Vimpelcom Armenia

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In 1995 the government of Armenia sold a 49% stake in national telephone company ArmenTel to US based Trans-World Telecom (TWT). At the time of the divestiture ArmenTel was the national monopoly switched telephone network provider in Armenia. The company was created in 1993 as part of a sector restructuring effort in the country. As of the end of 2004 ArmenTel provided services to 578,973 fixed-line subscribers and 203,309 cellular communications users. In 1995 TWT took a 49% stake in ArmenTel. State-owned companies Yerevan City Telephone and Armenian Republic Long Distance assumed the remaining 51% of ArmenTel. The initial capital of the company was US$ 14 million. TWT's obligations were to provide part of a US$1.3 billion investment plan as well as the technical expertise needed to build a nation-wide digital network. The digitalization rate of the national network was 13% by 1993. By 1996 it became clear that TWT was unable to provide ArmenTel with the investment and expertise it needed. Low tariff for both residential and business customers were a major reason for the failure to obtain the capital needed for the investment. In 1996 subscribers paid only US$0.25 in monthly fees and less than $15 each for installation. Due to the lack of progress in telecommunications development, the Armenian government and TWT mutually decided to re-privatize the operator in June 1997. As part of the deal, the Armenian government took over up to 85% of the equity, while the remaining 15% was owned by TWT. An second attempt to sell the ArmenTel for a price of $500 million failed in 1996. In December 1997 state-owned Hellenic Telecommunications Organization (OTE), the Greek national operator, won the tender for 90% stake in ArmenTel. After a prolonged privatization process, OTE and the Armenian government signed the respective selling contracts on March 4, 1998. The price of the acquisition by OTE was US$142.5 million which included US$46.7 million in assumed liabilities. Of the divestitures revenues, TWT was paid US$62 million for its equity participation in ArmenTel. The other 10% of ArmenTel remained under Armenian government's control. The OTE deal included a 15-year monopoly of ArmenTel in a wide variety of fixed and mobile telecommunications services, and the government's commitment of tariff adjustments. In turn, ArmenTel was required to invest US$300 million in expanding and modernizing the telecom network over 10 years. OTE expected to finance its investment commitment with retained profits of ArmenTel. In 1997 the Armenian government expected to increase the digitalization rate to 47% by 2008. In the years 1998 – 2003 ArmenTel invested about 200 mln USD for reconstruction and development of telecommunication infrastructure of Armenia, according to company reports. In early September 2003, the government sought to revoke ArmenTel's mobile telephony monopoly, arguing that, contrary to the initial sale agreement, OTE had failed to ensure the quality of telecoms services and that its investment in developing fixed-line and mobile services had been too low. The government argued that the low level of investments also prevented the development of the Internet in Armenia and resulted in a mobile phone penetration rate of just 2 percent nationwide. ArmenTel, for its part, countered that it had invested more than US$180 million in the sector, and had said that price caps for fixed-line services have prevented it from improving services further. The Armenian government claimed that ArmenTel had inflated the cost of imported equipment from OTE subsidiaries. The government argued that this gave it a legal basis for stripping ArmenTel of its monopoly status because the firm had failed to meet its investment pledges. The government had come under intense pressure to renegotiate the terms of the 1997 privatization agreement. In December of 2003 OTE brought action against the Armenian government in the International Court of Arbitration in London, over the alleged contract violation of its 15-year monopoly rights over the Armenian telecom industry. In November 2004 OTE and the Armenian government resolved their dispute by reaching a new agreement. Under the new arrangements ArmenTel was allowed to raise tariffs over a period of five years, but was going to lose its monopoly privileges over voice telephony. Under the 2004 deal digitalization of services was to be completed by 2006, but ArmanTel was exempt from this obligation if it could not cover the investment from its own revenues. At the end of 2004 a new mobile license was issued to K-Telecom (VivaCell). On November 16, 2006, VimpelCom Company became 90% shareholder of ArmenTel Company, increasing its stake to 100% in April, 2007. 2009: subscriber figure (1,154,000) is an estimate only. It is the sum of mobile subscribers at end 2009 (545,200) and fixed subscribers as of 2007 (608,200). The number of fixed subscribers in 2009 was not disclosed by the company. 2010 subscriber numbers are for Vimpelcom Beeline wireless only. CapEx numbers are derived from Vimpelcom's per subscriber CapEx for the CIS region and multiplying it by the Armenian subscriber numbers. 2013 capacity only include mobile subscribers. Data on fixed line subscribers N/Av. 2012 - CAPEX N/Av - company website http://vimpelcom.com/index.wbp