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Azerbaijan 2016 | TELECOMS & IT | REVIEW: TELECOMS & IT

As the most profitable sector after hydrocarbons and one of the fastest growing, IT is the place to be in 2016. For Azerbaijan, the future really is digital.

ICT is Azerbaijan's second most profitable sector after hydrocarbons. It is also the second largest recipient of FDI after the oil and gas industry. The Networked Readiness Index ranks Azerbaijan far and away as the leading country in the CIS for connectivity at all levels. The government is fully behind ICT's continued growth, an indication of the importance of this industry to the country's future.

At present, ICT contributes 6% to the country's GDP; in 2009, that figure was 5%. The future is brighter still, projected to increase to 9% by 2020, with an average YoY growth of 18-20%, creating $8 to $9 billion for the national economy. More than $2 billion has been invested in IT since 2010, and with healthy returns—revenue increases around 30-35% each year. More skilled engineers, better training, and a culture of innovative SMEs will all contribute to ICT's expansion to the next level. The government has supported recruitment in the industry, and there are now 29,600 people directly employed in ICT, up from 25,000 in 2012.

Telecoms

The telecoms sector is overseen by the Ministry of Communications and High Technologies (MCHT), which regulates the various telecommunications companies and promotes and manages investment in the sector. MCHT was founded as the Ministry of Communications and Information Technologies by President HE Aliyev in 2004. Its name was changed in 2014 by Presidential decree.

The re-structuring followed an energetic few years for Azerbaijan's ICT sector. The official Year of ICT kick-started recent development in the sector over the course of 2013. The Year of ICT raised the profile of the industry at home and abroad and gave the government a platform from which to launch vital investment and upgrading programs. In this way, 2014 saw two key developments set in motion. The first of these is the National Strategy for Information Society Development (NSISD), which runs from 2014 to 2020 and is a successor to the National ICT Strategy 2003-12, which saw deep reforms of the sector. The NSISD is also the ICT sector's contribution to the overarching vision for Azerbaijan 2020, whereupon the country is due to reach targets across its economy.

The NSISD is divided into two distinct stages. The first runs from 2014 to 2017, and will see the building of an information society and the effective adoption of ICT at all levels of society. Central to this is the e-government endeavor, which seeks to have all key government services functioning entirely online. The second initiative is the Knowledge Fund, which overlaps with, and to some extent underpins, the NSISD. As the name suggests, the Fund is concerned with education and raising awareness of wider issues such as environment and society. In so doing, it puts ICT at the heart of the learning experience.

NSISD is a serious commitment—the government plans to invest billions in the sector before 2020. In 2014-15, the State Fund awarded grants to 53 start-up projects in software, applications, R&D, high technology, and in such fields as air navigation and e-payments. Grants range from $12,000 to $382,000.


Mobile telecoms

With a market penetration of 110%, the mobile segment has reached saturation levels, with more than 11 million mobile lines actively in use in 2014—almost 2 million more than the entire population of Azerbaijan. The number of fixed, or land, lines stood much lower, at 1.82 million—just 15 main lines per 100 members of the population. Azertel is MCHT's telecoms company and is the nationalized provider with responsibility for ensuring decent access to telecoms services worldwide.

Since 2010 there have been more mobile phone subscriptions than people in Azerbaijan. Azercell was the first national GSM operator in the country and is a subsidiary of TeliaSonera, the Swedish telecoms group. Launched in 1996, Azercell now has a client base of 5 million subscribers and 56% of the total telecoms market. A big advance for the mobile sector was the delivery of 3G services in 2011, coverage of which is now nationwide. However, there remain rural areas where take-up of services is much lower than the national average. In fact, nearly 70% of mobile phone subscriptions are in urban areas.

