After much speculation and earlier denials, RFE/RL reports that Armenia’s second mobile telecommunications network, VivaCell, has been sold to Russia’s main operator, Mobile TeleSystems (MTS), for $430 million in a takeover bid that should raise some questions about its timing just months before the 2008 presidential election early next year. The takeover is already raising concerns about Russia’s dominance and monopoly over key strategic areas of the Armenian economy.

The deal came after weeks of negotiations reportedly involving the governments of the two countries. According to reports in the Armenian press, the authorities in Yerevan have played a large role in convincing K-Telecom’s official owner, Lebanese tycoon Pierre Fattouch, to sell his rapidly expanding VivaCell network to MTS.

The Armenian government was similarly said to have been a driving force behind last year’s sale of the ArmenTel national telecom company, which operates the country’s second cellular network, to another Russian wireless firm, Vimpelcom. The $500 million acquisition came shortly after President Robert Kocharian’s visit to Moscow.

Comments by VivaCell’s official owner and its key executive in Armenia must surely raise a few eyebrows as well, and rank alongside the former presidential advisor, Bagrat Yesayan’s, infamous comments on corruption. Last year, he compared corruption to a sack of potatoes as well as to love, and later declared that just because some MPs are rich does not mean they are necessarily corrupt.

It would appear that a lack of sophistication and stupidity is the chosen method for avoiding unwanted questions in VivaCell too. It would certainly appear that money is indeed an aphrodisiac in Armenia.

Fattouch denied any political motives behind the latest deal, again comparing his Armenian subsidiary to a young woman courted by suitors. “The bride has come of age,” he said. “It was natural for her to want to marry.”

“There were many suitors, but this girl fell in love with this one,” said Ralph Yirikian, the VivaCell chief executive. “This deal has no political motives,” he added.

Speaking at a joint news conference, the MTS chairman, Leonid Melamed, likewise insisted that political factors were not at play, but chose to thank the Armenian government. Asked for the reason for the gratitude, he said, “We had the honor of being received by the country’s minister of communications and plan to maintain our contacts with the government.”

There is much speculation in Armenia as to who really owns VivaCell, however. Rather than the official Lebanese owners, many consider the company to be either fully or partly owned by the family of the Armenian President, Robert Kocharian. The way in which VivaCell was awarded the license to offer cellphone services by the government in 2005 could only fuel such suspicions.

Raising fresh questions about its transparency and integrity, the government unexpectedly announced Thursday the name of Armenia’s second mobile phone operator as a result of what it described as a competitive “tender” that took less than a day.

The purported bidding, which may well be the quickest in world history, appears to have been a mere formality. It was called and administered during a weekly cabinet meeting which lasted for less than two hours.

Now it appears that VivaCell’s sale can only raise further questions at a time when the Armenian president, Robert Kocharian, is rumored to be selling off his assets ahead of the election next year which will see him leave office. Under the Armenian Constitution, Kocharian can not stay in office for a third term. At the very least, some bloggers such as Observer are already beginning to wonder if having Armenia’s telecommunications network under total Russian control is beneficial for the country.

Following the purchase of Armentel by Russian Vimpelcom this heightened interest towards the Armenian telecom market may result in leaving the whole of Armenia’s telecommunication industry in the hands of Russians. Is it good or bad for us? Well, I guess it is good, as Russians have cash, a lot of it, and looks like their interested (or maybe President Putin is artificially stimulating that interest?) in the Armenian market. And while Russian companies are far from being world leaders in providing high-quality telecom services or pioneers in technological innovation, the initial steps undertaken by VimpelCom make it look much better then the Greek OTE, the previous owner of Armentel. Still I have this gut feeling, that giving only one country - and especially a country like Russia renowned for its use of economic levers to reach political results, full control of a strategic resource like the telecommunications sphere, is dangerous… very, very dangerous indeed!

If true, some of the comments left on Observer’s post really do raise some concerns. Nanul, for example, quotes some anonymous sources withing VivaCell that suggest that all is not as it seems in the latest “economic triumph” sure to be trumpeted by the government and the pro-government media.

Well… I am not sure how accurate it is, but an insider told me that they were basically instructed from the higher echelons to sell it. They are supposed to sell it to the Russians and not to anybody else because, as I was told, currently there is a UAE company who is willing to pay about 50% higher than what MTC is paying (or has already paid). Given the history of how Vivacell won the tender (the whole process of which ridiculously took only a day) the corrupt practices of buying and selling of Armenia’s telecommunication assets continue.

