Privatisation Plans Announced in Azerbaijan for State-Owned Aztelecom and Baku City Telephone Network

Azerbaijan’s minister for communications and information technologies, Ali Abbasov, has indicated that the state plans to begin the privatisation of two 100%-owned assets in 2010. Fixed-line incumbent Aztelecom and regional telco Baku City Telephone Network (BGTS) are the operators apparently being primed for sale. However, no indication has been given as to the likely price of each asset as neither has yet been evaluated. Aztelecom is the dominant operator in Azerbaijan’s fixed-voice market and, through its legacy infrastructure, also holds a strong position in the internet sphere, while BGTS offers fixed telephony solely in the capital, Baku.

Outlook and Implications

• Another False Dawn? While Abbasov's intentions may be sincere, in practice IHS Global Insight would not be surprised if there were delays in the plans to privatise these assets. Previous suggestions that the sales of state-owned telecoms assets were imminent have typically failed to materialise—an ICT development programme for 2005-2008 had been intended to complete the privatisation of Aztelecom and other assets, while later plans to sell stakes in CDMA operator Catel and fixed-line operator AzEuroTel also came to nothing (see Azerbaijan: 17 January 2009: Government Planning 2008 Sale of Stakes in Three Telcos in Azerbaijan). However, the state did successfully complete the sale of a stake in mobile operator Azercell to TeliaSonera in early 2008, suggesting that there is at least some precedent for positive conclusions to these privatisation initiatives.

• Privatisations Would Benefit Fixed Sector: The Azerbaijan fixed-line sector would certainly benefit from the effects of privatisations in both voice and internet. Aztelecom and BGTS are two of three fully state-owned operators and the consequent lack of competition is having a detrimental effect on sector development, despite state initiatives to introduce price cuts in the internet sector earlier this year (see Azerbaijan: 9 March 2009: Request from Tariff Council Brings Internet Price Drops in Azerbaijan). While the mobile sector thrives with three GSM operators and foreign investment, the fixed sector is more stagnant, so the intention to offer stakes for privatisation is a step in the right direction.

• Internet Sector Could Yet Fire Interest in Aztelecom and BGTS: The acquisition of a stake in Azercell was indicative of the appeal of the mobile market over Azerbaijan's fixed market, but with internet markets proving the new growth drivers in several of the CIS telecoms markets, there may yet be some interest in Aztelecom and BGTS. Aztelecom boasts a comparatively strong fixed infrastructure network, while BGTS has both a network presence and subscriber base in the economic hub of Baku. There were around 60,000 broadband subscribers in Azerbaijan at the end of 2008, equating to a penetration level below 1%, although we expect this figure to almost double by the end of 2009, particularly with wireless broadband deployments growing in popularity. Russian state-owned long-distance operator Rostelecom is one likely interested party, given its strategy of backbone network construction in neighbouring countries as it undergoes a process of restructuring and development.