The Jamestown Foundation’s Eurasia Daily Monitor has another excellent article by Emil Danielyan, RFE/RL’s English Language editor. This time, while Armenians in the Diaspora mistakingly deceive themselves that mobile phone use in the republic is extraordinarily high, it’s on the fiasco that has surrounded the ArmenTel privatization. Contrary to popular opinion, Armenia severely lags behind its two other poverty-stricken neighbors in the South Caucasus.

The long-awaited liberalization of Armenia’s underdeveloped mobile phone sector could not have had a more unexpected and illogical outcome: the near-collapse of the country’s main wireless network. ArmenTel, the unpopular national telecommunications monopoly that operates the system, has still not clearly explained the causes of the serious breakdown despite facing heavy government fines. The situation is indicative of the murky nature of the telecom business in Armenia due to a lack of government transparency and corruption.

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Consequently, public demand in mobile phones has by far exceeded supply, leading ArmenTel to resort to Soviet-style rationing of prepaid phone cards. Such was the shortage of those cards that they were at one point worth a staggering $200 each on the black market. Armenians wishing to buy them at their “legal” price of about $25 had to register with ArmenTel and wait for months, if not years. No wonder that Armenia had less than 300,000 mobile phone users as of the beginning of 2005, lagging behind neighboring Azerbaijan and Georgia, which each boast more than a million users.

In fact, while Georgia now boasts more than a million subscribers, Azerbaijan is fast approaching 2 million with news that nearly 90 percent of school children in the capital, Baku, have cellphones. A frequency for third generation cellular phone services was also recently awarded to a company in Georgia making it the third country to introduce such technology in the CIS. Guess what? Armenians are still excited by SMS.

However, things are at least changing with the long overdue appearance of a second mobile phone service provider in Armenia.

The provider, VivaCell, launched its network on July 1, quickly attracting tens of thousands of subscribers. The move coincided with a drastic deterioration of wireless connections provided by ArmenTel. Making or receiving phone calls through its network has since been extremely difficult and at times impossible. ArmenTel’s Greek managers have repeatedly apologized to the furious public for the flop, but they have not yet clearly explained its reasons, pledging only to fully fix the network by the end of August. The company’s chief executive, Vasilios Fetsis, admitted on August 11 that failure to do so could lead to a mass flight of ArmenTel customers to VivaCell. The latter hopes to have 300,000 subscribers by November.

On the other hand, and even though I am now a VivaCell subscriber myself and couldn’t be happier with the service, questions remain about the tenders for both companies. Perhaps it’s no surprise that the main HQ for VivaCell is housed in a huge building built by the Minister of Transport and Communication, Andranik Manukian, next door to his Metropol Hotel?

ArmenTel was set up in the early 1990s as a small joint venture of the Armenian government and a U.S.-owned offshore firm. It handled only external phone calls until August 1997, when it was mysteriously granted ownership of Armenia’s entire phone network free of charge. Armenian officials never clarified why they showed such generosity toward the obscure U.S. investor that received almost half of the $142 million paid by OTE in an international tender for ArmenTel a few months later. According to a lawyer privy to the tender’s details, the Greeks did not submit the highest bid for ArmenTel at the time but somehow got hold of the company anyway.

The Armenian authorities did not hold any tenders at all for the second mobile license that was granted to VivaCell for just $7 million. A competitive tender for that license could have clearly fetched tens of millions of dollars, a huge sum by Armenian standards. The cash-strapped government has similarly failed to officially explain why it has foregone the potential extra revenue to the state budget.

The full article can be read online here.