Why is Orange leaving the Armenian market?
On August 20th the Commission for Regulation of Social Services approved a project on a carve-up of 100% of the shares of Orange Armenia (an offshoot of France Telecom, the Orange brand) and on outsourcing the shares to the Ucom Armenian company. Orange Armenia has been working in the Armenian market since November 2009. It has invested 100 billion drams during these years ($1=475 drams), provided 95% of the network coverage and access to the mobile and Internet network in 600 cities and villages. The number of users has reached 650 thousand.
According to the Director General of Orange Armenia, Francis Gelibter, today the company is not able to provide convergent services, i.e. providing users with fixed mobile connection, Internet and TV. The main aim of the deal is to find an operator which could offer these services to people in one packet and for reasonable prices. From this point of view, Gelibter thinks that the capacities of Ucom are great. He stressed that the deal had no political background.
The acting Financial Director of Orange Armenia, Françoise Cayenne, stated that the leadership of Orange had analyzed the situation with the company’s assets and decided to withdraw from the markets of some countries, including Armenia, the Dominican Republic and Switzerland. Françoise Cayenne pointed out the difficult socio-economic situation in Armenia, which restricts opportunities for the company’s clients.
About 500 employees of Orange Armenia will continue their activities. During the year after signing the deal, the company will have the right to use the Orange brand. The new shareholder will decide on a new brand in a year.
The deal attracted the attention of expert circles, representatives of which express different points of view. Some of the experts believe that buying the shares of Orange Armenia by Ucom will encourage competition in the sphere of telecommunications and IT and its effective functioning. The Executive Director of the Union of IT Companies, Karen Vardanyan, sees no negative effects in the deal, as due to the carve-up of shares in favor of Ucom, clients will get many new high-quality services.
However, Samvel Martirosyan, an expert on information security, negatively views the developments: “A decrease in the number of players in the Armenian market is also a disadvantage. A player with European traditions is leaving; and now the post-Soviet management will dominate in the telecommunications sphere – Russian and Armenian ones.”
The withdrawal of one of operators will weaken competition in the sphere of telecommunications and IT; moreover, Orange was operating not only in the internal Armenian market, but also in the external one.
Some observers consider the deal as merger of Orange Armenia with a more powerful company, stating that the deal may negatively influence the competitive atmosphere. Ucom may take a privileged position in comparison to the Russian Armtel Company (the Beeline trademark) in the sphere of Internet provision, as Ucom gets an advantage in the number of clients and the variety of services.
Even though Ucom is a rather young company in the telecommunications sphere, it has achieved great success, taking a stable place in the Armenian market. Experts believe that this is connected to the fact that it actually belongs to the Minister of Finance, Gagik Khachatryan. According to the media, the Minister owns the company through third parties. The Hetq Internet periodical published an article headlined ‘How Gagik Khachatryan and His Wife Make Money’ on July 2nd 2012. It said that by the end of 2011 Khachatryan’s capital was 278 million drams and $2.98 million. The only source of income is his salary – 8.463 million drams annually. His wife Laura Yepremyan possessed 188 million drams and $2.763 million, even though her only source of income was her salary – 671,740 drams annually.
Orange Armenia took 17-18% of the telecommunications market of Armenia (for example, Orange takes 60% of the Moldovan market), and the quality of Internet services was lower than the quality of the same services provided by Armtel, VivaCell-MTS and Ucom.
An analysis of the telecommunications and IT market shows that the appearance of a new player always leads to a decrease of prices and an increase of new offers. However, obviously Orange couldn’t fully compete in Armenia. The economist Vilen Khachatryan thinks that Orange Armenia as a new company had to reactive benefits for 5 years; but it didn’t happen. The company didn’t cope with competition, as it started its work under equal conditions with the rest of the operators. The situation became even more difficult, as the Armenian market is small.
The company’s withdrawal is connected with the problem of investment attraction, which have halved in a few years. It is more and more difficult to do business in Armenia. High rates for electricity power, corruption in state structures, violations of laws by bureaucrats, the absence of an independent court system, and individual use of laws negatively influence the effectiveness of business. There is no struggle against this, so the number of small and medium-sized enterprises is reducing day by day. Orange is not the only company which is leaving Armenia. According to the media, Samsung is also leaving the country; and despite the “open sky” policy, major airlines are withdrawing as well.