ARBITRATION PRODUCES TELECOM DEAL; ARMENTEL TO

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 002388

SIPDIS

DEPT FOR EUR/CACEN, EB/CIP/BA

E.O. 12958: DECL: 10/27/2014
TAGS: PREL AM KTRD
SUBJECT: ARBITRATION PRODUCES TELECOM DEAL; ARMENTEL TO
GIVE-UP MONOPOLY?

REF: YEREVAN 1456

Classified By: DCM A.F. Godfrey for reasons 1.4 (b) and (d).

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SUMMARY
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1. (C) Minister of Justice David Harutunyan told the
Ambassador on October 27 that the GOAM expected to make an
announcement regarding a pending agreement with Armentel to
bring a second mobile operator to Armenia and liberalize
internet services within the next 10 days following months of
international arbitration. (Note: A Greek firm bought 90
percent of Armentel in 1998 and was granted a monopoly
through 2013 on all telecommunications in the country and
communications lines allowing access to the international
market. The GOAM has taken regulatory and legal action to
deprive Armentel of its monopoly on all telecommunications
because Armentel has failed to meet its investments
commitments. End Note.) Harutunyan said the Ministry of
Justice and others within the GOAM considered the expected
terms of the deal to be "favorable for Armenia" without
leaving Armenia susceptible to the "dangers of uncontrolled
liberalization." Harutunian predicted that increased
competition would provide better high-end service while
Armentel would continue to provide basic services. End
Summary.

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ARMENTEL DEAL EXPECTED SOON
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2. (C) Justice Minister Harutunyan told the Ambassador during
an October 27 meeting that the GOAM expected to announce a
settlement to ongoing international arbitration (reftel)
within the next 10 days. He said that the GOAM and Armentel
had agreed "in principle" on a settlement package but that
Armentel had requested a brief period before officially
signing the deal and making the information public.
Harutunyan expressed confidence that Armentel would sign the
deal and shared his relief that arbitration -- which had
become a major financial burden for the GOAM -- would finally
come to an end. He said that it was unlikely that the GOAM
would be able to continue to finance arbitration were it to
continue past the current set of negotiations.

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"FAVORABLE FOR ARMENIA"
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3. (C) Overall, Harutunyan said the expected terms of the
deal were "favorable for Armenia" without leaving the country
susceptible what he called the "dangers of uncontrolled
liberalization." It was clear from his remarks that he was
wary of opening the telecommunications market too quickly
without the presence of proven service providers who could
compensate for any holes left by an Armentel that was free to
immediately exit unprofitable sectors.

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IMPROVED HIGH-END SERVICE
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4. (C) The deal, according to Harutunyan, would open the
market to allow for direct satellite downloads, access to
international list circuits and point-to-point connectivity.
The minister noted that these reforms would greatly increase
Armenia's access to the full range of internet services that
would foster a more favorable business and encourage further
investment in the country. He claimed that a number of
contentious issues (including satellite connectivity) were
simply results of sloppy language or translation in the
original agreement between Armentel and the GOAM which
unintentionally gave Armentel undue freedom in its operations.

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COMMENT: MAKING SURE A BETTER DEAL MEANS BETTER SERVICE
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5. (C) While saying most of the right things in terms of
market liberalization and open competition, Harutunyan's
concern that Armenia could become even more of a
telecommunications "hostage" to Armentel in the
short-to-medium term says volumes about the complexity of the
issue. Assuming Harutunyan's optimism about the announcement
is not overstated, the agreement might still be a tough sell
for the GOAM to local critics who do not share Harutunyan's
concern about the need for an incumbent operator to maintain
operations during a transition period or who profit from the
status quo. Armenia's current level of telecommunications
service -- woefully inadequate at best -- desperately needs a
jolt from healthy competition. We will continue to encourage
all players in this issue to focus on the economic benefits
of liberalization so that the temptations of short-term gains
(by those with political/financial interests in the status
quo) do not hijack what could be the beginning of better
telecommunications service for Armenia.
EVANS