Armenia’s Internet is more “granny-proof” than reports suggest

By Steve Wilson

Imagine my surprise when stumbling upon a story regarding Armenia’s Internet connection to the outside world being cut off thanks to the antics of an unfortunate pensioner, who, while searching for copper to sell, accidentally cut through the fibre optic cables connecting Armenia with Georgia. I always thought my work was rather specialised so it is good to see such news making international headlines. The story does highlight the importance of international Internet connectivity but does not tell the whole story about how the situation has improved in Armenia and the effects this is having on the retail broadband market.

Back in 2009, there was infrastructure competition to Vimpelcom-owned incumbent ArmenTel  in the fixed-broadband access market in the form of WiMAX rollouts from Cornet and Icon, but there were problems with regard to the cost of international connectivity with international channels being controlled by the incumbent, ArmenTel, and one other company, Fibertel. This issue is important because most of the Internet traffic in Armenia comes from Russia via Georgia and not from within Armenia.

But the entry of GNC Alfa shook up the market considerably and has led to dramatic reductions in prices in the costs of international connectivity. GNC Alfa established a connection from Armenia to Iran in September 2009 using the gas pipeline between the two countries. In March 2010 GNC Alfa opened connections to the north to the border with Georgia. Indeed it was these connections that were cut by the pensioner.These new connections meant prices fell from $800 to $850 per 1Mbps per month to $400 to $450 per month by mid 2010. These prices have since fallen even further to around $160. GNC Alfa’s networks also cover a number of large Armenian cities.

Furthermore mobile operator MTS has constructed its own backbone running from the north to the south of Armenia, and is now constructing another running from east to west. The result of this activity is that retail broadband prices have fallen considerably and the increased competition in the backbone market has encouraged new entrants into the fixed-broadband market.

In terms of prices, in May 2009 Icon’s post-paid Optima package cost 45,000 Armenian drams (AMD), equal to about US$122, but now costs just AMD28,000. A package with download speeds of 256Kbps from WiMAX operator i-Max cost 18,000 AMD in May 2009 but the price now is only 8,000 AMD.

FTTH operator Ucom is also now offering broadband access, IPTV and, since the start of April, fixed voice services in Yerevan, the capital. It is able to offer competitive prices because of the reduced costs of backbone connectivity. Although Ucom’s number of subscribers is low, it does represent a challenge to ArmenTel particularly because the incumbent would have difficulty in launching an IPTV service. ArmenTel has trialled this service but issues of copper quality would make it difficult to offer this service to more than half of their subscribers. Ucom also has the advantage of having a newer network through its next generation access deployment. ArmenTel intends to grow its DSL base as much as possible and then will try to look towards building an FTTH/B network.

The alternative operators are also working together in order not to rely on the backbone and international connections of the incumbent. A number have joined together to form the ARMIX Fund for Internet Traffic Exchange. This will allow the alternative operators to peer, or exchange, their traffic without cost and avoids routing traffic such as VoIP and instant messenger over the incumbent’s network or international connections on a paid for basis.

Another way for the problem of costs of international connectivity to be improved is to increase the number of websites hosted in Armenia and the amount of Armenian content. Mediamax, for example, is a major player in the Armenian online market with ownership of a number of portals. Nevertheless many websites containing Armenian content are still hosted outside of the country so there is still work to be done in this area. In total around 70-80% of internet traffic in Armenia still comes from outside the country.

These developments in international and domestic backbone connectivity are also not limited to Armenia as there have also been improvements in nearby Azerbaijan where backbone supplier Delta Telecom has slashed its prices and C-Ring Telecom, a joint venture between Azeri incumbent Azertelecom and Russian company Synterra (owned by Russian mobile operator Megafon), has been constructing networks. Again this has helped lead to significant growth in the fixed broadband access market.

One can only hope that the reporting of the pensioner’s cable cutting antics is only the start of things to come. Who knows: in the coming months instead of reading about Kate Middleton’s Royal Wedding dress, frontpage news may be the continued development of the Armenian telecommunications market?