TBY talks to Veysel Aral, CEO of Kcell, on expanding coverage into regional areas, the dynamics of 3G, and technological progress.
TBY How has Kcell sought to maintain its local market share over 2011?
VEYSEL ARAL Over the past few years, Kcell has focused on strengthening its market position, leading to a dramatic evolution within our business. Our clients are the company’s main focus, which results in positive feedback from our subscriber base and has led to an increase in subscriptions; in 2011, we reached a total of nearly 11 million users. To maintain our success over the long term, we came to the conclusion that there is a need for innovation. Kcell’s previous business transformation was innovative, but the changes came from the top down—now, employees at the base of our workforce must become the catalysts of innovation and be the promoting engine. At present, we are at the beginning of a long process, and 2011 was the starting point for this inspiring journey. An active increase in data traffic was another important factor for Kcell’s development in 2011, and our company set the trend in the market for mobile data services. We launched a number of revolutionary offers that made mobile internet available to the masses at very low cost. At the same time, we have been working to improve our mobile data speed, actively developing the 3G network, and increasing the mobile data speeds on the 2G network (EDGE). The next step was to expand the availability of smart phones. This strategy led to an increase in the number of mobile data services users, which exceeded 6 million in January 2012.
How do you see Kcell and Activ complementing each other, as far as presence in the market is concerned?
We very clearly positioned our two main brands; Kcell is the corporate segment brand, and Activ is geared toward the mass market. This segmentation allowed us to consider subscriber needs and efficiently respond to market changes. A strongly positioned brand in the mass segment, with its wide portfolio of tariffs, made it possible for us to successfully compete without additional effort or extra financial expenses.
What are some highlights from your infrastructure development in 2011? Which direction are you planning to take with capital expenditure in 2012?
As of January 1, 2012, the Kcell network covered 4,917 population centers in Kazakhstan. This means that there are communication services in all major cities, and towns with populations of between 5,000 and 10,000 people, and in almost every village with populations starting from 1,000 people. Taking into account the territory of Kazakhstan—the ninth largest country in the world by land area—we feel that tremendous achievements have been accomplished. At present, Kcell ensures the coverage of 44.4% of the country, which is more than 94% of its population. Our plan for 2012 includes the completion of mobile communications coverage in smaller villages; ensuring mobile communication in rural areas is one of our most important social tasks. Moreover, we will proceed with further network developments, aiming to provide high-quality voice and data services for the people of Kazakhstan.
How has 3G changed the dynamics of the industry? What major trends have you observed in the market?
Lately, the main trend we have observed in Kazakhstan is the explosive growth of data traffic. The long-awaited 3G launch back in January 2011 greatly contributed to our success. The company centers its efforts on the latest version of 3G, HSPA+. This technology has a maximum speed of up to 21 Mbps. At present, the average speed on the Kcell 3G network reaches 14 Mbps. In an effort to spread 3G throughout more regional centers by the end of 2011, Kcell 3G was operating in 31 cities and regional centers across Kazakhstan. We are now working to make 3G devices readily available to the masses. To do this, we have begun to offer telephones under a contract-based program, which has been a tried and tested model in most European countries. This program was implemented in Kazakhstan for the first time, and it has fostered the growth of our customer base.
What is the level of progress and readiness in terms of new technology? What is the potential for 4G in your industry?
Our viewpoint on the issue of implementing 4G/LTE in Kazakhstan is fairly simple. We believe that this technology should achieve the stage that we can characterize as “commercial maturity.” This maturity refers to both providers of equipment and manufacturers of subscriber devices. There is also the issue of private standardization, as in Europe, the US, Russia, and India. I strongly agree with the opinion of many sector experts who believe that the current LTE standard being implemented in several countries has no significant advantages over 3G/HSPA+ in terms of mobile data speed. As soon as 4G/LTE becomes a cost-effective project for Kazakhstan from a commercial viewpoint, Kcell will consider the possibility of its implementation.
Do you see changes in the composition and share distribution of the market benefiting customers over the long term?
The average cost of one minute on our network is about KZT10, less than $0.10. There are tariff offers that lower the cost down to KZT1. We operate in a market of about 17 million people, and if we compare our mobile tariffs with those in China or India, there will certainly be differences. I would like to emphasize that over the past several years, the average cost of one minute on our network has been reduced significantly, and the cost reduction trend can still be observed. Our EPSI rating and research demonstrates the level of satisfaction from our clients, including criteria based on value for money; Kcell customer satisfaction remains the highest in Kazakhstan.
How does the availability of social networking through 3G affect the demand for SMS services?
The usage of SMS services will contract due to the onset of smartphone applications. The general trend is that people tend to use applications more than SMS. Of course, the penetration of 3G-compatible phones on operators’ networks corresponds to just 20% of all phones, so there is still major potential for operators to plan accordingly and develop the appropriate applications. Smartphones are not included in this 20%, and they still represent less than 5% of total market penetration.
© The Business Year