The prospective sale or carve out of almost 25,000 Russian towers has highlighted interest in the adjacent and formative Central Asian tower market, where almost all towers remain operator-captive. 20-year-old ICT service provider LogyCom Group recently launched the first tower company to serve the 7,000 tower / 17mn population market in Kazakhstan – TowerXchange spoke to Commercial Director Sergey Plissak to learn more.
TowerXchange: Please introduce LogyCom Group to our community - what is the company’s background? What experience does the management team have? How is the group financed?
Sergey Plissak, Commercial Director, LogyCom:
LogyCom is a modern IT company supporting and developing our customers through innovations and efficiency; we strive for leadership in everything and we are proud of our business!
The LogyCom group of companies has worked in the market for over 20 years. Due to its unique knowledge of the market of computer and digital technologies, the company has a long established reputation as an IT expert among its customers and partners. We do not only offer high-tech product for the markets, we also develop and implement complicated turnkey IT infrastructure projects!
Today, the LogyCom group covers several sectors of the IT business:
- Equipment manufacturing under our own trademark;
- Developing and implementing high-tech projects for corporate business;
- Developing and implementing software products, such as the LogyCom ASTRUM ERP system;
- IT outsourcing of local networks of SME Customers;
- Retail and service maintenance in all the regions of Kazakhstan;
- e-commerce.
LogyCom JSC is a successful issue of the Kazakhstan Stock Exchange (KASE).
Logycom Group is financed through borrowed funds. We have established strong relationship with the top banks in RK.
In 2009, an automated celled warehouse with total area of 2,400m2 was built and brought into service on the premises of LogyCom.
In 2002, the company was ISO 9001:2000 certified. According to ranking results from Expert RA Kazakhstan for 2010 and 2011, LogyCom is a leader among Kazakh IT companies in the sphere of ICT. A LogyCom branded product won the “Choice of the Year” National Competition in the category of “Personal Computer No.1 in Kazakhstan” eight times.
TowerXchange: Congratulations on creating the first independent towerco in Kazakhstan! What can you tell us about your progress toward building your first 100 towers?
Sergey Plissak, Commercial Director, LogyCom:
We have already signed 77 Site Area Lease Agreements with a local MNO called ALTEL. We plan to sign another 20 or so agreements in the beginning of 2016. They all have the same conditions. It was the request of Altel to shift from a Master Lease Agreement to separate Site Area Lease Agreements. The agreement is mixed and consists provisions for built to suit agreements as well as lease agreements. The duration of the contract is ten years. All other conditions are close to industry standards.
TowerXchange: Could you put that into context for us by introducing the structure of the telecom tower market in Kazakhstan – roughly how many towers are there in the country? Who owns them? Are towers widely shared already?
Sergey Plissak, Commercial Director, LogyCom:
We don’t have exact numbers of towers in Kazakhstan. This information is secured by MNOs and regulator. We can just share the results of our analysis.
We believe the total amount of base stations in Kazakhstan is about 25,000. We appraise the total amount of existing towers to be ~7,000. Among them ~5,300 are owned by MNOs, about 700 tower are owned by the national operator of fixed line communications, and the rest are owned by private individuals.
We appraise the total amount of existing towers to be ~7,000. Among them ~5,300 are owned by MNOs, about 700 tower are owned by the national operator of fixed line communications, and the rest are owned by private individuals. Local MNOs still consider passive infrastructure as a source competitive advantage and don’t share towers… Kazakhstan has undeveloped tower market and we consider ourselves evangelists
Local MNOs still consider passive infrastructure as a source competitive advantage and don’t share towers. Only private persons are ready to invite all interested parties to lease their towers but the technical quality of private towers is generally poor and their bearing capacity is limited. Therefore, Kazakhstan has undeveloped tower market and we consider ourselves evangelists.
TowerXchange: Please add further context by introducing us to the mobile market in Kazakhstan - I understand it’s quite a mature market with penetration over 150% and four active MNOs - what are the opportunities for growth?
Sergey Plissak, Commercial Director, LogyCom:
At the end of 2014 sales of smart phones and mobile phones in Kazakhstan amounted to 4.079mn units, worth 177.809bn KZT (Editor: that’s around US$0.5bn).
In 2015 (January through September) sales amounted to 2.616mn units, worth 100.941bn KZT (US$0.3bn).
