Will Mobile & Internet Tariffs Be Raised?

The new owner of Geocell, Silknet, has said it will invest 500 million GEL in the development of the united company. The sum will be used to create new products and to improve the service quality. At the same time, the management of the company notes that they have entered a “very competitive environment.”

Director of Silknet, Davit Mamulashvili, says that customers will be offered new products within the next 2-3 months and will feel “a great improvement.”

"Our customers will get new services in the near future, such as a fixed and mobile network, and we are conducting negotiations with the Internet Provider ITAL Telecom to enter the market, and we hope is that our cooperation will be successful,” Mamulashvili said.

Silknet buying Geocell was the most expensive ($153 million) transaction on the communications market in Georgia. Experts in this field believe that following this deal, the Geocell and Magti leadership, as the two main players on the market, will be strengthened and Beeline will find itself in uncompetitive conditions.

What was the pre-cause of Silknet purchasing Geocell?

MagtiCom bought Caucasus Online assets and became a consolidated company, together with fixed and mobile assets. Caucasus was followed by small internet providers DeltaCom, DeltaNet, Anet and G-NETI. With this acquisition, Magti became the largest company on the internet market. After such redistribution, Geocell appeared to be in a non-competitive position and it could be said that Silknet buying it was the best solution to the situation.

Geocell, with Silknet and Magti, will offer a combined service to Caucasus Online and other internet companies’ customers: users will be able to receive internet, cable television, mobile and fixed telephone services in a single package. Beeline cannot offer such a service.

What will change on the market and what will the price of mobile or internet services be?

Executive Director of Small and Medium Telecom Operators Association Ucha Seethi believes that users will have the opportunity to receive full mobile internet services at a relatively low price. During the medium term, the processes can be developed with two possible scenarios: First, Geocell and Magti might put arranged tariffs on services, which may lead to a rise in service costs, or Magti, which has more financial resources, will win the fight and will dominate the market. Field specialists have difficulty making more long-term predictions. However, they say that most of the market will fall into the hands of the two big companies.

Koba Bekauri, chairman of the Communications Commission, has called on Mobitel “to strengthen and consolidate fixed assets as soon as possible to become a full-fledged third competitive company.”

What will Beeline do?

Public Relations Department of Veon Georgia (Beeline) states:

"Kakha Bekauri's statement, where he calls for Mobitel to enter the fixed market - internet, telephony and television, is pretty much acceptable. We are an increasingly dynamic company that is developing very dynamically and cares for novelty. Naturally, it is important to enter a fixed market: there is a valuable offer on the market, after which assessment and corresponding calculations can be made.”

However, experts believe that Beeline will not be able to face the two giants.

In early 2018, Georgia’s mobile network had 5,132 million subscribers. 38.6% of them are involved in Magti's network; 34.7% Geocell and Beeline just 26%.

Mobitel Ltd. was registered in Georgia on November 19, 2003. Its owner was Levan Varshalomidze, who was the Chairman of the Government of Adjara in 2004-2012. On February 3, 2004, Varshalomidze gave 100% share and his position as Director to Kakhaber Damenia.

Damenia sold his share to businessman Nodar Gigineishvili 20 days later. Offshore companies have emerged since 2006. The share of Nodar Gigineishvili was purchased in 2005 by Delgado Resources and Watertrail Industies. Gigineishvili's business partner Levan Karamanishvili pointed out that both were representatives of the company.

On July 12, 2006, Mobitel supervisor Watertrail Industies entered the Russian Vimpelcom: Russian citizens Sergei Avdev, Elena Shmatova and Vladimir Ryabokon of Ukraine, and the Delgado Resources Council representatives with Levan Karamanishvili and Russian citizen Revaz Sharangia.

Kakha Bendukidze opposed selling the frequency to Beeline. The state minister then saw incompetence in the action of the Commission and, moreover, saw signs of corruption. Bendukidze protested that the GNCC had sold one license for cellular communication to MagtiCom for 26 million GEL and the second license was handed over to 239 thousand GEL to MegaCom, which caused a loss of $ 27 million for the Communications Regulatory Authority. According to press back then, Bendukidze protested the fact that confiscated frequency of Magti and Geocell was given to Beeline instead (Sharangia obtained the frequency from the Commission for 9 million GEL).

The former Chairman of the Commission, Dimitri Kitoshvili, who denounced Bendukidze's allegations, claimed that the state was not in loss, but the budget received more than 27 million revenue by selling the frequency.

43% of shares of Beeline, currently owned by Vimpelcom, belongs to the Norwegian telecommunications company Telenor. 47.9% belongs to Alfa Group's Altimo consortium owned by Russian oligarch Mikhail Friedman. Friedman owns 90.1% of Alpha Bank shares and VimpelCom 56.2%. He has more than $5 billion invested in foreign companies, which is a record for Russia. According to Forbes, 2014, Friedman was second among the richest Russian businessmen. He was named as number one businessman in Russia in 2017. Currently, his property is estimated at $14.6 billion.

By 2015, the Mobitel Supervisory Board included Russian citizens Ilia Chulukin, Dmitry Kromsky and Zauresh Lisitsina, and Georgian citizens Teimuraz Aronia and Khvicha Makatsaria. Makatsaria appeared in the Supervisory Board in 2013.

Given the owner's finances, Beeline might use all its resources to strengthen its company in Georgia. However, experts do not exclude the fact the owner will not be putting any additional effort into the business because Georgia’s financially low market can be less attractive to Mobitel. It will be interesting to see how the processes of communication will develop in future.

Nona Khelaia (Info 9)