What reforms are expected in Azerbaijan's internet services market?
Review by Caliber.Az

ANALYTICS  02 May 2022 - 16:05

Azerbaijan continues working on the establishment of optical infrastructure in Azerbaijan, including in remote peripheral settlements, in order to ensure access to high-speed broadband Internet in all of Azerbaijan by 2024. In order to optimize this work, new mechanisms of market regulation are needed, including support for Internet providers operating in less profitable conditions, ensuring a fair distribution of income in the industry, as well as licensing of provider activity. In particular, this was said by Minister of Digital Development and Transport Rashad Nabiyev during public discussions held the day before on the topic "Digital entrepreneurship and promising opportunities.

Maximum penetration of broadband network infrastructure and access for all the world's residents to the Internet is a key condition for the global digital transformation. This message from the UN's International Telecommunication Union, is very relevant today, given the fact that some 3.6 billion people on Earth have no access to the Internet at all, therefore falling behind the civilizational trend of the 21st century, which is based on the development of the digital industry and electronic society.

It is not surprising that Azerbaijan has recently increased attention to the issues of digital development of the corporate and public sectors, and the task of rapid achievement of these goals, including the acceleration of the necessary network infrastructure throughout the country, has been repeatedly formulated at the level of the head of state. The ultimate goal is to create by 2024 a local infrastructure that will cover all settlements in the country, including high-altitude villages, and provide average broadband Internet access (BBA) coverage speed in the country of not less than 25 Mb/s.

Large-scale initiatives to form optical networks in the capital and regions have been underway for quite a long time, including the implementation of components of the Fiber to the Home (FTTH) program, providing laying of fibre optic directly to the apartments of consumers. The projects have been implemented with varying degrees of intensity over the past six years, thanks to which broadband services are now available to residents of Baku, Sumgayit, Ganja, Khirdalan, Shirvan, and Mingechevir: high-speed networks based on optical technology, including GPON (Gigabit-capable Passive Optical Networks), are actively introduced there, providing 30-100 Mbit/s speed to most consumers in the capital and major cities.

Development of infrastructure projects has had a very positive impact on the level of network access in the country: according to the Ministry of Digital Development and Transport, there are 85 Internet users per 100 people in Azerbaijan today, while the global average is 63, including 83 in Europe. At the same time, the level of coverage of 3G and 4G networks in the country is more than 97% against the world average of 93%. In addition, access to the "World Wide Web" is relatively inexpensive in Azerbaijan. According to estimates by the British analytical resource cable.co.uk, today the republic is among the top 25 countries with the most affordable subscription fees for broadband Internet access - the monthly fee does not exceed $11-15 (22nd position among 220 countries).

However, Azerbaijan still ranks 119th among 182 countries in terms of speed of Internet access via fixed broadband access: according to a report by the international resource Speedtest Global Index, the average speed for a fixed connection in March 2022 was 19.93 Mbit/s.

The lag in this segment can be explained by the fact that not yet all regions of the country have managed to ensure the appropriate pace of implementation of the FTTH program components. This was partially due to the collapse of global energy markets in 2014-2017, which reduced government funding for capital-intensive infrastructure projects in the field of communications. In turn, in 2020-2021 the negative impact of the pandemic crisis was felt, which also affected the work on fibre-optic lines and the expansion of network coverage.

As a result, broadband access to the Internet is still insignificant in peripheral areas of the country due to the lack of modern technology in many regional providers. Thus, at the beginning of this year, about 70% of households (mostly in the regions) were still connected to the network using ADSL technology, and only 19% of users had access to the network using fibre-optic cable. Moreover, in rural areas the numbering stock of PBXs covers no more than 70% of the population, i.e. in a number of places there are limitations even to the network access via the outdated ADSL technology. If we exclude the administrative and corporate sector, in some regions of the country network services are provided not via optical lines, but mainly via copper cable telephone lines, and the average connection speed here is 2-4 Mbit/s, which is very little considering today's needs.

Therefore, today the country needs to solve the priority task of providing end-users with access to broadband services in large cities and regions of the country, where fibre-optic trunk lines have already been laid. According to the Communications Ministry, since the beginning of 2022 Aztelekom LLC and Baktelecom stepped up work on investment in network infrastructure: in particular, Baktelecom is conducting such work in settlement Yeni Surakhani and residential area "Gushchulug" of Hovsan settlement - over a hundred kilometres of fibre-optic lines have been laid here, GPON technologies have been introduced, and high-speed Internet will be available to 12 thousand users by the end of this year.

Since the spring of last year, the projects of development of optical Internet in the country's regions have also intensified: in particular, Aztelekom has been working on the introduction of GPON technology in the Khachmaz region, as well as in some southern regions. A number of leading providers in the country - AG Telekom, Azeronline, etc. take an active part in the development of broadband networks in regions.

