The FINANCIAL — “Coming into power and lobbying private interests are an indivisible part of Georgian nature. Weak Georgian society can only watch, although we understand everything that goes on,” Demur Giorkhelidze, Head of the Financial Group of the Georgian Dream Party, told The FINANCIAL.
The FINANCIAL — “Coming into power and lobbying private interests are an indivisible part of Georgian nature. Weak Georgian society can only watch, although we understand everything that goes on,” Demur Giorkhelidze, Head of the Financial Group of the Georgian Dream Party, told The FINANCIAL, commenting on the recent changes in the Georgian communications market according to which Magticom will serve all government structures with corporate service, previously provided by Geocell.
“It’s Magticom’s time now, however the time will come when Magticom will lose all government orders. This is the system that we have in place, and this is what needs to be changed,” said Giorkhelidze. The political party Georgian Dream, backed by billionaire Bidzina Ivanishvili, came to power in 2012.
In a consolidated tender announced by the Competition and State Procurement Agency (CSPA) Magticom won the right to offer mobile communication service to government agencies till 30 April, 2013. CSPA revealed the winner according to criteria. Magticom offered a call fee of zero tetri (call out beginning of 5 tetri) to the subscribers of Geocell, while Geocell offered a fee of 1 tetri. The total number of Magticom’s newly gained subscribers amounts to 150,000.
Georkhelidze said that this decision was down to subjective considerations. He avoided naming specific names of those behind the recent changes. “I find it totally ridiculous that in Georgia such serious decisions can be taken by bids. Bids are a formality. According to the current overall situation in Georgia I would not be surprised by officials taking any decision that they deem necessary,” he added.
The first GSM operator in Georgia, Magticom, was commercially launched in September 1997. The company was owned by George Jokhtaberidze, son-in-law of Georgia’s ex-president Eduard Shevardnadze. In February 2004, under the pressure of the newly elected President Mikheil Saakashvili, the court refused bail and sentenced Jokhtaberidze to three-month pre-trial detention pending investigation.
In September 2005 US-owned investment company Metromedia International bought a majority stake in Magticom. In July 2007 Salford Georgia, an umbrella management company for the tycoon Badri Patarkatsishvili’s interests and assets in Georgia, in cooperation with Compound Capital (an investment company located in the Bermuda), acquired 100% shares of Metromedia. In 2008 Patarkatsishvili ran for presidency against Saakashvili. Later, on 18 June, 2009, Metromedia International Group, Inc. filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.
Magticom is currently owned by the American companies International Tellcell Cellular LLC and Tellcell Wireless LLC. The network of the company covers 98% of the populated territory of Georgia and renders services to over 2,000,000 subscribers.
“Magticom is not associated with any political entity,” David Lee, the President of Magticom and Chairman of the Eurasia Partnership Foundation, said.
“Under the previous government the company did not lose its market share,” he said. “We have been the largest communication company ever since I arrived nine years ago. Indeed, Magticom now serves some two million customers in Georgia.”
According to Lee, Magticom has been recognized as a leader in the corporate sector for a long time. “It is difficult to be more accurate. Magticom increased its market share throughout 2012 and has been the largest telephone operator in Georgia for many, many years. Most companies use our mobile, MagtiFix and internet services,” he said.
“Ever since I came to Georgia in February 2004, Magticom has competed solely on the basis of the quality of our service we offer customers. We retained our position as the largest telephone company in Georgia and developed the quadruple play of mobile, fixed, internet and TV that is unmatched in the Georgian market. Indeed very few companies in the world offer such a range of services and quality. We are not aligned politically, but we do play an important part in the development of Georgia,” Lee said.
“Magticom’s victory will not seriously affect Geocell’s positions on the market,” Geocell’s official representative told The FINANCIAL. “The 150,000 customers which Magticom attracted via tender do not create any significant difference considering the total number of our competitor’s subscribers. The victory of Magticom in a consolidated tender will have no influence on the company’s financial positions. Even in terms of our victory it would not be a decision aimed at financially-driving business,” Geocell said.
In 2007 the General Prosecutor’s Office of Georgia accused Irakli Okruashvili, the former Minister of Defence, of extortion shares worth USD 10 million in Geocell from another shareholder, Jemal Svanidze. The allegations were supported by the statement of Dimitri Kitoshvili, former Head of the Communication Commission, who in January 2012 said that his statement was made under pressure.
Geocell’s owner company Telia Sonera was criticized by SVT Swedish, in cooperation with special services, which said that a communication control system was used against opposition activists and independent journalists in order to control people.
In 2010 the Anti-Corruption Chamber of Georgia awarded Geocell and its CEO, Mr. Osman Turan, for valuable contribution to telecommunications, high professionalism, performing as a responsible, honest and law-abiding company and CEO.
According to the annual report of the Georgian National Communications Commission, the retail income of mobile operators amounted to GEL 441 million without VAT and excise as of the end of 2011. By number of subscribers Geocell holds a 41.7% market share, Magticom – 37.9%, and Mobitel – 20.4%. Average revenue per user was GEL 8-9 per month. In 2011 subscribers had increased minute of use via cell phone by 58% in comparison with the previous year. Whereas during 2010 the amount of traffic was 3.3 billion minutes, in 2011 it reached 5.2 billion minutes. Minute of use per subscriber reached its peak, 117 minutes, in the third quarter, as during the summer people move away to different places and have to use long-distance communication. 3.7 billion text messages were delivered in 2011, while in 2010 their number amounted to 3.3 billion.
“The fact that Magticom will serve government structures will bring no benefit to Georgian citizens,” Giorkhelidze commented. “The biggest problems in the communication sector are the extortionate fees. Cell phone rates are artificially inflated in Georgia. Communication companies are operating as a single organism. I personally cannot see any competition between Magticom and Geocell. What does Magticom offer that is different from Geocell or vice versa, except for the fact that they both rob their subscribers,” Giorkhelidze said.
In his words, if any other strong company were to enter the Georgian market, none of those existing at present would survive. “Georgia is in an economic and financial bog and communication companies state fees equal to those of the richest countries.”