Rostelecom-Armenia: “We will prove that we are the best”

It’s not the first time that GNC-Alfa changes the game rules on the Armenian Internet market. The first time, the company has significantly improved the wholesale Internet market by its entrance in 2009, building communication networks in Georgia and Iran and offering unprecedentedly low prices for wholesale Internet in Armenia. The company has quickly occupied a steady place on the market and today, as its leadership claims, occupies over 50% of the wholesale Internet market of Armenia.

The next time the company has changed the rules of the game was in December 2012, when GNC-Alfa began providing retail Internet services not in Yerevan but in country’s regions under Rostelecom brand. But GNC-Alfa differs from other large Armenian operators also because the company’s head office is situated not in the capital but in the city of Abovyan. The building of the company and the large number of cars parked in front of it look a little bit unusual against the “dozing” background of the city, but anyhow it proves that in our country it’s possible to conduct an effective business not only in Yerevan. GNC-Alfa CEO Hayk Faramazyan told iTel.am how to do it.

- Mr. Faramazyan, let me congratulate you on Rostelecom’s entrance to the Armenian retail Internet market. We haven’t had a chance to talk about yet.  Tell us please how did Rostelecom become interested in an Armenian operator?

- The owners of the company were looking for a strategic investor for the development of company’s business. As a result, we received the best proposal from Rostelecom and the latter acquired 75% share of the owner of GNC-Alfa.

Today, Rostelecom is an absolute leader on the Russian Internet market and occupies over 40% of the market, which exceeds the market share of its nearest competitor about 4 times. The controlling stake in Rostelecom belongs to the Russian Federation, but the company's shares are traded on the Stock Exchange as well.

I think that just like for all large telecommunication companies, Rostelecom as well viewed the expansion beyond national borders as a logical stage of development.

It should be noted that Armenia is the first market outside Russia for Rostelecom. Taking into consideration the strategic partnership between Russia and Armenia and Armenia’s favorable business climate, Rostelecom’s decision was quite logical.

Thus, the rebranding of GNC-Alfa began in December and we began sales on the retail market in Abovyan, Ashtarak and Gyumri. The list of cities will be expanded soon. The rich experience of Rostelecom on the Russian market is valuable for us both from the point of view of service and range of services.

- Why did you decide to begin from the regions? Is it economically effective at this moment or it was done out of long-term interests?

- Since we have begun our business as a backbone operator and we have a developed network in many cities across Armenia, it was decided to start with the regions.

We see quite a big demand in the regions, as well as a lack of quality and level of services which are provided in Yerevan.

As for the investment return, it certainly differs from that of the capital, but our business plan does consider the capital and the regions separately, and we will launch activity in the capital soon.

- Does GNC provide profitability as a backbone operator?

- Yes, it does. The company was profitable from the very first day of its activity. Our sales volumes have been dynamically growing since the very beginning.

- When do you expect profits also on the retail market?

- We plan to achieve profitability within a reasonable period of time, but I won’t name any deadlines.

- When companies go beyond their national borders, the first thing they expect as a rule is a quicker investment return than on the domestic market.  Is it the case with Rostelecom?

- Investment return on Armenia’s telecommunication market resembles the situation in Russia’s regions. It appears that entering the Armenian market, Rostelecom receives the same as it would have got in case of expansion in Russia.

- What is the dynamics of client flow? Do you already have statistics?

- We have a big number of applications and first subscribers have already been connected. Since we are a new operator on the retail market, the clients should see the quality of our services. We still have much to prove to our clients. I believe we will prove that we are one of the best ones or even the best one.

- How does the competition among Internet providers in the regions look like? Can we expect you to take a leading place in the regions soon?

- Yes, we expect that we’ll cover the market quickly, although we have serious competitors in the regions, both in terms of retail and wireless Internet.

I think our target market in the regions will involve new Internet subscribers and not other providers’ customers, who will prefer us. Armenia has a huge potential for increasing the number of subscribers, and the penetration level has a huge space for growth. On the one hand it is conditioned by the absence of access networks, bad communication quality as well as insufficient access to computers. We are also planning to offer computers to our subscribers at various loan schemes.

- Do the operators focus on apartment buildings or private houses while building a network?

- At this moment our network is being built in apartment buildings. But we are planning to cover also private houses in the nearest future. At this very moment we conduct a marketing analysis in this direction.
 
- You are also planning to enter the digital TV market. When will it happen and how will this service differ from existing ones?

- The content-provider of digital TV will be our partner and we will provide only the infrastructure. We have chosen a very good and leading technology that will be applied in Armenia for the first time. It is called “Over The Top” (OTT) which means broadband delivery of video and audio without the Internet service provider being involved in the control or distribution of the content itself  (unlike IPTV, through which television services are delivered using the own Internet protocol suite; OTT requires 1 Mbit/sec speed- author).

We plan to start providing services in the coming two months and provide a large number of interactive services through this system.

- Does GNC-Alfa participate in the contest announced by the government for the construction of an elevated digital TV and Radio broadcasting system?

- We do not take part in the contest but our infrastructure can be used, as our network is the longest in Armenia and we are open for cooperation.

- GNC-Alfa also provides fixed telephone services. What advantages does this service have as compared to that of competitors and what is your target market in terms of fixed telephony?

- Just like in case with Internet services, we began with the corporate sector. This sector is interested in these services and we are trying to find a unique approach to all corporate clients.

Fixed telephony is urgent also for the regional retail subscribers, as this service is affordable and good. We think we will succeed on this market too.

- How did your corporate clients benefit (including your clients- retail Internet providers) from the fact that Rostelecom has bought the controlling stock in the company? We think that transit services through Georgia and Russia have become much easier and cheaper.

- Prior to buying assets in Armenia, Rostelecom has been one of the companies that provided Internet to Armenia for many years. Now Rostelecom’s services, as a supplier of Internet to Armenia, have become significantly cheaper. Most of Armenian consumers use web-sites on Russian servers, and as the considerable part of this content is on the servers of Rostelecom, the quality of communication becomes much better and faster. In this regard we have an advantage, as we make Internet more qualitative and available.

- How will you assess today’s situation on the retail Internet market?

- The market is developing, the providers are increasing consumption volumes. At the same time, there is a tendency of providers’ expansion, which bears witness to the logical development of the market. This tendency will continue within the coming 1-2 years.

- Does your strategy assume absorption of other players?

- Not today. Our company registers successful organic growth, starting from provision of pure inter-operator services ending with the retail market. The company’s strategy currently justifies itself, and we will continue developing the same way in the future.

The Internet market in Armenia is still in the phase of a dynamic growth, and when it reaches such a level of penetration when the growth slows down, further development will proceed thanks to the increase of the quality and provision of additional services. Today, there is a very interesting tendency on the global market today: if the telecom operators earlier used to provide a simple “pipe” and content provision was the matter of the provider, today these businesses are mixed with each other. For example, in some cities of the United States Google has built its own network, and vice versa, the operators become content providers.

Ruben Harutyunyan talked to Hayk Faramazyan.