However, the participation of local Internet service providers, cable and other telecommunications companies of the country in the development of regional optical infrastructure is still insufficient. In order to overcome the digital divide between cities and rural peripheries, the Department of Communications intends to implement new initiatives for public-private cooperation by reforming the regulations governing the market.

Due to the lack of licensing mechanisms for the activities of domestic Internet providers, a chaotic situation remains to a certain extent in the network services market.

"Today, Internet service providers are more interested in entering the most favourable segments of the market and providing services there. Basically, it is the new buildings in the centre of the city," said Minister of Digital Development and Transport Rashad Nabiyev at a forum "Digital Entrepreneurship and Opportunities" held the day before. According to the minister, state operators Aztelekom and Baktelecom, within the commitments to the state, invest a lot of money in laying optical lines even in the most remote villages and urban suburbs, and these investments do not pay back even after 10-15 years. Nevertheless, the state operators have to do it, as by the end of 2024 it is planned to provide the entire territory of Azerbaijan with high-speed Internet.

At the same time, modern mechanisms for regulating the Internet market are supposed to ensure a fairer distribution of revenues, says Nabiyev. Today there are about 60 companies in the country that provide Internet services, but their costs and profits vary greatly depending on where they provide services - in large cities or rural areas. Accordingly, the Department of Communications offers to create a universal telecommunications fund, through which it will be possible to redistribute income received in the densely built-up urban centre, also there are mechanisms of state subsidies to providers that provide services in less populated remote areas. At the same time, in regions where the purchasing power of the population is lower, tariffs for the Internet will be relatively lower and the losses will be covered by the funds of state operators. The minister said new legislation is being developed in order to more fairly regulate the Internet market.

Representatives of specialized public organizations believe that such reforms are largely justified, but there is a need to strengthen competition and ensure equal access to the Internet market of the country. 

"The need to introduce a certain order in the network services in many respects is a demanded task, as today in this area there is a certain legal vacuum. In particular, it concerns commercial services operating on the platform of Internet resources and not always complying with their obligations, and the question of copyright from Internet TV channels, etc," executive director of the public association "ICT Market Participants" Ali Aliyev told Caliber.Az.

According to him, the issue of licensing Internet providers is also quite relevant, as it would prevent a variety of abuses. We are talking about monitoring compliance by network operators with technical minimums for the formed optical network, the capacity of servers and other IP equipment, and compliance with the declared speed characteristics. The licensing mechanism would make providers legally responsible for the quality of additional paid services they provide, and in general, would help to sanitize the negative and raise the standards of the local Internet market.              

The proposals of the ministry to subsidize and support existing providers in the regions are certainly justified, says Aliyev: in the densely built-up Baku, many thousands of subscribers live per square kilometre, so with relatively small investments in the laying of optical cable and installation of equipment the profit is much higher. In the regions, especially in rural areas, the situation is fundamentally different. The population density is relatively low, and the cost of laying and maintaining the network is much higher because of the distance, and operators often barely cover the costs.     

However, according to Aliyev, in addition to subsidies, regional operators need more freedom of action and a more competitive environment. Alas, the state operators often abuse their monopolistic position, complicating the access of private providers to a number of communication services. For example, private operators are restricted from laying optical cables through existing underground shafts and outdoor poles of communication lines, as a result, providers are forced to duplicate network infrastructure, which is expensive and unprofitable.

The existence of such negative facts is evidenced by the results of investigations of the State Service for Antimonopoly Policy and Consumer Market Supervision operating under the Ministry of Economy, published in February 2022. In particular, having considered the appeals of a number of private internet providers in connection with the obstacles created when using Aztelecom LLC telecommunication network the antimonopoly body called on the state operator to create conditions for wider participation of private structures in the process of providing services to consumers by ensuring clear and equal conditions for access to network infrastructure, lease, determination of lease tariffs, removing all obstacles for market participants in providing telephone and internet services, etc.   

"Of course, business activities in the Internet sphere should be more competitive. It is necessary to expand the mechanisms of public-private partnerships, especially in the regions. In this case, state structure Aztelecom would act as a regional provider, laying new trunk fibre-optic lines, and private providers would lay distribution networks and localize other necessary infrastructure directly in settlements and villages according to developed plans by themselves," Aliyev said, adding that similar schemes have been quite successfully applied in neighbouring Georgia.

Certain steps in this direction have been taken since last year, several network operators are implementing a pilot project in the regions, and the corresponding unified forms of contracts are also being developed, based on which private entities will start laying cables according to roadmaps.

According to the head of the public association "ICT Market Participants", the tax privileges for service providers would help accelerate the process of building fibre-optic infrastructure in the regions. Such practice is widespread in the world, when to attract private investors in telecommunications projects in difficult terrain and remote or sparsely populated rural areas, they were exempted from income tax for the first 3-5 years of activity. In Azerbaijan we can also see progress in these issues, we study providers' proposals to reduce lending rates in investment projects as well as the possibility of VAT exemption for imported industrial equipment.

Caliber.Az