Certainly, Kocharian’s name has often been linked to the mobile phone market in other related areas. For example, earlier this year a pro-opposition newspaper reported that the head of Customs at Armenia’s only international airport was fired for not preventing the illegal import of mobile phones into the country.

“Haykakan Zhamanak” reports that the chief of the customs service at Zvartnots international airport, Karen Janoyan, and several of his employees were sacked earlier this month on suspicion of involvement in the widespread smuggling of mobile phone handsets. The paper claims that imports of such phones to Armenia are “controlled” by President Robert Kocharian’s son Sedrak.

The allegation came after other newspapers reported that the President’s Office suspected that huge numbers of phones were being brought into the country following VivaCell’s appearance in the market in 2005.

“168 Zham” reports that President Robert Kocharian’s Oversight Service suspects that tens of thousands of mobile handsets have been smuggled into Armenia since the launch of the second wireless network on July 1. The paper says officials from the service have inspected documents of the State Customs Committee and found no increase in the number of phones imported into the country in the last two months. VivaCell, the second mobile phone operator, has attracted about 100,000 subscribers during that period. “According to our sources, the presidential oversight service has established that large quantities of cellular phones have been smuggled to Armenia,” says the paper.

In 2004, I remember one local analyst and journalist remarking that if the opposition here really wanted to tackle concrete issues and use them to rally the support of the public around them, the telecommunications industry might be one of them. Even today, services are not of a high quality when compared to neighbouring countries and are ridiculously expensive.

A study conducted by the Armenian Center for National and International Studies (ACNIS) found that an Armenian phone subscriber pays an average of $38.4 per month, compared with $23 paid by a typical phone user in the U.S. The monthly phone bills in Georgia and Azerbaijan average $25 and $19 respectively, according to it.

“Phone expenditures in Armenia make up an average 19.5 percent of the average monthly wage,” said Ashot Turajian, the main author of the study. Americans, by contrast, spend less than one percent of their monthly income on fixed-line phone calls, he said.

[…]

The ACNIS study noted that the ArmenTel national telecommunication company’s fixed monthly fees covering six hours of domestic phone calls and per-minute charges levied from subscribers exceeding that limit are both higher than similar tariffs set by U.S. fixed-line operators. It said that unlike ArmenTel, the latter do not differentiate between individual and corporate phone users. Armenian legal entities have to pay more for the service than private individuals.

It is also worth noting that Armenia is years behind mobile phone services on offer in neighbouring countries such as Georgia, for example. Armenia has been plagued by problems with its network since the controversial sale of ArmenTel to the Greek OTE company in 1998, and while Georgia awarded its first license for 3G GSM services in 2005, VivaCell only launched MMS services a little over a week ago.

First time in Armenia – MMS!

VivaCell is proud to be the first to announce the commercial launch of MMS in Armenia on September 7, 2007.

[…]

Sending MMS to international destinations is currently not available.

Still it could be worse. On the same day that RFE/RL reported the sale of VivaCell to MTS, it also run another story that should probably raise more concern, especially for safety. Armenia’s national airline, Armavia, a company whose owner is linked to the prime minister, Serzh Sarkisyan, has announced that it will be purchasing four newly designed passenger aircraft from Russia for its fleet.

Under the agreement signed in Yerevan by Armavia and the Russian aviation group Sukhoi, the Sukhoi Superjet 100 aircraft will be delivered to the private carrier over the next five years. The first two deliveries are due to take place late 2008 and early 2009.

Officials present at the signing ceremony said Armavia will borrow at least $100 million from a Russian commercial bank to pay for the new passenger jets. The airline, owned by Russian-Armenian businessman Mikhail Baghdasarov, has steadily expanded its fleet of aircraft in the past few years to keep up with growing demand in air travel to and from Armenia.

There’s just one problem. The Sukhoi Superjet 100 has not yet even been tested in the air. According to Wikipedia, the aircraft is currently undergoing ground tests near Moscow. The first flight is scheduled for sometime this month and it would perhaps have been more expedient to wait until then, I think. Still, with the presidential election soon upon us and a recent visit to Moscow by Kocharian soon to be followed by one by Sarkisyan, it probably doesn’t matter.

Russia’s support for whoever takes over the presidency is crucial as is continuing economic dominance by Russia in the Armenian market. Back to VivaCell and A1 Plus also reports on the sale and also says that many sensitive questions posed by reporters were ignored by the official owners. This also includes concerns raised about the final asking price.