services.

ArmenTel and its parent company denounced the move as illegal, filing two
separate lawsuits with the International Court of Economic Arbitration in
London. The Greeks accused the government of breaching its contractual
obligation to allow a steep increase in fixed-line phone charges in Armenia.

The two sides agreed in June to try to reach an out-of-court settlement,
with the government agreeing to delay the termination of ArmenTel's monopoly
until 29 September-and now, by another two weeks. No details of the talks
they have held since have been made public. Armenian officials have made it
clear that the market will be liberalized regardless of their outcome. The
only question, they say, is whether the country will have one or two more
mobile-phone operators. One Russian-based firm is already lobbying for a
license, promising to invest $75 million in its own network.

Whatever the arguments, one thing is clear: ArmenTel and its owner, a
telecom giant with an annual turnover worth billions of dollars, have failed
to meet Armenian demand for a service that has developing rapidly in most
parts of the world. In mid-August there were just 140,000 mobile-phone users
in Armenia. Local analysts believe that number will at least double once
supply matches demand.

Most subscribers prefer to pay in advance for their phone calls, first
buying a SIM card package and then buying top-up cards at newspaper kiosks
whenever their credit runs out. ArmenTel dubbed the enabling SIM card an
"easy-card" when it was introduced a few years ago. The choice of the name
could have hardly been more ironic. In late August the operator began
distributing a new batch of "easy-cards" for the first time in over a year.
That, of course, was far too little to meet demand (though, at $0.36 per
minute, calling on a mobile phone is not cheap in Armenia). In Yerevan's
central administrative district, for example, only one-third of the 12,000
registered applicants were able to lay hands on them.

The situation is not much better even for contract customers, who pay a
monthly fee of $18 and a per-minute charge of 15 cents. SIM cards for their
phones have been available only in small numbers for years. Their unlimited
sales resumed a month ago.

Another problem has been the poor quality of wireless communication network.
Making phone calls in peak hours in the afternoon is often a nightmare,
suggesting that the network's capacity is inadequate even for the current
very modest number of users. The network still covers less than half this
mountainous country.

Westerners living in Yerevan, the Armenian capital, find the situation
particularly shocking. "To pay $120 to use a prepaid mobile card is
absolutely ridiculous, particularly given the quality of the service one
receives," said Audrey Selian, a Swiss doctoral candidate researching the
use of information technology by Armenian government agencies. "It is
appalling what a shortage there is of them."


ArmenTel's failure to achieve market saturation in the six years (and more)
since its takeover by OTE has still not been clearly explained. Its Greek
executives rarely speak with local journalists. Their spokeswoman, Hasmik
Chutilian, blamed the "weak network" on the ongoing row with the Armenian
authorities, saying that the government has scuttled some of the investments
ArmenTel was planning. She also said that the company committed a "marketing
mistake" six years ago when it decided to concentrate on fixed-line

The landline network was in dire straits at the time. In this area at least,
ArmenTel can claim some success. Its investment has improved the service
markedly, especially in the Armenian capital, where 68 percent of phone
lines are now connected to digital exchanges. There are now more than
530,000 fixed-line phone users in this country of 3 million, the company
says, making its "teledensity" rate relatively high by ex-Soviet standards.

But Serge Sargsian, the government's representative on the ArmenTel board,
counters that the improvement has largely been confined to Yerevan, which
now accounts for just over half of subscribers. Only 12 percent of regional
exchanges have been digitalized and phone access in rural areas has
"declined terribly," he says.

Ian Beeby, a representative of the California-based WFI Consulting firm that
audited ArmenTel, made a similar point last year. "We have seen a number of
villages where exchange capacity did exist and now no longer exists," he

Another source of discontent has been ArmenTel's grip on internet traffic to
internet service providers abroad. This has led to high prices without any
corresponding increase in quality. Local internet service providers and
other business executives believe that ArmenTel's monopoly has been stifled
the development of information technology, one of the promising sectors of
the Armenian economy. "The kind of communication for which we pay tens of
thousands of dollars each month would cost just $100 in America," Hovannes
Avoyan, head of the Lycos Armenia firm, complained recently.

The Armenian government seems to share these concerns. But it still remains
to be seen how far it is prepared to go in liberalizing the telecom market.

Emil Danielyan is a journalist based in Yerevan and a long-time contributor
to TOL, and to its print predecessor, Transitions.