In 2015 smart phones and mobile phones market declined (compared to the same period in 2014) averaged 10% in pieces and 3% in the national currency.
The market leaders are Samsung (59%), LG (15%) and Apple (8.6%).
According to the Ministry of Transport and Communications, cellular communications in Kazakhstan are carried out in GSM (900, 1800), UMTS (700, 2100) and CDMA (450, 800) formats. The following mobile operators function in GSM and UMTS formats:
- “Kcell” JSC – the majority stock holding in the company is owned by TeliaSonera, purchased from “Kazakhtelecom” JSC; 47% is owned by FinTur Nordic-Turkish holding company. It is represented in the market by Kcell, Activ and Vegaline trademarks. At Q3 2015 they had 10.79mn subscribers – 39% market share.
- “Kar-Tel” LLP – a subsidiary of Russian MNO VimpelCom with the Beeline trade mark. At Q2 2015 they had 9.708mn subscribers – 35% market share.
- “Mobile Telecom Service” LLP – is a Tele2 trademark with 4.4mn subscribers in Q3 2015 and 16% market share.
- The CDMA format is presented by the “ALTEL” JSC operator, owned by “Kazakhtelecom” JSC. The company is represented in the market by the Dalacom, Pathword and City trademarks. The 4G LTE standard is also represented in the market by “ALTEL” JSC. They had 3mn subscribers in Q3 2015, good for 11% market share.
Kazakhstan’s mobile penetration rate is 160%.
TowerXchange: What will be Logycom Group’s business model – for example will you provide power as a service, or will energy costs be passed through to the tenant? Will I&C and O&M be managed in-house or outsourced?
Sergey Plissak, Commercial Director, LogyCom:
Logycom Group’s tower business is organised through an affiliated company named LC Commerce LTD. We are striving to maximise our lease rate revenue and our partner’s satisfaction through the proposition of a wide range of services, e.g. security, active equipment installation, fibre line laying from a tower to the closest connection point of national fixed line operator, and provision of diesel generators.
We are not going to manage I&C and O&M in-house. It is not efficient in local conditions. Kazakhstan is a very big country by area and small by population. We have several I&C contractors in each region of Kazakhstan and one general countrywide contractor for O&M (the company provides to local MNOs FLM services for active equipment and has branches in each region of the country).
We are not going to provide power as a service. This kind of commercial activity is licensed and license requirements are very tough. We install our towers next to electricity distribution company’s lines or substations. Our tenants conclude direct power supply contracts with distribution companies. In case of absence of a close electricity connection point we lay the line from our tower to the closest connection point.
MNO subscriber market share, Q2-3 2015
TowerXchange: Do you foresee potential for larger scale sale and leaseback transactions with Kazakhstan’s MNOs? Or does your focus remain on build to suit in the near term?
Sergey Plissak, Commercial Director, LogyCom:
The total number of towers in Kazakhstan doesn’t exceed 4,000. It is not huge scale for sale and leaseback transactions, but we hope to acquire entire portfolios after the establishment of built to suit relationships with all local MNOs.
We see ourselves as the only towerco in Kazakhstan. We plan to expand our business through Central Asia in the near future. We will initiate sale and leaseback transactions as well as offer our clients built to suit opportunities
We started our business with a trial built to suit transaction with the local MNO which the only has LTE frequencies in Kazakhstan. The company started development of its GUL network in 2012. Therefore, the company has the biggest capex plan among local MNOs and we hope that we will provide all necessary towers.
A recent initiative of the regulator gave a breath to the Technological Neutrality Principle in Kazakhstan in exchange for an obligation to cover rural areas. This change in the market will force local MNOs to increase capex to satisfy regulator obligations. Partnerships with a towerco will become the most efficient way to resolve the issue.
TowerXchange: Finally, what is your vision for the future of Logycom Group’s towerco business?
Sergey Plissak, Commercial Director, LogyCom:
We have a competitive advantage as a pioneer of the tower business in the Central Asian region. We see ourselves as the only towerco in Kazakhstan. We plan to expand our business through Central Asia in the near future. We will initiate sale and leaseback transactions as well as offer our clients built to suit opportunities.
We understand that our ambitious plans require significant financial resources as well as industry competence. Therefore, we started negotiations with potential partners to enter our business. The negotiations are on the initial stage and not binding. So, we are open for new cooperation offers from interested parties.
