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 September 12, 2003 

Bad Connection: Government wants to invalidate telecommunications monopoly of ArmenTel

The Government of Armenia has held public meetings to voice its disappointment with the performance of ArmenTel, the Greek-Armenian Joint Stock telecommunications company which has a service monopoly in Armenia which extends for another 10 years.

During a five-day session in the Yerevan Chamber of Shares the Government accused Armentel of not fulfilling obligations laid out in a deal made in 1998 giving the company control of Armenia's telecommunication sector.

In a six-paragraph statement, the Government accused ArmenTel of failing to provide proper Internet and mobile phone service, of not providing digitized service to outlying regions and of illegally recording telephone conversations.

The Government of Armenia holds a 10 percent share in the company and says it is protecting its interests by calling the open meeting of stockholders.

The Government is proposing changes that would invalidate ArmenTel's monopoly license.

"All absolute rights, which had been provided to the licensed side by the license, must be changed. The Government of the Republic of Armenia must have a right for providing new licenses," said Minister of Transport and Communication Andranik Manukyan.

ArmenTel administration reacted indignantly to suggestions that their 15-year monopoly might be changed, and stated the Government had no right to hold a meeting that could result in penalties.

"Only an international court has a right to do that," stated acting executive director of ArmenTel Geogrius Vasilakis at one of the sessions.

According to the Government's legal advisor Vahe Yaghubyan, if the licensed side disagree with the decision made by the Government then it must resolve the disagreement within 60 days.

"If the company is not satisfied with results of these consultations then it has a right to pass the issue to arbitration court," Yaghubyan said. "And an arbitrator's decision can be litigated in a court of Armenia. So the final decision can only be made by a court of Armenia."

The current Government has always had a negative attitude toward ArmenTel's activities. But potentially depriving the company of its monopoly drew a battle line that turned the sessions into more of a trial than a meeting.

Arguments were made against ArmenTel by the Minister of Justice, Minister of Transport and Communication, Deputy Minister of Transport and Communication, the legal advisor of the Government as well as several officials of the Ministry of Transport and Communication.

Statements by those representatives addressed the Government's agreement and ArmenTel's failure, they say, to fulfill the requirement of its contract.

In 1998 the Government of Armenia entered into a deal that included the TWT company (owners of 49 percent of ArmenTel) and the OTE company of the Greek Government. Armentel sold 90 percent of its shares to OTE for $204 million, including $62 million in accrued debts. The contract was signed by four sides (TWT, ArmenTel, OTE, the Government of RA).

"The Government of Armenia participated in that contract, as if a commercial side," said Yaghubyan.

(In the field of telecommunications OTE is a shareholder in several other countries as well. But only in Armenia was it able to gain monopoly status.)

According to the contract, OTE is obligated to invest $200 million in the field of communications during the first five years of its activities. Part of that investment was to have been spent digitizing telephone stations in the republic's 800 villages and to improve mobile phone service.

According to Yaghubyan's inspection, the above-mentioned sum hasn't been invested into the field in the proper time period. Telephone stations of only 54 of 800 villages have been digitalized and the quality of the mobile connection doesn't correspond to either European or other CIS countries' standards.

In his turn acting deputy executive director Vasilakis delivered a counterstrike at the meeting accusing the Government of creating obstacles that made it impossible for the company to meet their obligations.

"The Government didn't gave us an opportunity to realize on time the system of prices that was provided by the license," he stated at the meeting. "So it created an obstacle to us for getting necessary profits with the help of which we must have made investments for developing the net."

(Up to now the company has invested $182 million.)

As Vasilakis says the government must have created conditions for improving the field by means of getting credits from international organizations and banks, while today banks refuse to provide ArmenTel with credit.

Some observers have speculated that the Government's attack of OTE and ArmenTel is in response to the interest of other international telecommunications companies wanting to do business here, including the Russian Rostelecom company. Representatives of the Government reject that information saying that they are going to start negotiations with other companies only if there are changes in the current license and contract.

According to Minister of Justice David Harutyunyan, the goal of the process is not to deprive ArmenTel of the status of monopolist but to protect all the investments made in Armenia.

"This process is aimed at protection of investments, as many investors mentioned that with such conditions of telecommunications they have to stop their activities in Armenia," he says.

He said: "Now, at the end of this open meeting, I recall a fairytale 'Ali Baba and the 40 Thieves'. Only in this case the number of thieves is more and God knows how many they are.

"Leaving this place I can do only one thing concerning this situation: to order executive powers of our company to stop the entire investment activities because it looks like by there is a serious problem, besides the ridiculous accusations during this meeting."


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