The remainder of the mobile telecoms sector is formed of mainly two companies: Azerfon and Bakcell. Bakcell was established in 1994. Azerfon was the first company to be awarded the new 3G licenses, in 2011. The competition between these three companies has arguably advanced the whole industry's development, although the next-generation 4G services are only available in Baku and the immediate region. The competition has seen a reduction in taxes on mobile phones—since 2005, the average charge has fallen from $23 to $9. Internet access surcharges have all but disappeared, having fallen from $6.30 to $1.90 in 2015.

Fixed lines

The much older landline service is also considerably the smaller. Only around 19% of Azerbaijan is reachable by landline, and the service has been slow to build on the country's rollout of high-speed internet, for which a landline number can be bundled with online access. As with its more popular mobile cousin, the segment needs to do more to develop access to and promotion of telecoms services in rural parts of the country.

Internet

Internet is central to the government's ambitions to make Azerbaijan the ICT hub of the Caucasus region. Compared to the relatively staid landline service in Azerbaijan, the internet is racing ahead. Fixed broadband is now connected in 69% of households, with others depending on dial-up modems or mobile connections. Just over 76% of the population has personal access to the internet—almost twice the global average. In 2014, Azerbaijan lanced a fiber-to-home strategy to increase broadband take-up to 85%. This has been supported by the State Oil Fund of the Republic of Azerbaijan (SOFAZ), which provided $131 million, with the project implemented in partnership with Aztelekom.

One of biggest foreign investors in the internet has been Alcatel-Lucent, active in the country since 2007. The company works in partnership with the government to supply equipment and technology. Other important foreign companies in the ICT development field are Caspian Telecom, Cisco, Oracle, Nar Mobile, HP, Caspian Navtel, Sazz, and Ultra. The lion's share of the sector remains, however, under government control.
Many of these companies are seeking a key role in the building of Azerbaijan's ambitious Trans-Eurasian Information Super Highway (TASIM), which would see a fiber-optic line connecting Western Europe to Eastern Asia via Azerbaijan. The project envisages a major new information transit route stretching from Frankfurt to Hong Kong, via Turkey, Georgia, Azerbaijan, Kazakhstan, and mainland China—an 11,000-km high-speed link. The line would bring massively improved connection speeds across the region, encouraging cities to upgrade their networks in turn and fostering a stronger culture of ICT innovation along the route.

In December 2015, an agreement was reached between Azerbaijan and Turkmenistan on their section of the route, with the underwater section across the Caspian agreed to in March 2016. The initial funding of $100 million is contingent upon China's backing of the project, and Iran is expressing interest in working with Azerbaijan on the project. Azerbaijan is represented in the international project by AzInTelecom (formerly the International Relations and Accounting Center of the Ministry of Telecommunications and High Technologies). The initial challenge for the project is the sheer number of countries involved, each with its own representative agency or ministry—all of which need to agree to undertake the funding and the work at the same time. Azerbaijan is hoping the project will be up and running by the end of 2016.

BakuTel 2016

The Azerbaijan International Telecommunication and Information Technologies Exhibition, better known as BakuTel, is the annual fair of the ICT industry. It has become an important event in the region's calendar, attracting 250 companies from 23 countries, including Turkey, the UK, Italy, Israel, and Canada. BakuTel showcases the latest developments in telecommunications, satellite communications, wireless technology, networking, broadband, and software that is new to the country and the wider Caucasus and CIS regions. As such, BakuTel has a vital role to play in the industry's development, and in showcasing Azerbaijan to the wider world.

Gismet Ibrahimov
GISMET IBRAHIMOV
General Director, “TransEuroCom” LLC
TransEuroCom was founded as a telecom operator in 2004, and the main activity of our company includes fixed-telephony services, internet connections, and the organization of telecommunication channels, both within the country and to international destinations.
Galib Gurbanov
GALIB GURBANOV
General Manager, Azerin (Azerbaijan)
The internet was brought to Azerbaijan by private companies, and they were the only players in the market at first. As the market matured, state companies, such as Baku Telephone Communications Production Association (PA) and Aztelecom, also began to take part.